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Work begins on collateral-free loan pledge

Government plans a credit scheme under which entrepreneurs will get loans of up to Rs 50 lakh.

, ET Bureau|
Updated: Jun 18, 2019, 03.48 PM IST
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Banks and financial institutions offer loans starting from Rs 50,000 up to Rs 10 lakh under Shishu, Kishore and Tarun schemes
NEW DELHI: The government is studying the feasibility of rolling out a scheme that provides collateral-free loans of up to Rs 50 lakh to entrepreneurs, according to a senior official.

Such a provision was promised by the BJP in its election manifesto this year.

The contours of the scheme are being discussed and, if found feasible, may be announced in the budget on July 5, the official said, requesting not to be named.

“It is being looked at. The government is committed to support small entrepreneurs, especially women entrepreneurs,” the official said.

In its election manifesto, the BJP had promised collateral-free loans of up to Rs 50 lakh and said it will “guarantee 50% of the loan amount for female entrepreneurs and 25% for male entrepreneurs”. This essentially mean that in case a borrower is unable to repay, the government will bear half of the loan amount in case of a female entrepreneur and one-fourth in case of a male entrepreneur.

Another official said this scheme can be launched under the aegis of Pradhan Mantri MUDRA Yojana (PMMY), which already provides for collateral free loans of up to Rs 10 lakh. “We already have an existing platform, so we can look at creating a new category within this platform,” the official said.

The three schemes under PMMY are — Shishu, Kishore and Tarun.

Banks and financial institutions offer loans starting from Rs 50,000 up to Rs 10 lakh under these schemes.

In the current fiscal, the government has sanctioned about 600,000 loans under these schemes, with disbursements standing at Rs 32,457 crore.


To mitigate the issue of collaterals, a Credit Guarantee Fund for Micro Units (CGFMU) has been set up.

Till March 2018, loans worth around Rs 40,000 crore were covered under the credit guarantee scheme. Around 51% of the loans covered were those under Shishu scheme. Fifty-five-member lending institutions have been registered under the guarantee scheme.

A bank executive said such lending should be done after risk analysis and not just to achieve numbers.

Last year, former Reserve Bank of India governor Raghuram Rajan had observed that MUDRA loans and Kisan Credit Card, while popular, have to be examined more closely for potential credit risk.

“The Credit Guarantee Scheme for MSME (CGTMSE) run by Sidbi (Small Industries Development Bank of India) is a growing contingent liability and needs to be examined with urgency,” he had said in a note on bad loans submitted to the Lok Sabha Committee on Estimates.

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