Govt announces 2% interest subsidy for small borrowers under Mudra Yojna
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The PMMY was launched by Prime Minister Modi for providing loans up to ₹10 lakh to the non-corporate, non-farming small/micro enterprises. Representational image: iStock

Govt announces 2% interest subsidy for small borrowers under Mudra Yojna

The government on Wednesday approved a 2 per cent interest subsidy scheme for Shishu loan account holders under the Mudra Yojana to help small businesses tide over difficulties created by the lockdown following the COVID-19 outbreak.


The government on Wednesday (June 24) approved a 2 per cent interest subsidy scheme for Shishu loan account holders under the Mudra Yojana to help small businesses tide over difficulties created by the lockdown following the COVID-19 outbreak.

Under Shishu category, lenders provide collateral-free loans of up to ₹50,000.

The 2 per cent interest subvention is estimated cost of the exchequer approximately ₹1,542 crore, Information and Broadcasting Minister Prakash Javadekar told reporters after the Cabinet meeting.

The Union Cabinet chaired by the Prime Minister, approved the scheme for interest subvention of 2 per cent for a period of 12 months, to all Shishu loan accounts under Pradhan Mantri Mudra Yojana (PMMY), he added.

At end-March 2020, about 9.37 crore loan accounts under the Shishu category of PMMY with a total loan amount of about ₹1.62 Lakh crore, were outstanding.

The scheme will be extended to loans that are outstanding as on March 31, 2020 and not in Non-Performing Asset (NPA) category, said an official release.

“The interest subvention would be payable for the months in which the accounts are not in NPA category including for the months that the account becomes a performing asset again, after turning NPA,” it said and added the move will incentivise people who will make regular repayments of loans.

The scheme is for implementation of one of the measures relating to MSMEs, announced under the Atma Nirbhar Bharat Abhiyan.

The PMMY was launched by Prime Minister Narendra Modi on April 8, 2015, for providing loans up to ₹10 lakh to the non-corporate, non-farming small/micro enterprises.

These loans are classified as MUDRA loans under PMMY. These loans are given by commercial banks, RRBs, small finance banks, MFIs and NBFCs.

The scheme will be implemented through the Small Industries Development Bank of India (SIDBI) and will be in operation for 12 months.

For borrowers, who have been allowed a moratorium, as permitted by RBI under the COVID 19 Regulatory Package, the scheme would commence post completion of the moratorium period till a period of 12 months (from September 01, 2020 till August 31, 2021).

For other borrowers, the scheme would commence with effect from June 1, 2020, till May 31, 2021.

In the release, the government said the scheme has been formulated as a specific response to an unprecedented situation and aims to alleviate financial stress for borrowers at the bottom of the pyramid by reducing their cost of credit.

“The scheme is expected to provide much needed relief to the sector, thereby enabling small businesses to continue functioning without laying off employees due to lack of funds,” it added.

By supporting small businesses to continue functioning during these times of crisis, the scheme is also expected to have a positive impact on the economy and support its revival, which is necessary for employment generation in future, the release said.

The ongoing COVID-19 crisis and the consequent lockdown has led to severe disruption of business for micro and small enterprises which are funded through Shishu Mudra loans.

Small businesses typically function on thin operating margins, and the current lockdown has had a severe impact on their cash flows, jeopardizing their ability to service their loans.

This could lead to default in repayment and have a resultant impact on access to institutional credit in future, the release said as it gave details of the Cabinet decision on interest subvention.

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