Drawbacks of MUDRA
1. Risk of Over-Indebtedness: The availability of credit through MUDRA loans can sometimes lead to over-indebtedness among borrowers, especially if they are not adequately trained or financially literate. Borrowers may take on more debt than they can reasonably repay, which can lead to financial distress.
2. Lack of Formal Credit History: Many micro and small entrepreneurs may not have a well-documented credit history, making it challenging for them to access MUDRA loans. This can result in limited access to credit for those who need it most.
3. Limited Loan Amounts: While MUDRA offers loans in different categories (Shishu, Kishor, and Tarun), the maximum loan amount may not be sufficient for some businesses with larger capital requirements. This limitation may force such businesses to seek additional funding from other sources.
4. Interest Rates: While MUDRA loans offer competitive interest rates, some borrowers may find them relatively high, particularly in comparison to government-sponsored agricultural loans. Lower interest rates could make MUDRA loans even more accessible and affordable for micro and small enterprises.
5. Lack of Targeted Support: MUDRA loans do not always provide targeted support for specific industries or sectors. As a result, businesses in niche or specialised sectors may face challenges in accessing suitable financing options.
6. Operational Challenges: Some borrowers have reported operational challenges when dealing with lending institutions, including lengthy application processes, documentation requirements, and delays in loan disbursement.
7. Potential Misuse of Funds: In some cases, MUDRA loans may be misused for personal expenses rather than for productive business purposes. This misuse can undermine the program’s intended benefits.