Enterprising Solutions: Small entrepreneurs cash in scheme for capital expenditure

It’s said that doing one’s job when in the employment of another becomes easy if you have an entrepreneurial mindset. And if you have this mindset, the next step is, of course, becoming an employer from being an employee. But the biggest catch is — generation of capital.

A HELPING HAND

While seed funding for startups from venture capitalists and other sources has been growing by leaps and bounds, those belonging to non-corporate, non-farm, small and micro entrepreneurship face a huge hurdle in generating funds.

It’s not easy getting investors to fund low-income generating models of business or those that require a low capital and have even lower profits. Moreover, banks and non-banking financial institutions (NBFC) often insist on providing collateral security to fund the small enterprises. As a result, small entrepreneurs often fall into the clutches of local moneylenders who offer loans at exorbitant interest rates, which can be as high as 5% per month.

In 2015, the Indian Government launched a scheme called Pradhan Mantri MUDRA Yojana (PMMY) on April 8 to facilitate easy collateral-free micro credit of up to Rs 10 lakh to non-corporate, non-farm small and micro entrepreneurs for income generating activities. The motive was to bring the unserved and under-served sections of the society within the framework of institutional credit. The loans are provided by Member Lending Institutions (MLIs) — banks, NBFCs, Micro Finance Institutions and other financial intermediaries.

On the eighth anniversary of the scheme, the Union Finance Ministry claimed that till March 24, 2023, about Rs 23.2 lakh crore were sanctioned in 40.82 crore loan accounts. Interestingly, about 68% of the accounts belong to women entrepreneurs and 51% to entrepreneurs of SC/ST and OBC categories. Approximately 21% of the total loans have been sanctioned to new entrepreneurs.

The loans are divided into three categories based on the need for finance and stage in maturity of the business. While “Shishu” loans are for up to Rs 50,000, “Kishore” loans are those above Rs 50,000 up to Rs 5 lakh, and “Tarun” loans are those above Rs 5 lakh up to Rs 10 lakh.

To reduce the financial stress of borrowers at the “bottom of the pyramid”, the Indian Government on May 14, 2020 allowed interest subvention of 2% on prompt repayment of “Shishu” loans under the Atma Nirbhar Bharat Abhiyan. While the scheme was originally operational till August 31, 2021, it was extended under PMMY by 12 months to all eligible borrowers. Small Industries Development Bank of India disbursed Rs 636.89 crore to MLIs for crediting the subvention amount into the accounts of borrowers.

According to the government, the growth of Micro, Small and Medium Enterprises (MSME) has contributed massively to the “Make in India” programme, which has led to increased indigenous production both for domestic markets as well as for exports.

The “Make in India” mission was touted as a gamechanger to generate large-scale employment opportunities at the grassroots level and, in the process, boost the Indian economy. It was to also result in innovation and increase in per capita income. Data for this is yet to be released by the government to check the scheme’s effectiveness and success.