Pradhan Mantri Mudra Yojana

Pradhan Mantri MUDRA Yojana has come as a boon for MSME (Micro, small and medium Enterprises) sector and is widely hailed as a robust measure to achieve inclusive growth.

Objective of the Pradhan Mantri MUDRA Yojana

There are a lots of Scheduled castes, scheduled tribes and other backward classes entrepreneurs in the MSME sector. NSSO Survey 2013 suggests that there are 5.77 crore small businesses like manufacturing, trading or services. It is very difficult for these units to get finance from the scheduled banks as they have to go through a tight scrutiny, thereby defeating the purpose of refinancing them under funds released from SIDBI. Thus, only 4% of these units are able to get loans for their business needs and others are forced to land with money-lenders. The objective of this scheme to launch a Micro Units Development and Refinance Agency (MUDRA) Bank to support the entrepreneurs of the above mentioned  classes.

Status of Micro-finance in India

Micro-finance is an important tool in an economy like India where a million new workers are added to workforce every month especially in small businesses. These businesses comprise about 5% of the economy. The performance of India’s microfinance institutions is quite dismal. These institutions do not give loans beyond Rs.50,000 to a single person and the average amount given per account by Non-banking Financial Institution-Micro-finance institutions is Rs. 16,194. This figure is far below the funding requirements of first generation small entrepreneurs who are looking for amounts upto a few lakhs. India already has agencies which are involved in providing microfinance. These are:

• National Housing Bank: It was set up in 1988 to refinance home loans and regulate housing finance companies
• National Bank for Agriculture and Rural Development: It was set-up in 1982 by a law to regulate credit support, institutional development and encourage innovative initiatives in rural sector. It also promotes sustainable agricultural practices.
• Small Industries Development Bank of India: It was set-up in 1990 to promote, finance and develop small and medium enterprises and provide them easy finance upto a limit of Rs. 1 Crore.

Proposed MUDRA Bank

MUDRA stands for Micro Units Development and Refinance Agency. The MUDRA Bank will be set up through as statutory enactment. The lending priority will be given to SC/ST enterprises. The bank has been allotted a Refinance Fund of Rs. 20,000 Crores from the shortfalls of Priority Sector Lending. It will regulate and refinance all MFI who lend to MSME engaged in small manufacturing, trade or services. It will partner all state/regional level coordinators to provide easy finance to even the remote investors. The primary functions of MUDRA Bank are:

• Frame policy guidelines for micro/small enterprise MFIs
• Registration of MFIs
• Regulation of MFIs
• Promoting and regulating responsible finance in favour of client welfare, remove indebtedness and provide proper protection principles and recovery methods
• Accreditation and rating of MFIs
• Promoting right technology solutions for problems faced by MFIs and borrowers.
• Framing a robust architecture for Last Mile Credit Delivery to MSMEs under the umbrella of Pradhan Mantri Mudra Yojana.

The MUDRA Bank will be a powerful step to provide Refinance to Last Mile financers and borrowers. However, it may promote shadow banking and channelize MFIs away from the mainstream banking system. This may stand juxtaposed to the global trend which discourages shadow banking and let the main-line banking system address financing needs of all segments of society.