Every Indian of employable age is an entrepreneur. Millions of small businesses each employing less than 10 people can usher in a wave of prosperity unseen and unheard in the annals of history. The green shoots of the economy will not sprout from capital-led labour-intensive manufacturing but from under the thousands of pakoda and chai shops that will come up on government-backed micro loans. These were just some of the assumptions that led Prime Minister Narendra Modi to launch the Mudra scheme on April 8, 2015.   

At the launch of his government’s big bet on job creation, the Prime Minister emphasised the need to develop the informal mirco enterprises sector that employs close to 12 crore people compared to a mere 1.25 crore people employed in the large industries. On a day he exuded hope, Modi said that, “banks would queue up to give Mudra loans”, and that the country was ready to support the small businessperson as she went about nation-building.

Since the 2015 announcement, public sector banks, Non Banking Financial Companies (NBFC), and other lenders have given 12.2 crore loans worth 5.7 lakh crore.  More than 60 per cent of the loans are under the “Shishu” category (below ₹50,000) with an average ticket size of  ₹24,883. The average loan value for the entire scheme where loans up to ₹10 lakh are given, is ₹52,739—the magic number that the government is banking on to create jobs and increase incomes of Indians. This is up against traditional economic wisdom and history. Economic and policy experts Fountain Ink spoke to said the average loan value was too low to create sustainable ventures, that most of these loans would be deployed for low-skilled jobs in small markets, and that failure to repay would send people further into debt or worse, to the local moneylender. While the idea to fund the micro-enterprise sector is neither new nor untested, the government’s aggressive push overlooks one basic fact: Entrepreneurship is a game of risk and reward, and is not the natural choice of people looking to be employed in jobs with fixed hours and wages.

The past is loaded against the Mudra scheme. No successful economy post-WWII has taken the micro loans path to economic development. Whether it be Japan, South Korea or China, all have relied on big capital investment-driven manufacturing and an export-oriented economy, often spurred by artificially devalued currencies, to create jobs and grow. 

Jobs was one of the big promises of the BJP government, the second point on its manifesto for the 2014 polls, behind price rise. More than a million Indians enter the job market every month while a Mint analysis of National Sample Survey Organisation (NSSO) data suggests that a little more than two million jobs are created every year. The rest is in the realm of speculation, with the government suggesting that Mudra loans have created massive self-employment, a data point present surveys can’t capture.

With little to show in formal sector job creation, the prime minister has in every single interview—where questions were screened by the PMO—mentioned the number of Mudra loans as a proxy for job creation. Mudra figures are aggregates of loans with little insight into the nature and fate of ventures such financing seeded. They serve the useful purpose of sounding grandiloquent and being distant from reality—where loans are often disbursed in instalments, small businesses often fail, and bankers are losing sleep over rising defaults and bad loans from the segment.

The founder of a Micro Finance Institution (MFI) told Fountain Ink: “This is political redistribution of wealth. In a way what MNREGA was for the UPA, Mudra is for NDA.”

The Mudra scheme is also a slick cut-and-paste job. It consolidates all priority-sector lending to micro enterprises—a RBI mandate—under one moniker. No new loans have been created under Mudra, only existing ones subsumed and recategorised. As a banker put it: “Only the loan code you use on the computer has changed, the rest is the same.”

Fountain Ink travelled to 83 villages across Uttar Pradesh, Karnataka and Maharashtra and interviewed scores of people who got or tried to get Mudra loans. Also interviewed were small-town bank managers, the last-mile banking correspondents, and senior bank and finance managements in Mumbai—all of whom spoke on condition that they won’t be named. The picture that emerges is not pretty: A village mobile repair shop goes bust in Yavatmal, the Mudra loan is slowly killing the handloom industry in Varanasi,  and loans are available only for those with a credit history in Hitnal near Hampi. Successes are few and far in between.

There is also a scared and angry crop of bankers across the country, forced to lend against their best instincts to people they know will not repay, witnessing steady accumulation of defaults, and what they fear is another NPA crisis.

As one banker put it: “The music will stop after the 2019 elections and banks will again be left to pick up the pieces. The government will eventually write-off these loans.”

When Praful Maruti Bhoyar answered the phone he didn’t recognise the number but he identified the caller. “Make your payment or we’ll take your computer,” his bank manager said. Praful, 23, fumbled with the buttons to lower the volume so that his mother Manjura Bhoyar didn’t get a whiff of the warning. Mother and son walked back in silence after a day’s work in the cotton fields of Dahegaon, a village in Maharashtra’s drought-stricken Yavatmal district.

A few hours later, Manjura’s phone rang: “You’re son will be left with nothing,” the caller said. She promised prompt payment but water shortages and pink bollworm infestation had resulted in a bad cotton crop. “The life of a farmer is a life of struggle,” she said and recalled the year Praful was born. More than 50 farmers had committed suicide, unable to crawl out of debt. “I shouldn’t have let him dream,” she said.

But the die for Praful’s career had been cast in Nitin Patil’s Class 9 computer class at Dahegaon government school. It was the first time Praful had seen or touched a computer. “The love of my life,” he called it.

In Dahegaon, the water-starved land of farmers’ suicides, any dream of a future away from cotton is just the folly of youth. Cotton and monsoons rule the cycle of life here, a good crop and plentiful water only allow mothballed dreams a ray of sunlight. A failed harvest, a mountain of debt, and suicide are the natural order of things.

Praful Maruti Bhoyar with his mother Manjura Bhoyar at his mobile phone repair shop in Dahegaon, Maharashtra. Photo: Alia Allana

Dahegaon with its three computers isn’t the sort of place that fosters ambition. A speck of land about 60 kilometres from the district headquarters of Yavatmal, off the battered NH 361, the one-street village of a few hundred houses is surrounded by endless acres of cotton. There is little enterprise here, a few kirana stores, a hardware store, a small chai canteen and a hotel selling pakodas and samosas. So it was only natural for Praful to join his parents in the cotton fields after school. “I’ve wasted my life in the fields,” his mother often said as they walked to the leased land they worked on. “Study. Find a job. Earn,” she said and Praful listened.

As soon as he saved ₹1,600, he enrolled in a computer programme at Good Luck Computer in December 2013, a training centre in Maregaon, near his village. This led to him to a part-time job at Ekta Mobile Shop in Kumbha. Praful was quick with repairs and in no time could fix a broken mic or a screen and soon got a full-time job in a bigger village called Kheri where he once repaired his sarpanch’s phone. His earnings were meagre, most of the ₹2,000 spent on travel and rent but in the bright lights of the store, he believed he’d escaped his destiny until the death of his father. Then Praful was back in the fields because that’s where the sons of farmers belong.

In the fields, at the chai store and at the barber, men were glued to their smartphones. Praful was a part of more than 10 WhatsApp groups, some as far as Wadki where farmers posted the latest news in agriculture. He learnt that Yavatmal soil was unsuitable for Bt cotton, as discovered by the National Bureau of Soil Survey and Land Use Planning in Nagpur. He read angry debates on WhatsApp groups from farmers, some of whom had lost relatives and friends because of pesticide poisoning through inhalation.

In 2017, 21 people died in three months after spraying a killer cocktail of pesticides on crops that were taller than they were. “One farmer died of paralysis,” says Praful and “we were terrified.” He felt suffocated with life in the fields. More than anything he wanted to open a mobile phone repair shop in Dahegaon.

That year, in 2016, as Praful and Manjura walked to the field at the beginning of sowing season in June, Praful spoke to his mother. He didn’t want a life worrying about water to irrigate crops, slumping cotton prices and drought-related interruptions in supply.

“Is it so foolish to open a mobile gallery and repair store?” he asked her.

Business would offer a way out. He would have no competition in the village since the nearest repair centre was three kilometres away and a store front had recently become vacant. By October when harvest season had approached and the intensity of the pest attack became clear—reports said 30 per cent of Maharashtra’s cotton acreage would likely be affected. This news was accompanies by terrifying images of the burning of plantations in the WhatsApp groups that circulated amongst the youth in Dahegaon.

Praful had saved about ₹550. He borrowed some from friends and with ₹1000 in hand and a crisp pink shirt on his back, he walked to the sarpanch’s bungalow, the largest house in the village. The sarpanch recognised him instantly.

“Are you ready to start a business?” he asked.

“We have to start somewhere,” he replied. The sarpanch handed over the key.

There is also a scared and angry crop of bankers across the country, forced to lend against their best instincts to people they know will not repay, witnessing steady accumulation of defaults, and what they fear is another NPA crisis.

The store was just off the village main road. The small room was in a shambles. He scrubbed the floor and the wall, doused the shutter in bleach and burnt a heap of useless papers. He bought the cheapest paint he could buy, candy pink, and painted the store. He scribbled the name out front: Jagdamba Mobile Shop and Repairing Centre.

He rented the store for ₹700, a laptop for ₹500 a month and Dahegaon’s first mobile repair shop was ready for business. With a little money from his mother and from friends, he bought a few spares and tools. Many parts for the smartphone cost upwards of ₹1,500 so he made-do with the basics: speakers, mic, ringers, display, torch and keypad. With the last of his money, he bought a ₹500 plastic chair and placed the rented laptop on it. 

Overnight his store became a hub where questions pertaining to technology could be answered. What was the solution to pink bollworm, an uneducated farmer asked him to Google. Others wanted to download songs on their mobiles. An elderly man wanted to learn how to operate a smartphone. There was never a shortage of customers. Almost everyone had a mobile in Dahegaon and for the first few months business was good, his popularity soared and the number of friend requests on Facebook reached an all-time high.

From the money he earned he spent ₹9,000 to get a plywood-and-glass counter made. He noted all expenses: a lock for a drawer, a screw driver, even a tube of Feviquik was accounted for. By the sixth month he’d spent ₹10,000 and the empty room began to resemble a store. Business was good but the village economy relied on credit. Customers who paid, paid too little. Within weeks he ran out of spares and repairs on mobiles came to a standstill. Meanwhile, a medical store across the road had also started stocking chargers and other accessories.

With no capital, he began to turn customers away and returned to the field. “I was embarrassed to ask more people for money,” he said. He would return from the field to the store in the afternoon and earn meagre amounts downloading music, transferring data. With time to spare he spent more time on Facebook and found Samir Harbade, a friend of a friend.

On most days, Samir Harbade looked out of place in Dahegaon. A SBI bank correspondent from the nearest branch in Wadki, a town about 15 kilometres away, he was often seen sauntering about the village. He was the last mile connection between villagers and the bank, ensuring banks reached remote locations without investing in non-viable branches.

He noted requests and doled out cash from the mini bank at the gram panchayat but customers weren’t easy to come by. People distrusted bankers and it would take him hours to convince a potential customer about the virtues of banking. Villagers often had questions about the Jan Dhan Yojana after a Modi speech, and later about his reasoning behind demonetisation.

After the online friendship struck between Praful and Samir, the young banker would stop by Praful’s store where they spoke about the need to open branches in un-banked areas. It was on one of Samir’s rounds that Praful spoke about the need for capital to make his business work. That day, Samir mentioned a new Modi scheme called Mudra.

Praful’s mother was against loans of any kind. His neighbours warned him not to get involved with arrogant and fraudulent bankers. But Praful had heard about the loan in several of Modi’s speeches. “Mudra is transforming India,” he said. The PM had said so.

“In the end, parents succumb to their children,” his mother echoed the words of her late husband and Praful wore his best pink shirt and with 30 rupees for an auto and packed lunch, he set off for the bank. When he arrived at the Central Bank of India in Wadki, a group of people were gathered around an attendant who seemed on the edge. A bank clerk sat on a desk on the uneven pavement noting the names of people who wanted information about their accounts. The government had forced people into the banking system by linking  welfare benefits to bank accounts, and they had queued up, confused, angry and asking for their money.

Villagers often had questions about the Jan Dhan Yojana after a Modi speech, and later about his reasoning behind demonetisation.

The bank, air-conditioned with suited men on desks looked like a transplant from  another universe. On the right of the door behind a large table sat the manager. He was a man burdened with papers and a constant stream of people demanding money. Almost always he turned them away. The banker had acquired a bit of a reputation as the man who refuses to give loans.

Samir introduced Praful who spoke in a rushed manner, impressed and uncomfortable in his surroundings. The manager was brisk. Praful would have to travel to Yavatmal to get a diploma and this certificate would provide sufficient proof that Praful did indeed know how to operate a computer.

“I was impressed with the boy,” recalls the manager who at first claimed Praful was running a successful business.

Encouraged by their enthusiasm, Praful packed his few belongings and took the bus to Yavatmal where he got trained under the Swayam Grahmin Rojgar Pratikshan Sanstha. There was free food and free accommodation and plenty of time to discover the Tier 2 town. The lights, the big temples, the cinema hall and large mobile galleries made him yearn for an escape from Dahegaon.  At the end of the month he returned with a laminated certificate in a pink folder. The next  morning he prepared all the documents, including his caste certificate indicating that he was from the OBC Kheri Kumbhi community and stamp paper collected from Ralegaon Tehsil.

At the bank, he was told he would need to draw up a business plan with projected revenues for the next two years. It worked in his favour that he was from the OBC community. The manager expected annual revenue of ₹2 lakh from his business. Samir helped him draft a business proposal. He would be eligible for the Shishu loan (less than ₹50,000) and brought quotations for the products he needed.

Of greatest importance was a computer, it would be an asset and remove the rental cost of his laptop. He had his eyes on a Dell PC. This could work the manager said and asked Praful to give him two days to go over his application. But he also demanded that Praful put ₹5,000 in his account. Without proving he had the ability to pay, he would be given nothing.

Praful didn’t have that sort of cash. Earnings from working the field were meagre. A bad crop meant his mother was scraping by with his running around. His little sister had started learning to sew but wasn’t bringing any money home. Again he was out, going from relatives to friends, cobbling the fund together. He raised ₹4,000 from friends in the village and put ₹1,000 of his mother’s and his savings.

After receiving the money the manager issued a cheque of ₹30,000. There is no requirement in Mudra rules for depositing money or showing collateral but Praful knew nothing of this.

A week later Praful carried his Dell PC, the fourth computer in Dahegaon, home.

“That was the best moment of my life,” he said.

When he reached the shop and switched on the computer, his mother cried. She broke a coconut outside the store. He would have to pay back ₹1,300 per month to the bank after a three-month moratorium. He continued to pay rent to the panchayat and needed the balance of the loan—₹20,000—to truly start his business. Without the spares, mobiles could not be repaired and so he went in for his next instalment. For his repair shop to take off he needed a new keypad, touch display, ear phone, mic and ringer.

But the bank was reluctant to give more money. They demanded he repay the loan after the moratorium. With no supplies the business came to a standstill. He approached the manager who demanded that he deposit ₹13,000 in the account. He would then be given more money.

“If I had that sort of money, why would I take a loan?” said Praful.

As he discusses the trials of half a loan, customers keep coming in. Someone wants documents scanned. Someone else wants a printout. A young boy with a smartphone wants him to show how to use filters. There was never a shortage of customers but the lack of  spares and accessories to run a mobile store meant he didn’t make enough money in August and September and couldn’t pay his instalment. In September he didn’t even open his shop because he would make more money working the cotton fields.

“Pay now or we’ll take your computer,” the manager told him.

At the Wadki Branch, the manager explained that Praful’s loan was going to turn into a Non-Performing Asset (NPA). A loan is an asset in the banks’ books, it earns income from the interest it charges. Once the loan turns bad, it becomes a liability for the bank, its chances of making money drastically declines and the best-case scenario is a long-drawn legal process where it may recover part of the loan or of it’s too much trouble, write it off. 

The manager said there was a higher percentage of NPAs among Mudra loans. “Sixty-70 per cent of the beneficiaries of Mudra don’t pay the loan back. Finding the right party is a challenging task,” he said.

The issue, he said, was people thought this was a free loan and that the government wasn’t advertising it right. People would come outside the bank after a Modi speech and demand loans and believe there was no repayment.

In the case of Praful, the manager paid two instalments out of his pocket. He didn’t want it to turn into an NPA because then he would need to answer to the higher management.

“The Mudra scheme has been mis-advertised,” he said. The bank is under pressure to ensure loans don’t turn into NPAs. It now wants to sell Praful’s computer and pay off the loan. The computer had become a matter of pride for the family and a shuttered shop would be a sure way for villagers to know Praful had failed. His mother began diverting her income from the farm to pay back the loans.

“I was better off before Mudra,” said Praful. He is now in debt which he fears he will be paying off for most of his youth. “I wanted to start my own business. I wanted to do something for myself. I had no interest in my fields. I did that out of desperation. I do it only out of desperation.”

“That’s the life for us, it’s dangerous to allow your child to dream,” his mother says.

In the three states that Fountain Ink travelled, and among senior SIDBI, NABARD and bank officials there is a widespread belief that the Mudra loans will eventually be written off. That has been the people’s experience with almost all government-initiated loans. A source in SIDBI said, “There is going to be a Mudra waiver by the NDA government as there was a farm waiver in UPA. We are sitting on a ticking time bomb. The signs Mudra sends to the market is that you don’t have to pay back these loans.”

The bank manager at Wadki who approved Praful’s loan said bankers like him were reluctant to give these loans as they were high risk and carried high transaction costs. A bunch of them going bad would reflect badly on the books and the manager’s abilities.

The SIDBI source said, “There is no Mudra fund. We are not setting aside any money, or giving any money to the bank. The banks are making commercial loans. The way it is structured it is bound get reflected in future taxes. Spend today and by the time to repay there is another government.”

Aijaz Ahmad didn’t hear the phone ring above the clackety-clack of the handloom as he passed the shuttle filled with bobbins of fine thread back-and-forth. He wiggled his way out, passing his brother weaving a pink and red yarn and his nephew working gold into a turquoise fabric. A jittery gaddidar or broker from Bazardiha, a weavers mohalla in Varanasi, was rambling about a new parcel from Surat, the mothership of the powerloom industry. “This will be the end of us,” the man said.

There is no Mudra fund. We are not setting aside any money, or giving any money to the bank. The banks are making commercial loans. The way it is structured it is bound get reflected in future taxes. Spend today and by the time to repay there is another government.”

The following morning Aijaz set out from Mohamadpur, a weavers’ village, travelling 20 kilometres to the throng of Makhdoom Shah Baba’s mazar in Bazardiha. He walked the small lanes, amid the melancholy humming of the handlooms. His first stop was his cousin’s house where his son was sitting in near darkness, pedalling mechanically, running his fingers over dyed silk threads. He looked at the dormant loom next to him and was astounded when he learnt that his brother had got a job at the kirana store. “May Allah help us,” he said as they discussed the falling demand for the handloom sari.

At the gaddidar’s house, a group of weavers had gathered and were seated on white cushions on the floor. Around them were piles of Banarasi saris wrapped in cloth lest their embroidery, the exquisite jamevar and patli, get damaged. In front of them in a large crumpled plastic bag was the consignment from Surat. The gaddidar took out the items and the weavers began examining them one after the other.

For Aijaz, a red Banarasi sari was made of fine gold and silver and silk thread work. It was an embodiment of the city where the Ganga flows deep and wide, as arresting as the charging bull in narrow alleys. “Banaras is meant to be real. What place does polyester have here?” he asked. But the ladies wanted nakli, the fake stuff from Surat. 

Anyone in their right mind would switch to the powerloom but “that anyone needs money,” he said. Make one sari a day instead of one in three days and earn almost twice as much.

The following day, he stopped by his spots. A bunkar officer at the Weavers Service Centre in Chowka Ghat told Aijaz to visit A. K Varma, the assistant director at the bunkar office in Varanasi. Varma told him about the Mudra loan.

“A chance to make something out of yourself,” he said and Aijaz with his six children and wife living in one-bedroom of their family house thought the loan was a promise of good days. Upon returning, he gathered his family and boldly declared, “I think we should get a loan.”

The first to voice his objection was Haji Abdul Raheem, his father. At 82, he led a pious life, free of impurities, like the silk and cotton his father had taught him to weave. His was a job of integrity, a craft passed down eight generations and today, as he led the household from a sturdy bed in the far corner of the old house, he raised his voice over the handloom and the Bollywood music blaring from the loom room.

“Not in my house, nobody will play with interest,” he said observing a rule in Islam. He gathered his five sons and their children and told them a story he would often narrate to them.

“The looms went silent here once,” he said pushing off a grandchild who had developed a habit of biting people. “They won’t again.”

He told them about Partition; when fighting broke out and everything stopped. No thread came in and weavers left their homes to find jobs. Haji sold jaggery in Varanasi for a while. In those days he promised himself that he would never forgot the security of the loom. “In this lies our safety,” he said and listening intently was Anisa Banoo, his favourite grandchild.

When again the looms started, every single person in the Aijaz household contributed to weaving. Life was good and his wife bore five sons and one daughter and soon all the 26 members of the household found their place on the handloom.

In time, Haji Abdul Raheem, found an answer to everything when weaving. The sound of the machine became a measure of the times. Life and politics hung on a thread and the spinning of yarns. He observed that a Congress leadership meant a better market for the sari. This had been the case during Morarji Desai when routes were open for trade and the Banarasi sari was so popular that nobody could find any in the markets. During Indira Gandhi’s time the sari’s fortunes were rosy.

When Narashima Rao assumed office, the sari was struggling, and synthetic fabrics with their sheen and perfect finish came to conquer the market. During H. D. Deve Gowda’s prime ministership, nylon was the rage. With limits on exports and rising tensions, the sari suffered. Sales finally picked up under Atal Behari Vajpayee and the family enjoyed a degree of certainty and comfort.

Every single house in Mohammadpur was engaged in weaving and over the course of Haji Abdul Raheem’s lifetime the village had changed moving from handloom to power loom. He was determined to travel against the tide but with the arrival of the Mudra loan it looked almost impossible. A group of about 20 weavers agree unanimously, they would shift to powerloom and earn double the money if given the loan.

 “And Modi, he’ll be remembered as the PM under whom the Banarasi sari died,” the old man said.

It was a bittersweet ride to Varanasi for Aijaz. In Mohammadpur, in its 100 weaver homes, the shift from handloom to power loom was nearing completion, the last spurt financed by Mudra loans and moneylenders.

He recalled the good days, when his father first took him to the loom room, when he hung over the wooden frames feverishly embroidering the borders. He thought of his mother quietly labouring with a needle and thread. He remembered struggling to stay awake as festivals approached. Most of all he reminisced about the sound of the qawalli which would be barely audible over the power loom but with the rise in prices, the needs of a growing family, handloom saris just didn’t bring home the money.

Haji Aslam at his house in Bazardiha, Varanasi.  An eighth generation handloom weaver, his family is now switching to powerlooms. Photo: Alia Allana

On a cold day last February Aijaz went to the handloom office, Weavers Service Centre, at the Rath Yatra market. An uneducated man, he would need assistance in applying for the loan. At the handloom office his application was made, documents verified and papers sent to the Corporation Bank in Jansa Bazar, a fifteen-minute walk from his house. He was instructed to go to the bank.

The outpost of the Corporation Bank in Jansa had opened soon after demonetisation and was a novelty to villagers. Aijaz who was often seen around the village in his vest put on a shirt and went to the bank. The manager had received his application and had questions of his own. What will you do with the loan? Do you have a plan?

Aijaz nervously explained his desire to expand his business. The banker asked for ₹500 to fill out another form. Aijaz handed over the money. The banker told him that they would conduct a site visit to understand his business better and when they arrived they struggled to make themselves heard over the blaring qawwali. All four looms were running when they entered and Aijaz avoided the angry stares of his youngest brother as he explained his business. He wanted to expand and explained how he had seen friends in the village go from one powerloom to two and increase their monthly savings from ₹5,000 to ₹10,000.

Aijaz was clear from the start: He needed ₹2 lakh to install a power loom. When the bankers heard the figure they chuckled. A loan above ₹50,000 was unthinkable unless the family was willing to pledge land as collateral.

“These bankers, these thieves,” his younger brother said after they left. People in the village had told him how they were taking money from applicants at different stages of the process. “In many cases, they want at least ₹5,000 before they give any loan,” he said.

Their neighbour joined in. He had been sanctioned a loan of ₹50,000 but had been given ₹44,000. The rest was pocketed by the bankers. Nobody in the village had received the whole loan as a lump sum. After the banker takes his cut, the loan is given in instalments and repayments start before the full amount is disbursed. This defeats the purpose of the loan because without the full amount new equipment can’t be bought. The shortfall is made up by borrowings from relatives and moneylenders. For every loan they take, they have to pay back a host of people.

“There is no real benefit from getting ₹50,000,” the younger brother concluded.

“But with ₹50,000 we are starting somewhere,” responded Aijaz. When Aijaz got the loan, he got it in instalments of ₹17,000. He waited for the amount to reach ₹50,000 before he could start the process of buying a powerloom. He plans on financing the remaining 1 lakh for a second hand power loom through borrowing from the moneylender.

Mudra or Micro Units Development and Refinace Agency Ltd, created by an Act of Parliament, is a wholly owned subsidiary of the Mumbai-headquartered Small Industries Development Bank of India (SIDBI). Under the Pradhan Mantri Mudra Yojna (PMMY), there are three categories of loans—Shishu (up to ₹50,000), Kishore (between ₹50,000-5 lakh), and Tarun between (₹5 lakh-10 lakh). Mudra is a refinance agency, promising to make up the funding shortfall of lenders. 

The primary aim of the scheme, emphasised by the prime minister in his many statements on the subject, is to provide credit to previously unfunded people. The massive number of Mudra loans sanctioned since 2015 creates the impression that these loans are going to financially-excluded borrowers. According to Mudra officials, at least 30 per cent of the loans have been granted to first-time borrowers.

A senior official at Mudra told Fountain Ink, “We don’t know anything about these loans. We have no idea who they went to, for what kind of business it was given, and how it is doing. We are simply the organisation that collates all the loan data reported by banks, NBFCs and MFIs.”

What is today known as Mudra loan traces it ancestry to priority sector lending first articulated by the Reserve Bank of India (RBI) in 1971. They support certain types of economic activities like agriculture, small businesses and micro-credit sector, among others. The RBI mandated that a certain portion of the lending by commercial banks be in these areas. It allocates on an annual basis an amount that enables banks to lend in these sectors. Mudra has a corpus of ₹10,000 crore allocated by RBI from priority sector lending shortfall. Till March 31, 2017, Mudra drew ₹8,125 crore from that corpus, sanctioned ₹7,492 crore (2015-17) and had an outstanding refinance portfolio of ₹6,113.87 crore. However, total loans counted as Mudra stand at ₹3.17 lakh crore. This gives the impression that ₹3.17 lakh crore in new financing has been made available. What this shows is that all non-agriculture lending under ₹10 lakh is now  branded as Pradhan Mantri Mudra Yojana (PMMY). This lending has been an on-going financial activity. Banks converted regular lending schemes into Mudra loans, but the profile of borrowers remains same in pre-and post-Mudra periods.

We don’t know anything about these loans. We have no idea who they went to, for what kind of business it was given, and how it is doing. We are simply the organisation that collates all the loan data reported by banks, NBFCs and MFIs.”

Uttam Kowram Tumgar, the sarpanch of Khekdi village in Maharasthra was taking a walk when he stopped at Suresh Baliram Chawan’s flour mill, a small room with a green door and a single bulb dangling from a wire. Suresh was frantically pushing the buttons, the sound from the chugging machine the only intrusion in a village where children squealing, their mothers yelling and the occasional moo of a cow were the norm. Khekdi, is the village Modi’s India has forgotten. Encircling it is an insect-infected moat filled with sewage. There is no Swachh Bharat revolution as open defecation is the norm. The only businesses are a flour mill, two kirana stores, a tailor shop and a chai wala.

The sarpanch and Chawan spoke about business and he was impressed to learn that Chawan was in a financially sound position and keen to expand his business. That night as Tumgar tuned his radio, he heard the Prime Minister speak about the success of Mudra, the potential of each pakodawala. Tumgar took it upon himself to gather the business-minded people of his village to get a loan.

It didn’t take him long to make a list of people eligible for one. There was a builder who had made most of the pucca houses. There was a woman who made delicious samosas and another who ran a small sweet shop popular with the children. He called the people of the village outside his house and requested them to make a business plan. After a review a week later, he finalised a list of people who would journey to the nearest branch and submit business proposals.

A group of 15 got into two auto rickshaws and drove into the Bank of India branch in Digras, the nearest town. Chawan wore his best shirt and the woman from the sweet shop wore a sky blue sari. As people from the OBC Banjara Vijenti community, just the ride to the bank was a matter of pride, said the sarpanch.

When they pulled up in front of the branch, plastic bags full of documents, the manager looked at them with scepticism. At first he denied the existence of such a scheme and when villagers pushed, he claimed he had exhausted the target. It didn’t matter that Chawan had been running his business for five years, had borrowed ₹1.5 lakh from family, friends and the local moneylender and had paid it back. To the banker all that mattered was that this was a motley crew of poor villagers and as he later said, “poor people don’t really know how to pay back loans”.

While there has been absence of a comprehensive national jobs data indicator, under the NDA government existing surveys and numbers have been given the short shrift. The five-yearly National Sample Survey Organsiation’s (NSSO) surveys were last reported in 2011-2012.  The Labour Bureau’s annual employment-unemployment survey was discontinued in 2016, in light of a proposal to design a new method of capturing job numbers.

A source associated with the survey said that when field researchers come up against respondents who have used the loan for personal purposes, they are eliminated from the sample set and substituted by a more suitable candidate. 

In interviews the prime minister has often talked about the cascading effect of Mudra loans, how it creates “job givers out of job seekers”, and has cited rate of highway and railways expansions, provident fund data as markers of job growth.

In December last year the Labour ministry announced a new survey to capture the employment and businesses created under the Mudra scheme. It is meant to survey more than 1,00,000 households. A Labour Bureau official told Fountain Ink survey includes questions like: When was the loan taken? What did the recipient do with the loan and gains since getting the Mudra loan? A source associated with the survey said that when field researchers come up against respondents who have used the loan for personal purposes, they are eliminated from the sample set and substituted by a more suitable candidate. “Most people surveyed are doing good business, going by this method,” the source said.  The sample is selected from a list of beneficiaries provided by banks and other lending institutions. Repayment of loans, the source said, is not considered in the survey.

H. S. Raghav, director, Labour Bureau, told Fountain Ink: “The objective of the survey is to estimate the number of additional employment generated by Mudra, the number of people hired including family members.”

When officials from the Forest Department drove in with bulldozers, the people of Hippie Island, Karanataka assured themselves a new opportunity would arise from the ruins. To their left, past a 14th century aqueduct, a marvel of the Vijayanagar Empire, was the future. It was called Sanapur, a small village close enough to the grandiose sights of Hampi but far enough to not pose any threat to the integrity of the UNESCO certified world heritage site. During peak season of September to May, there was a constant flow of travelers, dread-locked European hippies, young Israelis fresh out of the army and techies from Bengaluru on their way to Sanapur Lake.

“It is a land of possibility,” said Persha Ram. He was a former resident of Hippie Island, owner of the  popular Roots and Rocks Guesthouse and Cafe that had been demolished. With his meagre belongings, he had scouted a piece of land on top of a hill overlooking Hippie Island to his left and Sanapur to his right. With his wife, three daughters and a young son he made home again. For a year he struggled to make ends meet. He and others evicted from Hippie Island had pinned their hopes on Sanapur and its potential to attract tourists.  It was a village of scant enterprise—a pharmacy, couple of provision stores, a bank branch and the largest wine shop in the area. It was quiet and had a road leading to the dam where tourists were often seen jumping off giant boulders into the lake. Ram wanted to open a small guesthouse here. Armed with a business plan, he went to the SBI Branch in Sanapur and Anegundi.

His talks about reviving the downtrodden economy of the village, his vision for another Hippie Island in Sanapur didn’t fit into the neat narrative the bankers had envisioned. For their part, they couldn’t be faulted. They had been instructed to keep their vision as small as the room in which they sat—three squeezed behind a desk in a room with space for three chairs. Frequent power cuts meant the bank was never fully functioning, the shutters always half drawn at the front. This was the only way to make sure that the message of their superiors, no more loans under Mudra unless they managed to recover the losses they had already made, was loud and clear.

A host of bad loans had set the precedent for a conservative approach but the young men and women of Sanapur had ambition. One after the other, they went into the bank with proposals. One wanted to open a Rainbow Café with hammocks near the lake. Krishna would open a guesthouse, Valsamma would bring years of experience of working in kitchens of guesthouses to her own house and run a two-bedroom homestay. Abdul would open a restaurant near the lake. He was among the first in the village to approach the bank after he had heard Modi speak about it on in Mann ki Baat.

The bankers were cautious, unwilling to upset their bosses and gave small loans to businesses that they considered safe. They gave the Mudra loan to a banana vendor. Money was pumped into a stone business, provision stores and some people set up small roadside stores selling vegetables. Sometimes they gave ₹25,000 and at other times ₹50,000. Only once did they give a loan of ₹1 lakh.

“They’ve taken the money and thoroughly enjoyed it,” said a banker referring to the bad loans under his care. “There was no shortage of willful defaulters.  Many people identified the scheme as a way of getting a bit of extra cash. One person even put some money towards his daughter’s wedding and so the message from the top was no, stop all Mudra loans.”

A review of SBI Sanapur showed 75-80 per cent NPAs from one small branch. Total NPAs stood at ₹1.65 crore, and Mudra loans had contributed ₹85 lakh. The regional office was upset. They put a credit limit and the order was, give only as much as you can recover. “Can you imagine the national NPA for Mudra?” asked the banker. “This is a crisis that will explode,” he said. And this is why they were turning people like Parsa Ram away.

When people asked them about the loan, they were curt: The Mudra policy isn’t working over here, we’ve exhausted all our Mudra funds or that Mudra only comes at one time in a year. They couldn’t take risks so many miles away from Delhi, from where the plan was formulated because little did Delhi know that the last mile was the riskiest place to do any business.

A circular came from the head office to disburse “about four” Mudra loans at public sector bank’s branch in north Karnataka. There had been no targets or guidelines prior to this. The branch manager asked the assistant branch manager the task of identifying a “good party,” someone who would repay the loan. “That’s what the bank is concerned with,” said the assistant bank manager. The banking correspondent was miffed with the latest development. He knew of several deserving candidates: there was a woman who stitched blouses and had a full order book, another woman who made pickles that were popular in villages across the boulder-strewn landscape of Koppal. But these were risky ventures and the views of the banking correspondent didn’t matter.

The bank got in touch with the Gram Panchayat scouting for good loan prospects. Murali, whose Cold Drinks store, located sine 1982 at the junction of the Panchayat and the village school in the centre of the town was a good bet. It didn’t matter that Murli’s store was kitted  with a fridge, a rare commodity in Hitnal, and a photo copy  machine. Nor did it matter that his son had recently opened a photo studio across the street. What mattered was his credit history. He had been the recipient of bank loans for years and had paid them off. 

“I’ll buy a piece of farm land,” he said to the assistant bank manager who shushed him. These were not the sort business plans that ought to be discussed on a pre-sanction visit for a MUDRA loan.

Bank managers across three states have mentioned the enormous pressure upon them to prevent loans from going bad. In Hitnal, the assistant manager explained that Murali’s bank balance of ₹27,000 and his credit history ensure that a loan of  ₹1 lakh wasn’t “too much of a gamble.”

“This is anything but the last mile,” says the banking correspondent on the Mudra loans in has seen in Koppal region. Often loans that are given to men bear the names of their wives, he says. The Mudra loan also replaces “normal lending loan. It is no big deal,” says a lead bank officer in Karnataka. According to him, the high NPA is because of past experiences:  government pushed loans are often waived.

Banks also struggle because branches in remote areas are not required to give specific data on successes and failures or even the type of business. Also that is required is the number if accounts created and how much is sanctioned. “There is no demand for data,” he says. 

The twin balance sheet problem has plagued the Indian economy for some years now. On the one hand, it has banks saddled with huge NPAs and, on the other, the private sector is saddled with debt it can’t service. This has a direct bearing on economic growth and jobs, as banks with NPAs shrink credit and the private sector can’t make investments for expansion. The origins of the NPA crisis date back to the boom years of mid-2000s, when exuberance got the better of reason in infrastructure-related sectors and banks. One feature of the crisis is that it is largely confined to public sector banks, raising questions about their lending practices. The other is that the banks were forced to clean up their books only after the Raghuram Rajan-led RBI insisted upon an Asset Management Review.  

We have already been told to scale-down these loans. The full effect of NPAs will be apparent in 5-6 years when most loans come to end of their repayment cycle.

The Modi government inherited this legacy and took time to get things moving –with the Insolvency and Bankruptcy Board of India (IBBI) to resolve the issue of bad debt and allow banks to recover the money. So far under the Insolvency and Bankruptcy Code stressed assets close to ₹3 lakh crore have been addressed.  It is a fractious, ongoing exercise and public sector banks are far from out of the woods—their quarterly results continue to show distress. It is also partly the reason NBFCs are facing a liquidity crunch. With the banks squeezed, the NBFCs stepped up lending to the Micro, Small, and Medium Enterpises, netting up higher NPAs in the process. The latest round of tussle between the government and RBI was on the issue of easing liquidity norms for the NBFCs.

In this scenario enters Mudra. Pushed by the central government, public sector banks, NBFCs and MFIs have to lend—instead of one big loan they now to sanction thousands of small loans for which collateral is not necessary. It is refinanced to an extent by Mudra—it had a corpus of ₹10,000 crore in 2017-18. In Fountain Ink’s travel through three states what emerged was the bankers’ fear of Mudra loans turning into NPAs, and the rising trend of defaults among them. Their cause is not helped by the fact that there is growing belief among the people these loans may be written off in the end.  In his 17-page note of the Parliamentary Estimates Committee, former RBI governor Raghuram Rajan warned of the impending crisis. He said: “Both MUDRA loans as well as the 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 is a growing contingent liability and needs to be examined with urgency.”

A senior official at Bank of India who didn’t want to be named told Fountain Ink that out of the ₹12,450 crore loaned under Mudra, 6 per cent—₹745 crore—was NPA. He said that this didn’t fully capture the rising trend of NPAs as all defaults have not yet been classified as NPAs, Mudra was a new scheme with a short moratorium on payments. 

“We have already been told to scale-down these loans. The full effect of NPAs will be apparent in 5-6 years when most loans come to end of their repayment cycle,” the bank official told Fountain Ink.

At least six other public sector banks Fountain Ink contacted refused to speak or share data on NPAs in Mudra loans. The NPAs from Mudra loans, however, was around 5.38 per cent, much lower than the 11 per cent total NPAs in the banking system.  On the question of NPAs and refinancing support, Mudra CEO, Aalok Gupta said, “I’m not a backstop for their bad loans.”

That backstop for bad loans is the Credit Guarantee Fund for Micro Units, (CGFMU), which promises to pay up to 50 per cent of the bad loans under the PMYY. If Mudra scheme NPAs continue to rise, the CGFMU bears the risk of being over-leveraged.

In some remote villages, tucked away from Delhi’s consciousness, nobody had heard of Mudra, not in UP, not in Maharashtra, not in Karnataka. In these villages, the banker was an alien, a suited-booted foreigner who failed to empathise with people struggling to make ends meet and never free from the claw of the moneylender.

In villages where the scheme reached, people questioned the government’s disconnect with them. Did the government really believe that rural India was digitally connected to avail the loan online? Most of the businessmen and women I spoke to carried Nokia 1100, a phone advertised for its torchlight. Most didn’t know how to read or write. In many meetings people challenged me to ask Prime Minister Narendra Modi, if he knew “just how little Rs 50,000 can do. If he knew the value of money?” And when this loan came, it was never enough. On the graves of crushed dreams and dead small shops, no new India will be built.