Challenges Facing Mudra Loans

Mudra loans, while initially aimed at fostering small business growth, are presenting significant challenges to banks, particularly public sector and regional rural banks. Recent data shows that these banks have only met 42% of their Mudra loan targets for FY25, raising concerns about rising non-performing assets (NPAs). The microfinance model, which underpins these loans, relies heavily on trust, as they are collateral-free, leading to issues when borrowers default. Additionally, loans classified under the microfinance category have seen a troubling increase in NPAs, with gross NPAs rising by 32% in the first half of FY24, highlighting the growing financial strain on lending institutions.