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The Impact of PM Svanidhi Yojana: Empowering the Poor Through Financial Inclusion

Updated: May 24


PM Svanidhi Yojana : A policy analysis

If you are interested in applying to GGI's Impact Fellowship program, you can access our application link here.


 

1.Background


The covid crisis created an unprecedented situation for every section of society. It created a disruption that crippled people's livelihoods especially the self-employed daily earners, the roadside vendors, the thelewalas or redhiwalas. The lockdown brought a total stop to physical economic activities, causing a sudden slack in the cash flow in the economy. People lost jobs across sectors, businesses too failed across sectors. To help the poorest rebuild their livelihoods, the government came up with the microfinancing scheme, PM SVANidhi Yojana, materializing the idea of Aatmanirbhar Bharat.



2.The Policy


Launched right after the first covid wave induced lockdown in June 2020, The Prime Minister’s Street Vendors Atma Nirbhar Nidhi or PM SVANidhi Yojana is a Central Sector Scheme, fully funded by Ministry of Housing and Urban Affairs with the following objective


●      to facilitate working capital loan up to Rs 10,000.

●      to incentivize regular payment

●      to reward digital transactions


 The scheme is designed to formalize the urban street vendors with above objectives and will open up new opportunities to this sector to move up the economic ladder.


2.1Policy details


Under the scheme, urban street vendors are eligible to avail a Working Capital (WC) loan of up to Rs 10,000 with tenure of 1 year and repaid in monthly installments. For this loan, no collateral will be taken by the lending institutions. On timely or early repayment, the vendors will be eligible for the next cycle of working capital loan with an enhanced limit. No prepayment penalty will be charged from the vendors for repayment before the scheduled date.


2.2Rate of Interest


For Scheduled Commercial Banks, Regional Rural Banks (RRBs), Small Finance Banks (SFBs), Cooperative Banks, SHG Banks - the rates are as per their prevailing rates of interest. (About 25%)


In case of NBFC, NBFC-MFIs etc., interest rates are as per RBI guidelines for respective lender category.


In respect of MFIs (non NBFC) other lender categories not covered under the RBI guidelines, interest rates under the scheme would be applicable as per the extant RBI guidelines for NBFC-MFIs.


2.3Interest Subsidy


Vendors obtaining loans under the scheme can receive a 7% interest subsidy credited quarterly. Lenders must submit claims for subsidy at the end of each quarter during the financial year. Subsidy eligibility is for accounts meeting standard criteria (non-NPA as per extant RBI guidelines), and it applies only to months the account remains standard in the respective quarter.  Early repayments result in a lump sum subsidy credit.


2.4Digital Transaction Incentive


The proposed scheme aims to boost digital transactions among street vendors through partnerships with payment aggregators like NPCI, PayTM, GooglePay, BharatPay, AmazonPay, and PhonePe. Vendors can earn monthly cashback rewards ranging from Rs50 to Rs100 based on transaction volume. The tiered structure includes Rs50 for 50 transactions, an additional Rs25 for 100 transactions (totaling Rs75), and an extra Rs25 for 200 transactions (totaling Rs100).


Eligible transactions must be at least Rs25, contributing to building vendors' credit scores. The initiative involves collaboration with lending institutions and payment aggregators for vendor onboarding and transaction facilitation.





2.5Eligibility Criteria of Beneficiaries


The scheme is designed to benefit street vendors operating in urban areas. Eligibility criteria involve possessing a Certificate of Vending or Identity Card issued by Urban Local Bodies (ULBs). If vendors have been identified in a survey but lack the necessary certificate, a Provisional Certificate of Vending can be generated through an IT-based platform, with a strong recommendation for prompt issuance of permanent certificates within a month.


It also extends eligibility to street vendors who were left out of the ULB-led identification survey or started vending after the survey. These vendors need a Letter of Recommendation (LoR) from the ULB or Town Vending Committee (TVC).


For vendors from surrounding rural areas, the ULB/TVC can issue LoRs based on various documents, such as lists from certain states/UTs, system-generated requests, membership details with vendors associations, relevant vendor documents, or local enquiry reports involving groups like Self-Help Groups (SHGs) and Community Based Organizations (CBOs). The ULB is expected to complete the verification and issuance of LoRs within 15 days of receiving an application.



3.SVANidhi se Samruddhi


The beneficiaries of SVANidhi scheme are the people largely belonging to the informal sector of the economy. They generally do not have formal social security benefits provided by the government. Hence, SVANidhi se Samriddhi ideates the profiling of the family members of the beneficiaries of SVANidhi scheme and using IT tools to provide them with the benefits of a bunch of Social security schemes of the central government through a single nodal point.


The program aims to map the socioeconomic profile of PM SVANidhi beneficiaries and their families, assessing eligibility for Central welfare schemes. This includes collecting data on housing, health, education, employment, women and child welfare, banking, insurance, migration, occupational category, aspirational mapping, and other relevant areas. The goals are to facilitate linkages to welfare schemes, extend state-specific benefits, and create baseline data for PM SVANidhi beneficiaries.










So Far:




A 3 years journey report was unveiled by MOHUA in June 2023. The report says that an amount of Rs 5,777 Crores was disbursed through the scheme to the 46.24 lakhs of the eligible applicants. Of these 14.78 lakhs were women vendors i.e. around 32% of the total loans disbursed. The numbers have gone up since. The loans disbursed as of Dec 2023 are 58,43,943, an increase of about 12 lakhs whereas the applications have only gone up from 65.44 lakhs to 75.03 lakhs marking the loan disbursal rate higher than the new applications increment rate.


Uttar Pradesh, Madhya Pradesh, Telangana, Gujarat and Andhra Pradesh are the top performing states with the highest targets being achieved by UP and MP simultaneously at 103%. Lucknow, Ahmedabad, Kanpur, Greater Mumbai and Indore are the top performing Urban Local Bodies with the highest no. of loans disbursed ranging from 78k+ for Indore to 100k+ for Lucknow.


Some of the rather untalked achievements of the scheme would be digital literacy and financial inclusion of the peripheral strata. The incentivisation of digital transactions creates an obligation of using digital payments infrastructure to avail the economic benefit. Also, the easy requirements to the eligibles for availing loans created a bridge between the banking system financial services and the usually aloof people of the informal economy. These two very vital sections of the scheme will have a more lasting impact on the economy than the scheme itself.





PMSVANidhi portal dashboard Dec 2023


Hence,



As of Dec 2023

1st Term

2nd term

3rd term

Sanctioned

82.60%

78.13%

82.81%

Disbursed(of sanctioned)

94.42%

93.83%

94.92%

Returned by bank(of total)

10.28%

14.94%

6.88%

Loans Repaid(of disbursed)

41.56%

19.57%

0



4.Udyam Assist Facility


The Ministry of Housing and Urban Affairs (MoHUA) has advocated designating street vendors as Micro, Small, and Medium Enterprises (MSMEs) to unlock government benefits. The Ministry of MSME has recognized urban street vendors as 'Retail Traders' under the MSME category, enabling them to access Priority Sector Lending (PSL) benefits. This initiative, integrated with the PM SVANidhi Portal, aims to facilitate Udyam Registration for street vendors, with SIDBI developing the 'Udyam Assist Platform (UAP)' to streamline the process, relaxing certain mandatory requirements. This formalization is expected to empower street vendors and promote planned business expansion.



5.Key Concerns


5.1Digital divide


According to the 3 year journey report (snapshot above) only 19.29 lakh vendors of the total 44.24 lakhs are digitally active,i.e. around 44%. Since the digital transaction is a precursor to the cashback of Rs. 1200 per year, means majority of the beneficiaries end up paying substantial amount of interest on the loans availed under the scheme which defies the idea of the scheme to provide interest free loans to the poor.


5.2High Interest Rate


The interest rate of 24% mentioned in the calculations above is essentially very high compared to the other categories of loans forwarded by banks and other financial institutions ranging between 10% to 15%. It is almost comparable to the local informal money lending interest rates.


5.3LoR for the new entrants


For the new entrants in the ULB area who want to start vending, availing the scheme could be very difficult. The need to present a letter of recommendation (LoR) from a lender to apply for an LoR to avail the loan is a lengthy process. For people from nearby rural areas coming to the city for better life, documents could be a hurdle to avail the economic benefits of the scheme. The Town Vending Committees and the Lenders making decisions at their will to provide for the required documents/membership  may lead to political and social bias against the prospective beneficiary.


5.4Others


SVANidhi se samriddhi encompasses collecting sensitive data like demographic details of the family members to the banking history and migration status which raises serious issue of data privacy and creating databases that could be used for affecting political sentiment within an area. While providing the needy with proper benefits is what the government should stand for, it is equally important for the Government to take care of the safety and security of its people. Socially sensitive data of an individual and his family could cause political targeting of the beneficiaries.



6.Recommendations


6.1Digital Divide


RBI initiated a scheme called as Payments Infrastructure Development Fund (PIDF) to incentivize Digital payment infrastructure development in the country. The scheme can be extended to all the PM SVANidhi beneficiaries and provide digital payment accepting machines free of cost or subsidizing the same to the extent that using digital payments supersedes the ease of using physical currency notes.


6.2Interest rates


For a smooth and end to end defined scheme like SVANidhi Yojana and the detailed identification of beneficiaries it carries out, it would be in the greater good of the beneficiaries to lower down the interest rates. especially the majority that are not availing the digital cashbacks. Lower interest rates would allow the government to free up spending on interest subsidy by lowering the subsidies on reduced interest rates.


6.3Overcoming the process of getting an LoR


To avail the scheme, instead of getting the recommendation letter a beneficiary should be asked to register as a vendor with ULB and further process should start based on the registration number of the individual.


6.4Upskilling


The ULB should provide for Upskilling of the beneficiaries of Udyam Assist Certificate. The recognition of SVs as Retail Traders would only be beneficial if they are able to use the credit facility under Priority Sector Lending. Hence, the ULB and TVC should collectively provide for improving the Financial Literacy and Business Development capabilities of the beneficiaries through weekly/monthly upskilling sessions.




Meet The Thought Leader



Laboni is a mentor at GGI and is currently working at The Bridgespan Group as a Senior Associate Consultant. She takes interest in socioeconomic development issues, public policy, and equity across different vectors of gender, caste, class, and ability, which in turn fuelled her transition from working at a global bank to the social sector. She is an Urban Fellow from the Indian Institute for Human Settlements, Bangalore and has a bachelor's degree in Economics from St. Stephen's College, University of Delhi.






Meet The Authors (GGI Fellows)






Prakhar is an engineering graduate from IIT Roorkee. Deriving intellectual links from his stint at UPSC Civil Services exam, he is interested in public policy, social impact and Artificial intelligence. Ideas of business process optimization and decision making for a sustainable future excites him. Always up for hindi and urdu poems over a cup of tea.








If you are interested in applying to GGI's Impact Fellowship program, you can access our application link here.


 

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