MUDRA Bank - Features and its role in regulating micro-finance

MUDRA Bank - Features and its role in regulating micro-finance

Question - The Pradhan Mantri Mudra Yojana will be launched on April 8th 2015. Discuss the features of the MUDRA Bank and its value for regulating micro-finance in India.

The MUDRA/Micro Units Development and Refinance Agency bank will be launched alongside the Pradhan Mantri Mudra Yojana

Features of MUDRA Bank

• The theme of the bank is “Funding the Unfunded”

• MUDRA Bank will be responsible for regulating as well as refinancing of micro-finance institutions in the business of landing to micro/small business entities associated with manufacturing, trading and service activities besides others

• MUDRA Bank will be established through statutory enactment and partner State/regional level coordinators to provide financial support to last mile financiers of micro and small business enterprises

Role In Regulation of MFI(Micro Finance) Industry

• MUDRA Bank will set the policy guidelines for micro/small enterprise financing business

• Registration, accreditation/rating and regulation of MFI entities

• Establishing responsible financing practices to stave off indebtedness and protect principles and methods of recovery

• MUDRA bank will also offer right technology solutions for the last mile and development of standardised set of covenants concerned with last mile lending to micro and small enterprises

• This bank will also formulate and establish a Credit Guarantee scheme for offering guarantees to loans being extended to micro businesses

• It will also assist in creation of a good architecture of Last Mile Credit Delivery to micro companies as per the Pradhan Mantri Mudra Yojana

• It will aim to lower the cost of finance from Last Mile Financiers to micro/small enterprises many of which are in the informal sector

Facts and Stats

• Sum of INR 20,000 crore will be allocated to MUDRA bank from Priority Sector Lending’s shortfalls for creating a Refinance Fund for Last Mile Financiers.

• INR 3000 crore will be provided to the MUDRA Bank from the Budget for the creation of a Credit Guarantee corpus for loan guarantee being provided to micro businesses.

• As per the NSSO survey 2013, around 5.77 crore small business units constituting chiefly individual proprietorships running manufacturing, trading or services activities are prevalent in India.

• Owners of these own account enterprises chiefly comprise SC, ST or OBC.

• According to government estimates, 4% of such units receive institutional finance.

• GDP, growth and job creation will result from provision of institutional finance to micro/small enterprise units.

• Micro finance is a tool for economic development and poverty alleviation. It includes provision of credit, money transfer facilities, insurance, savings and counselling to name a few.

• The MFI sector chiefly comprises SHG Bank linkage model started by NABARD, NBFCs and others including Trusts and Societies.

• The Micro Units Development and Refinance Agency Bank has been established via a statutory enactment .

• Bank will partner state/regional level coordinators to provide financing to last mile financiers of small and micro businesses.