Disadvantages of the Mudra Loans

Disadvantages of the Mudra Loans

One of the new schemes introduced by the Prime Minister Narendra Modi is the Mudra Bank Yojana or the Micro Units Developments and Refinance Agency Banks which aims at the development of small entrepreneurs. These banks will target individuals who are unable to reach main banks for getting finance for their business.

The scheme or yojana divides business into three kinds- the Tarun companies which can avail loan up to Rs10 lakhs, the Kishore companies which can avail loans up to Rs5 lakhs and the Shishu companies that can avail loans up to Rs50000.

Disadvantages of the Mudra Loans

There are many benefits that an individual who wants to start a business can seek for from the Mudra Bank loans, but there are some disadvantages relating to Mudra Loans.

The control of the Mudra Bank is not under RBI’s admiration, this makes it prone to high rate of risk when the bank grows eventually. It seems as if the government is promoting such operational risks.

There are already many financial bodies that are funding to the small scale business, and the Prime Minister has not really mentioned the exclusive role or the added advantages of the Mudra Banks.

The scheme is said to work with the collaboration of the Post Offices because of its network, but this will lead to the slow process of the Loan distribution.

The process and the time that will be taken to process the loan is not clearly mentioned in the scheme. This further confuses people about the scheme.

Disadvantages of the Mudra Loans

  • RBI is in control of the all the financial operation of NBFC and Micro finance Institution, but one of the main role of the Mudra Bank is to regulate all the Micro Finance Institutions. This again would cause further confusion and problems as now there will be two regulating bodies for the micro industry.
  • The Mudra Bank is responsible of too many things which make it a reason for conflict. It is a body which will set rules and standard for lending to the micro business and will also lend to the micro or small businesses; the roles may contradict.
  • It is not clear that whether Mudra Bank is a regulatory body or a bank. This is because the bank is said to provide loans to business from Rs50000 to Rs1 lakhs, but as the business grows, how will the bank consider the business is not mentioned.
  • The scheme also doesn’t clearly state the processes involved in the working of the Portfolio Credit Guarantee and Credit Enhancement.

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