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Paper Presented at the 18th IASSI ANNUAL CONFERENCE 2017, 4 - 5 December 2017, Guntur, Andhra Pradesh
By
Dr. K.V.S.S. Narayana Rao
Professor, National Institute of Industrial Engineering (NITIE)
Mumbai – 400 087
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https://www.youtube.com/watch?v=DLTp7Y48PQQ
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Abstract
According to the report, “Key Indicators of Unincorporated Non-Agricultural Enterprises (Excluding Construction) in India” based on the data provided by NSS 73rd ROUND (July 2015 - June 2016), the number of micro units in India are around 6 crores and about 11 lakh crore persons are working in them. These enterprises have the potential to pay minimum wages to the employees working in them on average and provide employment on continuous basis in every month of the year. Number of research studies on informal sector employment in India came to the conclusion that more than 90 percent of employment is provided only by the informal sector. Such a phenomenon is also seen in many developing countries. Even though, it is thought initially that organized sector will expand and informal sector will disappear, the evidence shows contrary situation. In many countries, informal sector is still expanding providing employment opportunities to fresh entrants into jobs. Hence, government support to informal sector is increasing. Government of India also realized the important role of MSMEs in the economic system of the country. Mudra Finance Scheme was launched by Government of India to provide finance to micro sector units through banks. The scheme is supported by a refinance facility and credit guarantee fund. Micro sector firms are mostly proprietary and partnership concerns and hence they are part of informal sector. The scheme was implemented in the year 2015-16. The targets set for Mudra Finance credit were achieved by the banking sector for the last two years (2015-16 and 2016-17). The target for the year 2017-18 is set at Rs.2.44 lakh crores. The targets are being increased every year. An initial observation based on the average fixed assets per employee in micro units of non-agricultural sector and the credit target of the Mudra Finance Scheme reveal that self-employment and wage employment can be provided to significant number of persons every year in micro units. Number of research papers have stated that informal and unorganized sector provides 70 to 93% of the jobs in different manufacturing and service business areas. Based on these observations further data analysis is done. Bank managers were contacted for their views on Mudra Finance loans. Based on the interviews conducted, Mudra Finance Scheme can be described as a successful scheme. But, the scheme may need to be modified based on a detailed survey of the bank managers, who have to actually select the business unit, finance it and collect back the loans. It is observed that the elected representatives and political party members are not yet promoting this scheme in any significant manner as the importance of the scheme to contribute significantly is not realized by them. In the paper, the details of potential employment, the issues highlighted by bank managers in the interviews and some other observations regarding the operation of Mudra Finance are provided so that the potential of the scheme is highlighted for policy decisions by the Governments, elected representatives, banks, business associations, business firms, and non-government organizations.
1. Introduction
Achieving a high rate of growth of GDP has been the focus of the Indian planning process along with substantial employment generation for creating adequate work opportunities for the rising labour force. Prevalence of unemployment leads to poverty entailed with numerous social problems. In the background of this, providing employment to the labour force has been an area of central concern in all Five Year Plans. Initially the generation of employment was expected to be an inevitable result of the process of development. But the trends of the recent two decades show that growth has not yielded desired results in the area of employment generation.
During 1950-70, employment grew by 2 per cent per annum while the growth in labor force was 2.5 per cent, thus, resulting in overall increase in unemployment. Efforts were also made in the subsequent five year plans to promote self-employment and entrepreneurship through provision of assets, skills and other support to the unemployed. These steps led to expansion of employment levels. However, the rate of growth of employment still lagged behind the rate of growth of labour force.
A comparison of major employment-unemployment indicators between 2004-05 (NSS 61st round) and 2009-2010 (NSS 66th round) brings out some important facts:
The NSSO collects data on employment and unemployment using three broad measures or approaches: (i) Usual Principal & Subsidiary Status; (ii) Current Weekly Status; and (iii) Current Daily Status. Usual Principal & Subsidiary Status (UPSS) has two components, viz., Usual Principal Status and Subsidiary Status. It relates to the activity status of a person during the reference period of last 365 days preceding the date of survey. The activity status on which a person spent relatively longer time (major time criterion) is considered the Usual Principal Status (UPS). Current Weekly Status (CWS) of a person is the activity status obtained for a person during a reference period of 7 days preceding the date of survey. According to this, a person is considered as a worker if he/she has performed any economic activity at least for one hour on any day of the reference week, and is obtained on the basis of daily activities performed on each day of the reference period.
Current Daily Status (CDS) of a person is determined on the basis of his/her activity status on each day of the reference week using a priority-cum-major time criterion (day to day labour time disposition). Broadly, a person is considered working (employed) for the full day if he/she worked for 4 hours or more during the day.
A comparison of estimated persons in the labour force, work force and those unemployed between 2004-05 and 2009-10 brings out certain important facts:
Under UPSS, the number of persons in the labour force remained nearly same (468.8 million persons in 2009-10 and 469 million persons in 2004-05). Under CWS, the labour force increased from 445.2 million persons in 2004-05 to 450.4 million persons in 2009-10 i.e. by 5.2 million persons.
The working group of planning commission for the 12th plan (Working Group, 2011) estimated that employment has to be created for 533.68 million persons by end of March 2017.
But the current situation of employment creation in the country is not encouraging. Many persons are criticizing the government for the failure to create jobs. Hence, examining the job creation opportunities is an important research activity that would be of help to policy makers to solve a pressing problem of Indian economy. The report, “Key Indicators of Unincorporated Non-Agricultural Enterprises (Excluding Construction) in India” based on the data provided by NSS 73rd ROUND (July 2015 - June 2016) provides interesting information that gives a direction to estimate the employment potential of micro sector, especially when examined in conjunction with the credit targets achieved under Mudra Finance Scheme for micro units in India (MOSPI, 2017). Hence further research was carried out to analyze the implication.
In the paper, the further sections are organized as follows. Section 2 is related to literature review. Section 3 covers the important information from the report, “Key Indicators of Unincorporated Non-Agricultural Enterprises (Excluding Construction) in India” based on the data provided by NSS 73rd ROUND (July 2015 - June 2016). Section 4 covers the details and progress of Mudra Finance Scheme. Section 5 is concerned with the plan of providing self-employment and wage employment using Mudra Finance Scheme. Section 6 provides the summary of the interviews conducted with bank managers regarding the issues related to Mudra Finance scheme and operational problems in giving and collection loans under it. Section 7 highlights other issues related to operation of Mudra Finance Scheme and involvement of elected representatives. The conclusions are made in Section 8.
2. Literature review
The existing literature on the topics of employment in micro sector (informal sector) and mudra scheme are examined to bring out the important issues that were discovered so far and to identify the research gap.
Bairagya (2012) noted that in the Indian context, there is distinction between unorganized and informal sectors. Informal sector covers all unincorporated proprietary and partnership enterprises (in the Annual Survey of Industries), while the unorganized sector includes enterprises run by cooperative societies, trusts, and private and limited companies in addition to unincorporated proprietary and partnership enterprises that are not regulated. The informal sector can, therefore, be considered as a sub-set of the unorganized sector. The informal sector has employment size also as criterion. The employment threshold in the context of India is nine workers. The Probit regression analysis done by author regarding informal sector employment determinants shows that that individuals without any general or technical education have a greater probability of working in the informal sector.
Mitra and Pande (2013) examined the employment elasticity of the organized sector in India. They found that the equation representing determinants of wages indicated that units with assets are better-off compared to those that do not have them. This finding led to the policy implication, that wages can be increased in the unorganized sector through increased asset creation. Government has to provide credit facilities to support asset creation and it may bring in improvements in livelihood of the employees in unorganized sector enterprises which are employing bulk of the persons in the country. The rate of growth in employment in the informal sector has been much faster than that in the formal sector. Individuals with poor human and physical capital endowment who were unable to get jobs in formal sector may start own account enterprises and other small units. But subsequent improvement in relevant information gathering and training, the accessibility to market information, credit facilities, technological know-how and other information pertaining to the overall macro-economic and policy changes increases; the scale of operation expands for many of these initial small firms. In the informal sector, the firms using wage employees have 5.42 employees on average in manufacturing sector, 1.45 employees in trading firms, and 4.2 employees in service businesses. Thus micro units have good number of employees in manufacturing and service business areas.
Prakash and Patawari (2014) indicate that in India, SMEs are a vibrant and dynamic component of economy by their high caliber and significant role in employment generation, which is second largest after agriculture. The small-scale sector generates employment of four persons on investment of Rs.1,00,000. Their research supported the propositions that increase in small enterprises and increase in assets of small enterprises leads to increase in employment.
Das (2015) observed that most of the workers in the developing world derive their livelihood from the informal economy. Informal sector provides self-employment as well as wage employment. Despite predictions that with advancement and modernization it will eventually be absorbed, the informal economy has not only grown in many countries but also has emerged in new forms. It is now widely recognized that the informal economy is not a transient residual feature but a permanent component of modern capitalist development. Moreover, it is not a stagnant peripheral entity, but a vibrant dynamic integral part of the entire economy.
Puhan (2016) observed that 12th five year plan envisions creation of 50 million non-farm employment opportunities. As per the World Bank Report, in India youth unemployment as a percentage of youth population is 10 per cent for males and 11 per cent for females. More than 93 per cent of the workforce is employed in the informal sector. There is a need to increase employment in formal sector to provide satisfactory jobs to educated persons but growth of informal sector has to be supported to provide employment to bulk of the job seekers for many years to come.
Chattopadhyay and Mondal (2016) examined the question “should investment be directed towards the ‘formal’ sector or to the ‘informal’ sector, given the fact that developing economies like India often have vast ‘informal’ sector?” The informal sector can be more dynamic than the formal sector provided they have the right opportunities to flourish. Informal sector is not necessarily an entity that is trapped in low level equilibrium. In fact, both informal manufacturing units and self-employed units accumulate fixed assets, invest and grow. National Commission for Enterprises in the Unorganized Sector, 2007 defined informal sector as ‘unorganized sector consists of all unincorporated private enterprises owned by individuals or households engaged in sale and production of goods and services operated on a proprietary or partnership basis and with less than ten total workers. Based on that definition, it was found that 92 per cent of the total employment is contributed by informal sector in 2006-07, accompanied with almost 50 per cent of total Gross Value. Full employment and productivity-wage equilibrium can be achieved by promoting formal or large firms as well as unorganized sector firms simultaneously and under full employment condition further investment can be driven by productivity considerations. When the economy is under significant unemployment situation, employment creation has to be the dominant logic of public policy.
Indrakumar (2017) examined the share of organized sector of manufacturing in total employment. In 1999–2000 there were 44.05 million employed in the manufacturing sector and the share of organized manufacturing in overall manufacturing was 18.5 per cent (8.17 million) of the total workers. It increased to 8.45 million out of 55.77 million workers for the year 2004–05. Again, the composition of organized employment in the total manufacturing employment showed an increase in the year 2009–10. Organized manufacturing sector contributed 11.41 million jobs out of 50.74 million manufacturing job opportunities.
The literature brings out the importance of informal sector or micro sector (employing less than nine or ten employees) in providing employment to bulk of the job seekers in developing countries and especially in India. Hence the micro sector development is to be researched further to bring out opportunities for supporting the sector through public policy as well as private sector initiatives.
Mudra Finance Scheme is a major public policy initiative to provide credit to micro sector firms. The scheme was started in 2015. Number of researchers described the features of the scheme in the papers published in years 2015 and 2016. Godha and Name (2017) covered salient aspects of Mudra Finance Scheme and Mudra Organization. They also covered the amount sanctioned and disbursed for the year 2015-16 and the number of loan accounts opened for India as a whole and for Rajasthan State. Gautam, Kumar and Gopal (2017) gave details of loans sanctioned in years 2015-16 and 2016-17 under Mudra Finance Scheme for India as a whole and for the state of Haryana.
The literature does not have papers that have indicated the employment potential of the informal sector for future period. In the literature related to Mudra Finance, we do not find any study that estimated the employment potential of the scheme. The operational problems of the scheme are also not studied.
In the research study undertaken, an attempt is made to estimate the employment potential of Mudra scheme loans and also to interview and elicit from branch managers of banks the operational problems faced by them.
3. Key Indicators of Unincorporated Non-Agricultural Enterprises in India - NSS 73rd ROUND (July 2015 - June 2016)
The important indicators of the survey that help in estimating employment potential are described in this section.
3.1 Sample Size
First stage units (Villages and urban blocks): For rural India, the number of villages surveyed in the central sample was 8484 and the number of urban blocks/ Census Enumeration Blocks surveyed was 7839.
Second Stage Units: The unincorporated non-agricultural enterprises were the ultimate sampling units in NSS 73rd round survey. At all India level a total of 290113 enterprises were surveyed (143179 enterprises in rural and 146934 enterprises in urban sector) (MOSPI, 2017).
3.2 Number of Unincorporated Enterprises
The survey estimated the number of unincorporated non-agricultural enterprises in the country during 2015-16 as 6.34 crore. Out of the total number of enterprises 51.3 % were in rural areas and the remaining 48.7 % were in urban areas. Out of the total estimated number of enterprises at all India level, 31 % were engaged in manufacturing, 36.3 % enterprises were in trading and 32.6 % were in other services. As per the results obtained from the survey, the Own Account Enterprises (OAEs) (i.e. enterprises that do not employ any hired worker on a fairly regular basis) had a dominant share in the unincorporated non-agricultural enterprises (excluding construction). At all India level 84.2 % of the estimated number of enterprises under coverage was OAEs. The share of OAEs was 91.4 % in the rural areas and 76.6 % in the urban areas.
3.3 Number of Employed Persons
The results of the survey reveals that during 2015-16, about 11.13 crore workers were engaged in unincorporated non-agricultural enterprises (excluding construction) in the country. Among the workers, 55 % worked in urban areas and 45 % worked in rural areas. The Own Account Enterprises (OAEs) accounted for 62 % of the workforce in the unincorporated non-agricultural sector (excluding construction) in the country.
3.4 Gross Value Added (GVA)
Gross Value Added (GVA) is an important economic indicator that measures the contribution of a particular sector to the economy. It gives the value of goods and services produced less the cost of all intermediate consumption that are directly attributable to that production. During the year 2015-16, the aggregate annual gross value added by the unincorporated non-agricultural enterprises engaged in market production was estimated as Rs.11,52,338 crores. At all-India level, annual GVA per enterprise in the unincorporated non-agricultural sector was estimated at Rs.1,81,908.
For rural India, annual GVA per enterprise for OAEs and establishments were estimated as Rs.71,217 and Rs.4,78,319 respectively. The corresponding estimates for urban areas were Rs.1,26,529 and Rs.7,03,848 respectively.
Gross Value Added per Worker (GVAPW) is a very important measure of labour productivity obtained by dividing the real output (i.e. gross value added) by the total number of workers employed by the enterprises. The annual GVA per Worker for enterprises engaged in market production at all India level was estimated as Rs.1,03,744.
3.5 Estimates Income for Self-Employed and Wage Employee for Rs.1 lakh Investment in Assets
The average annual emolument per hired worker estimated from the survey was Rs.87,544.
At all India level, the market value of owned fixed assets per enterprise was estimated as Rs.2,31,869.
From the data that average Annual GVA per enterprise is Rs.1,81,908 and average owned fixed assets: Rs. 2,31,869 we can find value added for Rs.1,00,000 fixed assets as Rs.78.450 (Rs.1,00,000*Rs.1,81,908/Rs.2,31,869).
Salary that can be paid to hired workers for Rs.1,00,000 fixed assets is Rs.66,200 (Rs.87,544 *Rs.78.450/Rs. 1,03,744). When the minimum wage to be paid is Rs.300 per day, the employee can be hired for 220 days in year. This comes to 18.5 days in month. As the age of the firm increases, the assets of the firm increase and the employees can be given work for more number of days in month offering full employment every month. Initially employment can be given in every month, and the employment qualifies to be defined as employed under UPSS. Thus we can say, one lakh rupees loan for one firm can give reasonable self-employment or wage employment.
According to the Micro, Small and Medium-Scale Enterprise Development Act (MSMED Act, 2006) of the Government of India, an enterprise is categorized as a microenterprise if it has an investment up to 25 lakh in plant and machinery, excluding land and buildings, and 10 lakh in manufacturing and service-rendering enterprises, respectively. Thus, a micro enterprise started with an initial capital of one lakh can grow further as a micro unit enjoying various special credit facilities till it graduates into a small enterprise. One can see it growing in next year as an establishment providing wage employment and in the third year, it can increase its investment further to give more income to the entrepreneur as well as employees.
4. Salient Features of Mudra Finance Scheme
Mudra Finance Scheme and Mudra Bank were announced in the 2015 budget speech by Finance Minister Arun Jaitley. The Union Finance Minister in his Budget Speech for 2015-16 announced formation of MUDRA Bank. He informed the house that government firmly believes that economic development has to generate inclusive growth. While large corporate and business entities have a role to play, this has to be complemented by informal sector enterprises which generate maximum employment. There are some 5.77 crore small business units, mostly individual proprietorship, which run small manufacturing, trading or service businesses. These bottom of the pyramid, hard-working entrepreneurs are not supported by formal systems of credit adequately. Therefore, a proposal to create a Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of Rs.20,000 crore, and credit guarantee corpus of Rs.3,000 crore was included in the budget. MUDRA Bank will refinance Micro-Finance Institutions through a Pradhan Mantri Mudra Yojana. These measures will support the educated and skilled workers to start own activity enterprises and become first generation entrepreneurs. Existing small businesses will be able to expand their activities and provide employment.
4.1 Responsibilities of Mudra Banks
The MUDRA Bank would primarily be responsible for –
1) Laying down policy guidelines for micro/small enterprise financing business.
2) Registration of MFI entities.
3) Regulation of MFI entities.
4) Accreditation /rating of MFI entities.
5) Laying down responsible financing practices to ward off indebtedness and ensure proper client protection principles and methods of recovery.
6) Development of standardised set of covenants governing last mile lending to micro/small enterprises.
7) Promoting right technology solutions for the last mile.
8) Formulating and running a Credit Guarantee scheme for providing guarantees to the loans which are being extended to micro enterprises.
9) Creating a good architecture of Last Mile Credit Delivery to micro businesses under the scheme of Pradhan Mantri Mudra Yojana.
Establishment of Credit Guarantee Fund for MUDRA Units(CGFMU) for guaranteeing loans sanctioned under Pradhan Mantri Mudra Yojana with the objective to reduce the credit risk to Banks / NBFCs / MFIs / other financial intermediaries, who are Member Lending Institutions (MLIs) was also proposed. The National Credit Guarantee Trustee Company Ltd. (NCGTC Ltd.), a wholly-owned company of Government of India, constituted under the Companies Act, 1956 (2013) to manage and operate various credit guarantee funds, shall be the Trustee of the Fund.
MUDRA (SIDBI) Bank was established as per the proposal in the budget and it mission, declared in its website, is "To create an inclusive, sustainable and value based entrepreneurial culture, in collaboration with our partner institutions in achieving economic success and financial security." The vision is mentioned as "To be an integrated financial and support services provider par excellence benchmarked with global best practices and standards for the bottom of the pyramid universe for their comprehensive economic and social development."
4.2 MUDRA Loan scheme - Achievement during Years 2015–16 and 2016–17
The Mudra Yojana target has been achieved during the year 2015-16. As against the target of Rs.1,22,188 crore, the Banks and MFIs together have sanctioned Rs.1,32,954.73 crore (Mudra, 2016). Loans extended under the Pradhan Mantri Mudra Yojana (PMMY) during 2016-17 have crossed the target of Rs.1,80,000 crore for 2016-17. The Union Budget has announced a target of Rs.2.44 lakh crore for Mudra Loans during 2017-18 (PIB, 2017).
Mudra Finance targets are being achieved each year and the target is being increased also every year. Mudra Bank is given the responsibility to develop the scheme and its operational practices. The quantum of the credit target is substantial to provide employment to 2 crore persons per year if loans are made at the size of one lakh rupees per unit and an emphasis on new micro sector start-up units is given in the scheme. Based on this insight a plan to provide employment to 2 crore persons per year in micro sector using Mudra Finance Scheme is proposed.
5. Plan for Creating Employment to 2 Crore Persons per Year in Micro Units Using Mudra Finance
The Mudra credit target for 2017-18 is set at Rs.2.44 lakh crore. The target for 2018-19 can be increased to Rs.3.5 lakh with specifying sub categories that have focus on employment creation to 2 crore persons.
5.1 Subcategory 1. Focus: Self-Employment to One Crore Persons
Provide rupees one lakh loan to new units.
Provide rupees one lakh crores to one crore new micro units at average of one lakh per unit. Self-employment to one crore persons can be provided with each unit generating an average value added of Rs.78,450. A training scheme and consultant support may be required to facilitate the micro sector enterprise development on this scale.
Micro Unit Business Consultants to Guide Potential Micro Unit Entrepreneurs: For facilitating this new enterprise creation, one lakh (100,000) micro unit business consultants have to be trained and each consultant has to be given the opportunity to prepare business plans and assist 100 persons to start 100 new units. They can charge a fee of Rs.1000/- per year per unit for the first five years. MSME training institutes and entrepreneurship development institutions can train these business consultants. Skill development ministry can conduct special programmes to develop the business consultants. In the discussions, bank managers appreciated this suggestion. They felt such business consultant can provide support to them in evaluating loan proposals by his knowledge of the entrepreneur and his business plan. The income to these business consultants keeps increasing with each year, as more new units are started in years.
5.2 Subcategory 2. Focus: Wage Employment to One Crore Persons
Provide rupees one lakh loan to existing units with plan to employ one more person.
Provide rupees one lakh loan to one crore enterprises each having a plan to employ one more person giving average wages of Rs.66,200. The applications for this sub category of loans is invited from existing units with business plans for expansion giving a job to one person. This sub-category focuses on creating wage employment.
The finance required for supporting the two schemes providing a total employment to 2 crore persons is Rs.2 lakh crores and is within the resources of Government of India and the Banking system and is below the credit target specified for 2017-18.
5.3 Target of Mudra Finance Credit for 2018-19
For the year 2018-19, target of Rs. 3.5 lakh crores can be fixed for Mudra Finance Scheme with three sub targets.
1. Rs.one lakh crore for one crore new units.
2. Rs.one lakh crore for one crore existing units each giving a job to one person.
3. Remaining Rs.1.5 lakh crore under old scheme to provide finance for units to deepen capital per unit and per worker to provide higher income to both entrepreneurs and workers.
The above scheme can create employment to minimum 2 crore persons. Unemployment problem in the country can be tackled through micro units. On average, every year, 2 crore persons out of the population of Rs.135 crore may join the employment seeking pool. Thus providing an opportunity for 2 crore person in micro sector will solve the unemployment problem. The job opportunities in small and medium units, large units, government are still there to people to provide higher income job opportunities.
6. Interviews with Bank Branch Managers
While the amount of the credit target is well within the financial capacity of the governments and banking system, the managerial capacity of the branch managers of the banks and their positive evaluation of the Mudra loan scheme are important factors that will determine the success of the plan of providing employment to 2 crore persons every year in micro enterprises. Interviews were conducted with 10 bank managers in Kakinada, a corporation city of Andhra Pradesh and Thane City (Maharashtra).
The viewpoints emerged from the interviews are:
1.By and large, bank managers give the opinion that the scheme is a success and will become a success.
2.Bank managers are worried about the attitude of borrowers. Borrowers are thinking that it is government money that is being given to them.
3.An ethical conduct code is to be developed so that borrowers and the various persons who facilitate borrowing realize that it is bank money that is being given as loans and any default on the part of the borrowers, will result in loss to the bank, which in turn means loss to the bank depositors who are the neighbours of borrowers. Loans are for running business concerns.
4.Every loan application must be accompanied by a business plan, which the borrower believes in and can defend it before bankers. In this context, bank managers feel that, loans have to be extended to business literate persons only. So a prior education and training to Mudra loan borrowers is necessary so that genuine borrowers can be identified.
5.Bankers express the problem that, there is more political interference and less support for making the Mudra loan scheme a success. When involvement of politicians occurs, it is more to demand loans for specific applicants. Efforts to develop good business persons and business supporting infrastructure is not visible.
6.Bank managers feel it is easier to give credit to a going concern. The borrower knows his business and trends in his business.
7.Giving loans to start a new business is more difficult. The applicant does not have knowledge about his business and many times he does not make any arrangements to start the business. He only wants money without producing any evidence of his ability to start a business and the infrastructure needed to start a business.
8.Some liberalization is required to disburse cash in advance. The counterparties in the transaction are many times individuals and therefore proper bills may not be available as documentation. A documentation system for such transactions has to be developed.
9.Applicants have to be from the locality of the bank branch, so that verification during loan appraisal process and follow up for collection can be done with less cost and more confidence.
10.The borrowers have to be given incentive for prompt payment at the time of total repayment of the loan. Additional loans have to be given at concessional rate to borrowers who made prompt repayment of the earlier loan. Borrowers who defaulted in paying monthly instalments have to be subjected to penalty interest at the subsequent loans.
11.Credit information linkage has to be developed so that all banks know the credit history of an applicant based on Aadhar number and banks do not give multiple loans.
12.Especially in case of loans made under political pressure, diversion of the loan amount is taking place. Loans must be strictly given only on business plan basis and for business plan related expenditure.
13.Extensive education has to be there among debtors about business loans taking and repayment.
14.The repayment experience so far is rated as satisfactory by bank managers.
15.Micro sector business consultancy as a handholding support to borrowers was welcomed by bank managers. The consultants can help the borrowers to make good business plans and to do business in more professional manner.
The important finding of the interviews is that bank managers have a positive view of the scheme. But they have some operational problems and a problem regarding the attitudes of the borrowers. A detailed survey of bank managers needs to be undertaken by the Mudra scheme designers to take views of branch managers into consideration to make modifications in the scheme. The confidence and satisfaction of branch managers is a very important factor for the success of the scheme.
7. Issues Related to Operation of Mudra Finance Scheme
In this section, three issues: visibility of the scheme in banks, involvement of elected representatives, and business plan banks are discussed.
7.1 Visibility of the Scheme in Bank Branches
Mudra finance scheme is an important scheme of national importance that is being promoted by all ministers of the central cabinet. But, the bank branches are not promoting Mudra finance with any displays. Good display materials in bank branches will help many people to come to know of this scheme and talk about it with relevant people. Free literature on Mudra Scheme can be made available through bank branches to persons interested in knowing more about the scheme. No such pamphlet or booklet was given to the author when he visited various bank branches for interviews.
7.2 Involvement of Elected Representatives
Some states are also providing subsidies to entrepreneurs along with bank loans. What is lacking for effective use of the entrepreneurship schemes including Mudra schemes is political involvement. Most of the politicians, MPs and MLAs, who are natural leaders of their constituencies are indifferent. When they take interest and push things, bank managers are complaining of political interference. The views being expressed by bank managers can have a point. MPs and MLAs have to promote the schemes in their constituencies and they have to advise potential entrepreneurs to behave ethically. Instead of that if they push banks to give loans to the people recommended by them even without proper business plans, the complaints of political interference will come. Political involvement to promote economic development through increased investment is necessary. But political interference in administrative procedures has to be avoided. Government and Top leadership of various political parties have to advise their party members and elected representatives to promote investment utilizing the current schemes and programmes. Opposition parties should not remain indifferent. It is the Parliament that approved the Budget. They are also a party to the budget decision. All political parties have to make efforts to make the programmes, approved by Parliament a success and contribute to the growth of the country. No doubt, the negative points indicated by the opposition members in Parliament and outside will help them in future elections, if the present government does not take enough care to minimize them in implementing the approved programmes.
7.3 Business Plan Banks
Business plan development is an important step in setting up business. The process of making a business plan makes a prospective entrepreneur knowledgeable in important business characteristics. It also forces him to look into marketing and supply environment to confirm that the product under consideration has demand at an economic price and inputs to produce the product are also available at economic prices that provide a profit to the business. In the case of small businesses, many business firms have opportunity to do business in the same products or services in many different geographic locations. For example, medical shops are required in large number of villages and the business operations of many of them are similar. Hence a generic business plan can guide large number of firms in different locations. Thus a small number of generic business plans can help entrepreneurs in large number of locations to evaluate whether they can set up the business as per suggested business plans. SIDBI has developed online information base of various businesses possible in MSME sector. Banks can also create such online business plan information. Number of business schools conduct business plan competitions. They can conduct business plan competitions for micro units and publish them online to expand the business plan banks.
8. Conclusions
Prior research studies on employment help us to conclude that micro sector is an important economic activity and is providing employment to bulk of the population in developing countries. Some of the micro units graduate into small, medium and large organizations. Similarly, employees who join micro sector organizations, may look for opportunities in bigger organizations and get into more remunerative jobs in due course of time. Thus, micro sector is the main stepping stone for both entrepreneurs and wage employment seekers. Micro sector needs to be developed and various agencies giving attention to economic development of the country have to make efforts have to help the sector to grow horizontally into larger number of units and vertically into bigger size units to provide employment to all employment seekers and to provide income that provides good standard of living to all employees.
Mudra Finance scheme started in India to provide bank finance to micro units is a success in terms of the credit extended. Bank managers have positive view on the scheme with number of suggestions to make it more effective and less risky. The managers of the scheme in government, Reserve Bank of India and individual banks have to do a survey of branch managers of banks to understand their difficulties and modify the scheme to make it more successful. The scheme can be made more employment focused and sub-categories can be created to provide self-employment opportunity to one crore persons and wage employment to one crore persons by earmarking Rs.2 lakh crores, which is possible in the targets being prescribed for Mudra Finance. The plan was extensively circulated in social media forums and no significant objection was raised so far. It is also observed that even though Government is promoting Mudra Finance scheme, bank branches, elected representatives and members of political parties are not showing enthusiasm to promote the scheme in a big way with voluntary promotion activities. If the micro sector development and the strong support of Mudra Finance to micro sector development are accepted by many in the country, more involved and committed promotion of the scheme will take place and provide employment and livelihood to large number of persons of the country for many years to come.
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