2% interest subsidy for small borrowers under Mudra Yojana

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2On Wednesday, the government has accepted a 2 percent interest subsidy scheme for Shishu loan account holders under the Pradhan Mantri Mudra Yojana (PMMY) to provide aids to small business tide over difficulties because of the lockdown following the outbreak of coronavirus disease. Under the Shishu category, collateral-free loans of up to ₹50,000 are given to borrowers.

An official statement by the ministry said, “At end-March 2020, around 9.37 crore loan accounts under the Shishu category of PMMY with a complete loan amount of about Rs 1.62 Lakh crore, were outstanding”. For interest subvention of 2 percent to Shishu loan category borrowers under PMMY, due as on March 31, 2020, for eligible borrowers for a period of 12 months, the scheme has been approved by Union Cabinet. An official statement said, “the loans that are due as on March 31, 2020, and not in Non-Performing Asset (NPA) category, for them the scheme is going to extend,”. “By letting small businesses to keep functioning without laying off employees because of lack of funds, the scheme is anticipated to assist much-needed relief to the sector,” it added.

On April 8, 2015, Prime Minister launched Pradhan Mantri Mudra Yojana (PMMY) to provide loans to non-corporate, non-farm small/micro enterprises of up to 10 lakh. The government announced during a release, “The scheme has been formulated as a meticulous response to an unprecedented situation and aims to alleviate financial stress for borrowers at the ‘base of the pyramid’ by reducing their cost of credit”. Under PMMY these loans are classified as MUDRA loans. Commercial banks, RRBs, small finance banks, MFIs, and NBFCs provides these loans.

The problem faced by micro and small enterprises is due to an outbreak of coronavirus and resulting in nationwide lockdown which is helped and funded through Shishu Mudra loans. Small businesses typically function on thin operating margins, and therefore the current lockdown has had a severe impact on their cash flows, jeopardizing their ability to service their loans. This might prompt a default in repayment and have a resultant influence on access to institutional credit in the future.

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