NITI Aayog Calls For New Guidelines On Assessing Loan Applicants Under PMMY

The government think tank NITI Aayog has proposed a new set of guidelines for evaluating creditworthiness and conducting background checks for individuals applying for loans under the Pradhan Mantri Mudra Yojana.

In its report, titled 'Impact Assessment of PMMY,' NITI Aayog recommended promoting E-KYC authentication to improve the efficiency of loan underwriting processes.

The report highlights the need for specific guidelines to enhance credit assessments and background verifications, emphasising that these measures are crucial for providing banks with a safety net. Given that PMMY loans are collateral-free, a thorough risk assessment is essential for the scheme’s long-term effectiveness and success.

Many PMMY borrowers are small entrepreneurs with limited documentation, complicating the verification process for banks and necessitating additional staff.

The Aayog also suggested that a proper reward mechanism is needed for different banks based on their scale of operation and performance.

It noted that a portal enabling real-time upload of beneficiary data will help streamline the beneficiary data collection process. PMMY, since its inception in 2015, has provided credit support of Rs 18.39 lakh crore to 34.93 crore accounts.

According to the report, compared to pre-pandemic, the credit disbursements to MSMEs have doubled across segments, indicating support for the increasing credit demand by the industry, while the number of NPA accounts and the amount have been increasing year after year with a CAGR of 22.51% and 36.61%, respectively, from the financial year 2017.

The micro, Small and medium enterprises sector plays a defining role for entrepreneurs and is a key driver of socio-economic development in India.

The sector contributes about 33% (financial year 2015 to financial year 2019) of the country’s total manufacturing gross value of output.

It accounts for more than 40% of exports and contributes over 28% of the gross value added to India's GDP while creating employment for about 11.10 crore people.

(With Inputs From PTI)