NITI Aayog Calls for Comprehensive Guidelines for PMMY Loan Assessments

NITI Aayog has recommended establishing guidelines for assessing creditworthiness and background verification of loans under the Pradhan Mantri Mudra Yojana (PMMY). The think tank's report suggests utilizing E-KYC for loan underwriting and a reward mechanism for banks. PMMY has significantly supported MSMEs, but NPA accounts are rising.

The government think tank NITI Aayog has advocated for comprehensive guidelines to assess creditworthiness and background verification for loans offered under the Pradhan Mantri Mudra Yojana (PMMY).

In its report titled 'Impact Assessment of PMMY,' the Aayog recommended the adoption of E-KYC authentication to enhance the effectiveness of loan assessment checks.

“Given that the loans are collateral-free, implementing guidelines for creditworthiness and background verification is crucial for providing a security net to banks,” the report stated on its website. It pointed out that small entrepreneurs, who make up the majority of PMMY borrowers, often possess limited documentation, complicating verification checks that require additional staffing.

The report also proposed a reward mechanism for banks based on their operational scale and performance. Furthermore, a real-time data upload portal would streamline the beneficiary data collection process.

Since its inception in 2015, the PMMY has extended credit support worth Rs 18.39 lakh crore to 34.93 crore accounts. Despite the increased credit disbursements to MSMEs, the report noted a rising trend in NPA accounts, with a compound annual growth rate (CAGR) of 22.51 percent in account numbers and 36.61 percent in amount since FY 2017.

The MSME sector, pivotal to socio-economic development in India, contributes about 33 percent to the country’s manufacturing gross value output, more than 40 percent to exports, and over 28 percent to GDP, while generating employment for approximately 11.10 crore people.