(GIST OF YOJANA) Fuelling Growth in Micro Entrepreneurship and Employment
[SEPTEMBER-2018]

Fuelling Growth in Micro Entrepreneurship and Employment

There are a large number of small business units, estimated at around 5.77 core in the informal sector, running small business units , mostly proprietorships, in manufacturing, trading or service businesses, who find it  ifficult to access formal systems of credit. While a number of initiatives have been taken in the past for improving access to formal credit channels for such units, there exists a large and significant section to which the benefit had not percolated. Large corporate and business entities play a significant role in promoting growth, but they have to be also suitably supported by the informal sector which generates maximum employment.

Such micro enterprises, however, may not normally have the resources to fund their operational costs or even reinvest to grow their businesses. They majorly operate as unregistered enterprises. One of ‘ the major  onstraints, faced by the micro enterprise segment is the lack of adequate credit access, leading to borrowings from informal sources like money lenders (at very high interest rate) or dependence on limited internal resources, thereby stifling the growth of the sector.

Pradhan Mantri Mudra Yoj ana (PMMY) was launched on the 08th of April, 2015 with the objective of funding the unfunded. PMMY loans are extended through Member Lending Institutions Viz: Banks, Micro Finance Institutions (MFIS) and Non Banking Financial Companies-MFIS (NBFC-MFIS) for an amount of upto Rs.10 lakh for income generating activities.  The loans fall in three categories i.e. Shishu (upto Rs 50,000), Kishore (Rs 50,000 to Rs 5 lakh) and Tarun (Rs 5 lakh to Rs 10 lakh). This, apart from increasing the opportunities available to the young, educated or skilled workers who aspire to become hrst generation entrepreneurs,  acilitates the expansion of existing small businesses, thereby giving a boost to employment.

Impact on Employment:

PMMY loans have increased the availability of credit at the bottom of the pyramid. They have helped in strengthening and expanding the existing micro and small enterprises and have also provided a fillip to new  nterprises, thus generating employment. Around 90 per cent of the loans by number are from Shishu category. Their impact has been substantial on the informal businesses sector, thereby promoting growth and employment.

A study conducted by Dvara Research1 has revealed that PMMY has led to significant growth in bank credit to Micro, Small and Medium Enterprises (MSMES), particularly loans below Rs. 2 lakh. MFIs are working with banks to increase the reach of such loans below Rs. 2 lakh. Average size of loans given by banks in Shishu category has increased significantly (about 50 per cent) in 2016-17. Data suggests that existing clients are
likely to opt for larger loans. For MFIs, increase in loan size is seen in Kishore category.

PMMY loans have been instrumental in extending loans to women and expanding their participation in the labour market. Out of the total loans sanctioned, 74 per cent of loans have been extended to women, who have been able to harness their skills in bangle making units, beauty salons, agarbatti units, stitching, weaving enterprises, electronic gadgets repairing centres, computer training centres etc. Female headed proprietary enterprises have shown an incremental growth from 13.4 per cent (2013-14, 6th Economic Census)2 to 19.5 per cent (2015-16, NSSO 73rd Round)’. This reflects the growing need to focus on women  employment through PMMY.

PMMY has also provided a platform for new entrepreneurs to nourish. Around 28 per cent of PMMY loans have been extended to new entrepreneurs. Such own account enterprises have shown growth from 3.01 per cent (2013-14), Economic Census)4 to 5.33 per cent(2015-16, N88 73rd Round)5, although they generally do not employ any hired worker on fairly regular basis. Since such enterprises are on the rise, PMMY can
facilitate their growth and expansion in the near future.

Linking with Value Chains

Going forward, the PMMY loans would focus more on partnerships and funding value chains and supply chains anchored by aggregators and e-commerce platforms. This will help generate “Mudrapreneurs” linked to larger businesses and supported through PMMY loans creating employment across entire value chains. In India, there is a huge potential, given the size of the market, to develop new enterprises as well as expand existing ones. PMMY is a big step in that direction. The extension of the F inancial Inclusion programme through the Jan Dhan Aadhaar Mobile (JAM) Trinity, has created an enabling infrastructure in extending  nstitutional credit to a substantial number of borrowers through PMMY.

With the emergence of new and innovative solutions like Fintech, the contours of contactless lending have been outlined. The interconnections among various data collection points viz; Trade Receivables Discounting System (TReDS), Government e-Marketplace (GeM), GST, IT Returns etc. can, in turn, formalize and ensure ease of borrowing. As more partners collaborate in this endeavour, it will further strengthen the entrepreneurial spirit and employment generation in the country.

PMMY has played a significant role in formalizing the informal and funding the unfunded .The scheme has helped cater to the demand for financing especially from the underserved sections of the society. It has helped promote the confidence of th first generation entrepreneurs who were reluctant to start a business and that of existing entrepreneurs seeking to expand business as they apprehended lack of access to a favorable eco system facilitating it.

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