The onset of Covid-19 in India took a hit on the country’s economy. For the first time, a nation-wide lockdown had to be announced after the outbreak to combat the pandemic. The country was under lockdown. During this period, the operations of almost all the industries across various sectors were halted along with other activities. This and the subsequent lockdowns have impacted all the sectors of the economy.
The Micro, Medium and Small Enterprises (MSMEs) were one of the worst-hit sectors by the pandemic and affected during the lockdown. MSMEs play a major role in the overall economy and growth of the country. It is one of the key contributors to the GDP, with more than 6% contribution. This sector is also one of the largest employment providers in the country, with more than 633 lakh units across India.
The pandemic adversely affected the sector due to muted activities and decreasing market demands for every product category. It consequentially led to an acute liquidity crunch for MSMEs. The cash flow was narrowed and became a large difficulty for the sector.
The impact of COVID-19 on MSMEs
The impact of COVID-19 on MSMEs is as follows:
- Impacted 20% – 50% on the total earnings of the MSME sector
- Temporary closure of several micro and small businesses
- Large labor migration of laborers from across the country impacted functioning and operations.
- MSMEs in cities intensely affected.
- Retail and manufacturing maximum hit
- E-commerce functionality rose
- Demand for tax waivers and discounts
- Online operations saw a rise.
Government’s packages to combat the pandemic
Since the first lockdown, the Government has introduced various stimulus packages to help the economy. These packages are aimed to combat the impact of COVID-19 on the Indian economy. The packages were introduced in tranches. Credit support in the form of MUDRA loans that were offered by the government was vital to keep certain sectors of the economy afloat. Many MSMEs that were hit by the pandemic started to apply for the MUDRA loans proposed by the government of India seeking aid for their losses.
The government of India introduced MUDRA loans to support and strengthen the MSME sector through the lending vehicle of MUDRA in 2015. In these last five years, MUDRA loans have become an efficient tool to provide targeted support to the sector.
The Mudra Magic in MSME loan scheme
The pandemic hit medium and small businesses that received support and financial assistance under Pradhan Mantri Mudra Yojana (PMMY). The loan – MUDRA, is provided under PMMY to MSMEs under three categories (as given in table No.1)
| Sl | Loan | Amount |
| 1. | SHISHU | Up to Rs 50,000 |
| 2 | KISHORE | From Rs 50,000 – Rs 5 Lakhs |
| 3 | TARUN | From Rs 5 Lakhs – Rs 10 Lakhs |
Mudra in the Financial Year 2019-20
- Mudra loans amounting to more than Rs 3.2 Lakh Crore were distributed to MSMEs.
- More than 6.22 crore beneficiaries of MUDRA loans under the PMMY
Need for MSME loans
The micro, small and medium industries need adequate funding among other infrastructural support to grow. MUDRA loans bring these micro-units under the ambit of a structured financial structure and provide robust support for reaching their envisaged potential.
Various financial institutions that provide MUDRA loans to MSME are as follows:
- Public sector banks
- Private banks
- Regional rural banks or RRBs
- Small financial banks or SFBs
- Microfinance institutions or MFIs
- Non-banking financial companies or NBFCs
How MUDRA loans helped fight COVID-19
The pandemic raised alarm bells across the country after January 2020. The micro and small business loans industries came under the heat of COVID-19 early this year. The target of loans under the MSME loan scheme of MUDRA was Rs 3.25 lakh Crore for the financial year 2019-20. The sector was allotted loans of Rs 1.25 Lakh Crore alone during February and March 2020. This amount was out of the total loans of amount Rs 3.37 lakh Crore disbursed during the entire financial year 2019-20.
MUDRA loans acted as a savior for the MSME sector. The MSME loan scheme of MUDRA exceeded its target amount in the FY20. The demand and allocation of MSME loans during the last two months of FY20 was steeper than the rest of the year. This was also the time after the pandemic broke out in the country. The lending vehicle played a significant role in fulfilling its purpose.
Way forward for MSME loans
The umbrella of lending institutions that provide loans under MSME loan schemes to various enterprises also widened during FY20. The number of MFIs and NBFCs receiving finances under MUDRA saw an increase in FY20. This indicates a more inclusive financing focus by the policymakers (indicated in Table No.2)
| FY 2018-19 | FY 2019-20 | |
| No of MFIs and NBFCs | 12 | 38 |
| Total sanctions to MFIs and NBFCs | Rs 1436 Crore | Rs 2389 Crore |
The wider coverage of borrowers of lending institutions started providing more access to MSMEs requiring loans. This also eased the MSME loan scenario during the COVID-19 hit and ensuing period.
For the revival of the pandemic impacted MSMEs, steady support of finances and the ease of having access to various financing options was vital. MUDRA loans were disbursed to a larger number of MSME loan seekers.
The Outcome
MUDRA loans helped the MSME sector in restarting activities and contributing to the gradually picking up economy. A few such successful outcomes are:
- More investment in operations.
- Capacity building and infrastructure.
- Aided in changing product portfolio – like manufacturing PPE kits, sanitizers, masks, etc.
- Manufacturing units set up for producing COVID-19 essentials, which had a growing market.
- Focus on developing better web platforms for business.
- Facilitating in a shift of business process to a digital platform.
- A gradual revival of employment in the sector.
- Integrating the value chain with digital means.
Financial aid under the name of MUDRA loans acted as a catalyst for MSMEs to get through the difficult times of lockdown. It also helped the sector to restart operations and activities across the micro, small and medium industries. Going forward, the inclusive and sustainable lending structure and policies of MUDRA loans will facilitate in creating a long-term financial support structure for the MSME sector.
