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According to the NSSO survey of 2013, there are 5.77 crore small business units, mostly individual proprietorships, which run small manufacturing, trading or services activities. Many of these 'own account enterprises’ are owned by people belonging to Scheduled Caste, Scheduled Tribe or Other Backward Classes. However, only 4% of such units get institutional finance. Providing access to institutional finance to such micro/small business units would turn them into strong instrument of GDP growth and also employment.
Micro Finance is an economic development tool whose objective is to assist the poor to work their way out of poverty. It covers a range of services which include, in addition to the provision of credit, many other services such as savings, insurance, money transfers, counseling etc. The players in the Micro Finance sector can be qualified as falling into 3 main groups: - the SHG-Bank linkage model started by NABARD, the Non Banking Finance companies and the others including Trusts, Societies etc.
The government set up a set up a Micro Units Development and Refinance Agency (MUDRA) Bank which would be responsible for regulating and refinancing all Micro-finance Institutions (MFI) which are in the business of lending to micro/small business entities engaged in manufacturing, trading and services activities.
MUDRA scheme is aimed at “funding the unfunded”. The small entrepreneurs of India are used to exploitation at the hands of money lenders so far, but MUDRA will instill a new confidence in them that the country is ready to support them in their efforts that are contributing so heavily to the task of nation building.
· The primary product of MUDRA will be refinance for lending to micro businesses/units under the aegis of the Pradhan Mantri MUDRA Yojana.
· MUDRA Bank has been established by government with a Refinance corpus of Rs.20, 000 crore, and credit guarantee corpus of Rs.3000 crore.
· The products would be covered under three categories that are as follows:
Ø Shishu : covering loans up to Rs. 50,000/-
Ø Kishor : covering loans above Rs. 50,000/- and up to Rs. 5 Lakh
Ø Tarun : covering loans above Rs. 5 Lakh and up to Rs. 10 Lakh
It is to be noted that at least 60% of loans shall be disbursed under Shishu category and remaining for Kishor and Tarun categories.
· All commercial banks (Private or Public), RRB, Cooperative Bank or other Micro Finance Institutions are eligible for refinance under PM Mudra Yojana.
· Collateral Security: Banks have been mandated not to insist for collateral security in the case of loans up to 10 Lakh extended to the units in the Micro Small Enterprises sector.
MUDRA: A GAME CHANGER
The idea of connecting every last mile financer (either bank or MFI) to lending credit to all type of business is not particular to India. To reach every common person is beyond imagination for Banks and only MFIs or local money lender can do this to flow credit to every needed person.
Whenever informal sector people like rickshaw pullers, household factories etc., look for formal credit then condition of security was major hurdle in getting loan ad can’t be fulfilled as these people does not own any property. As now in Mudra loan, there is no condition of collateral up to loan of Rs 10 Lakh and it will help to fund the unfunded.
It has various dynamic features like Mudra Card, Bank Limit etc. which make scheme more attractive. In Bank Limit, amount sanctioned for loan shall be deposited into one’s Mudra account and then one can get credit any time from use of Mudra Card. The interest will be subjected to amount and time period that one has used but not on whole amount for whole of the year.
As majority of loan amount i.e. 60% shall be allotted to Shishu category can be very useful for extreme poor population included SC/STs, as majority of sole proprietor business in home based processing units, such as pickles, papad is run by them.
There is no doubt that growth of informal sector has more effect on every macroeconomic variable like GDP, Per capita income, gross capital formation or employment generation etc. because this sector already employ more than 12 Cr population in approx 5 Cr enterprises.
Challenges concerning MUDRA
Many put question of creating a new refinance agency Mudra as we already have another agencies to refinance for purpose of business only like National Bank for Agriculture and Rural Development (NABARD) and the Small Industries Development Bank of India (SIDBI).
The world is already in a path to discourage shadow banking (like refinance agencies etc) and to replace it with main line banking as far as possible. That’s why RBI has set up small financial banks and MFIs get a chance to shift to banking. It does not make much sense to establish a new refinance agency as it will not solve the purpose, but simply cause of tussle between many agencies and regulators.
The poor grievance redressal is one of major problem where government scheme end to a failure or without success. The government has created new schemes and institutions for special focus on micro business by passing the existing mechanism or institutions, but remains depend on same mechanism of grievance redressal which is universally poor in India.
The idea of connecting last mile financiers might only be limited to Banks or some big NBFCs because to register with MUDRA, financiers have to pass a litmus test of number of bureaucratic documents and further need to comply with RBI guidelines which may be not be feasible for most of small financiers.
It is also said that Banks and MFIs are converting previous loans into MUDRA and that’s why government is able to showing large numbers of loans have already been given.
The NPA level, which is already a big problem, might grow at unexpected level due to this type of easy loan to everyone.
As government banks provides financial services to more than 70% population of India, the bureaucratic nature of government employees (like lethargic or chalta hai attitude etc.) is among major hurdles in implementation of Mudra scheme.
However NPA might get boost is just an apprehension by banks or people as track record of credit given to Self Help Groups (SHGs) makes it clear that poor are more honest than the likes of corporate leaders such as, Vijay Malya or Subrata Roy, who have defaulted billions of dollars. Also it might be better to have NPAs of billion dollars by Lakhs of people than by only one or two person.
The only thing Banks or RBI has to do is to create a single platform to check past record of person applying for loan and if never defaulted then provide loan to person as fast as possible.
Overall, MUDRA is a step in right direction for funding the unfunded but government shall set up a robust monitoring and grievance redressal mechanism to take cognizance problems arrived under the scheme.
MUDRA or Micro Units Development and Refinance Agency Ltd is a government created development and finance agency aimed to give refinancing and several development functions to micro unit enterprises.
Its primary responsibility is to provide funding to nearly 5.8 crore Non-Corporate Small Business Sector (NCSB) units of the country through various Last Mile Financial Institutions like Banks, NBFCs and MFIs.
The micro enterprises or Non-Corporate Small Business sector (NCSB) are disadvantaged and disaggregated tiny entities that influences the lives of around fifty crore people. Their growth performances bring momentum in economic growth.
According to government estimates, more than 90% of the NCSB sector does not have access to formal sources of finance. It is to provide finance to this segment that the government has created MUDRA Limited as a subsidiary of SIDBI.
How Mudra will function?
The core function of MUDRA is refinancing. It will provide refinancing all Last Mile Financiers such as Non-Banking Finance Companies, Societies, Trusts, Co-operative Societies, Small Banks, Scheduled Commercial Banks, Regional Rural Banks and Section 8 Companies [formerly Section 25], which gives loans to micro/small business entities engaged in manufacturing, trading and services activities. MUDRA would also partner with State/Regional level financial intermediaries to provide finance to Last Mile Financier of small/micro business enterprises.
MUDRA’s support to Pradhan Mantri MUDRA Yojana (PMMY)
Pradhan Mantri MUDRA Yojana (PMMY), is a scheme launched by the government of India and implemented through MUDRA. The scheme contains three products to three levels of micro enterprises under the name Shishu, Kishor and Tarun. These products indicate the stage of growth / development and funding needs of the beneficiary micro unit / entrepreneur. It will also be used as a reference point for the next phase of graduation / growth. The PMMY sets financial limit for these schemes: –
1. Shishu : covering loans upto 50,000/-
2. Kishor : covering loans above 50,000/- and upto 5 lakh
3. Tarun : covering loans above 5 lakh to 10 lakh
MUDRA’s provides finance through other financial institutions including Banks/NBFCs/MFIs. This is called refinancing (Financing of loans given by other institutions). As per regulations, at least 60% of the loan amount should be given for Shishu categories.
The MUDRA is also supposed to extend several development functions to the microfinance sector. But the details of these activities with regard to the MFI sector is yet to be finalized by the government.
Progress of the scheme
MUDRA has emerged as a grant success in terms of the number of beneficiaries and amount sanctioned. In the first year, 2015-16, about 1.5 crore new entrepreneurs have got support from banks and microfinance institutions (MFIs) to set up small businesses under.
Overall, 3.5 crore new as well as existing entrepreneurs have been sanctioned loans under PMMY which is the main programme under MUDRA. Women entrepreneurs account for about 78 per cent (or 2.52 crore) of the total number of borrowers. During the first year, Rs 1.2 lakh crore has been sanctioned under the scheme and the government’s target is Rs 1.8 lakh crore for 2016-17.
The data captured by MUDRA shows that almost 50 per cent of the loans under PMMY have been taken by new enterprises.
Relationship between MUDRA and SIDBI
SIDBI is a development financial institution with multiple functions for the MSMEs (Micro, Small and Medium Enterprises) including financing and development responsibilities. It was established in 1990 it has become the principal financial institution for the promotion, financing and development of MSMEs. SIDBI gives refinancing as well as direct financing support to firms. Previously, it was the SIBDI that provided indirect loans to small units. The MUDRA aims to give loans below Rs 10 lakh. Micro units are the domain of MUDRA. Under the existing arrangement, SIDBI gives loans for higher amounts. Hence, MUDRA is established as a subsidiary of SIDBI.