The Mudra problem

Directed lending always builds up bad loans in banks

On Tuesday, Reserve Bank of India Deputy Governor M K Jain highlighted a dangerous trend: The rising levels of bad debt in the small-scale loans being handed out under the government’s Mudra scheme. The location where he made this remark is significant: He was speaking at a microfinance conference organised by the Small Industries Development Bank of India, which is the underwriter and the owner of the risk management protocols for the Mudra loans. Mr Jain said that banks would have to do both a better job of establishing the capability to repay when the potential loan is being evaluated,