Mudra Bank – Details, Objectives & Benefits

In his last Budget speech (2015-2016), Finance Minister Arun Jaitley proposed to set up a ‘Micro Units Development Refinance Agency (MUDRA Bank) with a corpus of Rs 20,000 crore.

He said that there are around 5.77 crore Small Business units, mostly individual proprietorship, which run small manufacturing, trading or service businesses. These sole-proprietors or entrepreneurs of Small & Medium Enterprises, find it difficult to get credit / finance from the financial institutions.

Today  (8^th April, 2015), Prime Minister Narendra Modi launched MUDRA Bank under Pradhan Mantri Jan Dhan Yojana Scheme.

What is Mudra Bank?

Mudra Bank is for ‘funding’ the ‘unfunded’. This will provide credit of up to Rs 10 lakh to small entrepreneurs and act as a regulator for ‘Micro-Finance Institutions’ (MFIs). MUDRA Bank will also refinance Micro-Finance Institutions through Pradhan Mantri Mudra Yojana. (Mudra, in  Hindi, means currency)

The main objectives of Mudra Bank are, to encourage entrepreneurs and small business units to expand their capabilities and operations, to reduce over indebtedness and to provide formal system of credit (finance). Agriculture & Self-employment will be the focus areas of Mudra Bank.

Responsibilities of Mudra Bank

• Laying down policy guidelines for micro/small enterprise financing business.
• Registration and Regulation of MFI (Micro-Finance Institutions) entities.
• Accreditation/rating of MFI entities.
• To assist the lower income groups to develop and grow their small businesses.
• To help in increasing the access of finance to the un-banked and to also bring down the cost of finance.
• To provide access to Institutional Finance for Small Business Units (SBU).
• Laying down responsible financing practices to prevent over indebtedness, ensuring client protection principles and methods of recovery.
• Development of standardized covenants governing last mile lending to micro/small enterprises.
• Formulating and running a credit guarantee scheme for providing guarantees to the loans which are being extended to micro-enterprises.
• MUDRA bank will also be responsible for regulating and refinancing all micro-finance institutions (MFIs) which are in the business of lending to micro or small business entities engaged in manufacturing, trading and services activities.
• To give priority to SC/ST enterprises in lending.

Funding based on Stages of Growth of a Micro unit

It has been proposed to fund the units based on the stage of growth and funding needs of an entrepreneur or a micro unit.

• Under ‘Shishu’ Scheme, loans up to Rs 50,000 will be sanctioned. This is the first stage when the business is just starting up.
• Under ‘Kishor’ Scheme, loans above Rs 50,000 and up to Rs 5 Lakh will be provided.
• Under ‘Tarun’ category, loan of above Rs 5 Lakh and up to Rs 10 Lakh will be sanctioned.

Products and Offerings of Mudra Bank

Businesses/entrepreneurs/units covered would include proprietorship/partnership firms running as small manufacturing units, shopkeepers, fruits/vegetable sellers, hair cutting saloon, beauty parlors, transporters, truck operators, hawkers, co-operatives or body of individuals, food service units, repair shops, machine operators, small industries, artisans, food processors, self help groups, professionals and service providers etc. in rural and urban areas with financing requirements up to Rs.10 lakh.

The products initially being launched are as under:

Sector/activity specific schemes, such as schemes for business activities in Land Transport, Community, Social & Personal Services, Food Product and Textile Product sectors. Schemes would similarly be added for other sectors / activities.

• Micro Credit Scheme (MCS)
• Refinance Scheme for Regional Rural Banks (RRBs) / Scheduled Co-operative Banks
• Mahila Uddyami Scheme
• Business Loan for Traders & Shopkeepers
• Missing Middle Credit Scheme
• Equipment Finance for Micro Units

The average debt of Small business enterprises in India is around Rs 17,000. If lending is increased to Rs 5 or 10 Lakh, the sector would benefit immensely and may generate lot of self-employment opportunities.

Small business units generally face lot of challenges to get loans from Banks. So, they end up taking high-cost loans from financiers or money lenders.

I believe that creating a bank like Mudra Bank will hugely benefit small manufacturing units and self-employed individuals in rural and urban areas with financing requirements up to Rs 10 lakh. Bringing in the informal sector into the formal system has many advantages for both business and economy.

( You may read my article on ” How to apply for a Business Loan under Pradhan Mantri MUDRA Yojana – PMMY? “)

Latest Update : The contact details of Nodal Officers of Mudra Ltd have been recently published. Below are the details. For any queries related to loans, you can email them to help@mudra.org.in .

Source – mudra.org.in

(I will  try to update this article with more details like ‘rate of interest’ on loans, mode of operation, bank branches etc., ASAP)

What is your view on Mudra Bank? Share your comments.

(Reference : Press Information Bureau, GOI)