NITI Aayog calls for guidelines, E-KYC to check background of PMMY loan applicants

The government think tank NITI Aayog has pitched for a set of guidelines for assessing the creditworthiness and background verification for those availing loans under the Pradhan Mantri Mudra Yojana (PMMY). The Aayog in a report titled 'Impact Assessment of PMMY' suggested encouraging E-KYC authentication for loan underwriting.

This will enhance the effectiveness of assessment checks. "A set of guidelines for assessing the creditworthiness and background verification must be enlisted to provide a security net to the banks, considering the loans are collateral-free and a proper risk check and assessment has a critical role to play in the sustainability of results and success of the scheme," it said in the report posted on its website.

The majority of borrowers under PMMY are small entrepreneurs who have very limited documents and this makes it difficult for the banks to run verification checks as it requires more staffing and employees. The Aayog also suggested that a proper reward mechanism is needed for different banks based on their scale of operation and performance.

It noted that a portal enabling real-time upload of beneficiary data will help streamline the beneficiary data collection PMMY, since its inception in 2015 has provided credit support of Rs 18.39 lakh crore to 34.93 crore accounts.

According to the report, compared to the pre-pandemic, the credit disbursements to MSMEs have doubled across segments indicating support for the increasing credit demand by the industry, while the number of NPA accounts and the amount have been increasing year after year with a CAGR of 22.51 percent and 36.61 percent respercenty from FY 2017.

The Micro, Small, and Medium Enterprises (MSMEs) sector plays a defining role for entrepreneurs and is a key driver of socio-economic development in India. The sector contributes about 33 percent (FY 2015 to FY 2019) of the country's total manufacturing gross value of output.

It accounts for more than 40 per cent of exports and contributes over 28 percent of gross value added in India's GDP while creating employment for about 11.10 crore people.