Funding the unfunded: PM Modi launches MUDRA bank for small entrepreneurs

Prime Minister Narendra Modi on Wednesday launched the Micro Units Development Refinance Agency  (MUDRA) Bank which will provide credit of up to Rs 10 lakh to small entrepreneurs and act as a regulator for 'Micro-Finance Institutions' (MFIs).

The roles envisaged for MUDRA include laying down policy guidelines for micro-enterprise financing business and registration of MFI entities, as well as their accreditation and rating.

Mudra Bank is being set up through a statutory enactment and will be responsible for developing and refinancing through a Pradhan Mantri MUDRA Yojana. The basic idea behind this bank is this: since small entrepreneurs are businesses are often cut off from  banks, MUDRA will partner with local coordinators and provide finance to "Last Mile Financiers" of small/micro businesses.

Here's all you need about the MUDRA BANK:

1. MUDRA targets young, educated or skilled workers and entrepreneurs including /women entrepreneurs

There are about 5.77 crore small business units. MUDRA Bank lays down "responsible financing practices" to ward off over indebtedness and ensure proper client protection principles and methods of recovery, besides development of standardised set of covenants governing last mile lending to micro enterprises.

 Funding the unfunded: PM Modi launches MUDRA bank for small entrepreneurs

PIB

"Providing access to institutional finance to such micro/small business units/enterprises will not only help in improving the quality of life of these entrepreneurs but also turn them into strong instruments of GDP growth and employment generation," the Finance Ministry said in a statement.

2. MUDRA Bank to have a corpus of Rs 20,000 crore

In his Budget speech, Finance Minister Arun Jaitley had proposed the MUDRA  Bank will have a corpus of Rs 20,000 crore, and credit guarantee corpus of Rs 3,000 crore.

"The initial products and schemes under this umbrella have already been created and the interventions have been named 'Shishu', 'Kishor' and 'Tarun' to signify the stage of growth/development and funding needs of the beneficiary micro unit/entrepreneur," the Ministry said.

Shishu/Kishor/Tarun interventions

The Bank will nurture small businesses through different stages of growth and development of businesses termed as Shishu, Kishor and Tarun.

Shishu: This is the first step when the business is  starting up. The loan cover in this stage will be upto Rs 50,000.

Kishor:In this stage, the entreprenuer will be eligible for a loan ranging from Rs 50,000 to Rs 5 lakh.

Tarun: This last and final category will provide loans for upto Rs 10 lakh.

3. The roles envisaged for MUDRA include:

· Laying down policy guidelines for micro enterprise financing business
· Registration of MFI entities
· Accreditation /rating of MFI entities
· Laying down responsible financing practices to ward off over indebtedness and ensure proper client protection principles and methods of recovery
·Development of standardised set of covenants governing last mile lending to micro enterprises
· Promoting right technology solutions for the last mile
· Formulating and running a Credit Guarantee scheme for providing guarantees to the loans/portfolios which are being extended to micro enterprises
· Support development & promotional activities in the sector
· Creating a good architecture of Last Mile Credit Delivery to micro businesses under the scheme of Pradhan Mantri MUDRA Yojana

MUDRA would also partner with state/regional level coordinators to provide finance to "Last Mile Financiers" of small/micro business enterprises.

4. Beauty parlours, hawkers to be covered by MUDRA Bank: Businesses/entrepreneurs/units covered by the MUDRA Bank would include proprietorship/partnership firms such as small manufacturing units, shopkeepers, fruits/vegetable sellers, hair cutting saloon, beauty parlours, 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.

5. Credit Plus Approach: MUDRA will also take up other initiatives such as supporting financial literacy, creating a framework for “Small Business Finance Entities” where it will work with credit bureaus and rating agencies among others.

" The establishment of MUDRA would not only help in increasing access of finance to the unbanked but also bring down the cost of finance from the Last Mile Financiers to the informal micro / small enterprises sector," the finance ministry said in a statement. 

Updated Date: Apr 08, 2015 12:40:53 IST