Micro Units Development and Refinance Agency Bank (MUDRA Bank), a public sector financial institution launched by the Prime Minister Narendra Modi in 2015, seeks to provide loans at low rates to micro-finance institutions and non-banking financial institutions which then provide credit to MSMEs.
Set up under the Pradhan Mantri MUDRA Yojana scheme, MUDRA Banks are meant to provide services to small entrepreneurs outside the service area of regular banks, by using last mile agents. About 5.77 crore (57.7 million) small business have been identified as target clients using the NSSO survey of 2013. Only 4% of these businesses get finance from regular banks. The bank will also ensure that its clients do not fall into indebtedness and will lend responsibly.
The bank will have an initial capital of Rs. 200 billion and a credit guarantee fund of Rs. 30 billion. The bank initially functions as a non-banking financial company and a subsidiary of the Small Industries Development Bank of India (SIDBI). Later, it will be made into a separate company to act as regulator of MFIs.
The bank classifies its clients into three categories and the maximum allowed loan sums are based on the category:
- Shishu: Allowed loans up to Rs. 50,000
- Kishore: Allowed loans up to Rs. 5 lakh
- Tarun: Allowed loans up to Rs. 10 lakh
Government has decided to provide an additional fund of Rs.1 trillion to the market and will be allocated as
- 40% to Shishu
- 35% to Kishor
- 5% to Tarun
Those eligible to borrow from MUDRA bank are
- Small manufacturing unit
- Fruit and vegetable vendors
SME WORLD Executive Editor Mukesh Mohan Gupta recently interacted with Jiji Mammen, MD & CEO, MUDRA Limited. Excerpts:
MUDRA is proposed as a Bank, whereas we understand that it is a refinancing institution for MFIs. What was the need to form another Institution as a subsidiary of SIDBI whereas SIDBI could also have taken care of this issue? Perhaps all banks and SIDBI are already financing to MFIs.
It is true that the announcement made by the Hon'ble FM in his budget for 2015-16 is to create a MUDRA Bank. However, to form a bank there is several formalities to be completed including passing a bill in the parliament. In the meantime, in order to ensure that the services of MUDRA are extended to all, MUDRA was launched as a Non Banking Financial Institution.
As its name suggests, it is a refinance agency. Even when it becomes a Bank, it will continue its role as a refinance agency, facilitating the other financial institutions in the country to do the lending to the ultimate borrowers. It is just like SIDBI and NABARD doing refinance function. The idea is to compliment and supplement the existing financial arms rather than create a new arm and get into a competition.
As regards the need for an agency like MUDRA, I would say that in a country like ours with a vast number of entrepreneurs engaged in business, any number of such institutions will not be in excess. As you know the informal sector, which is the focus of MUDRA is in large numbers in our country. Some statistics talk about over 95% of our enterprises being in the informal sector, which may include the agriculture also. In the non-agriculture areas, there are around 5.77 crore micro units, as per an NSSO survey of 2013 and it provides employment to more than 10 crore people. Although SIDBI is originally mandated to look after the entire gamut of MSME sector, including the micro enterprise sector, considering such large number of wanting entrepreneurs, the need for a specialized organization arose to serve the focused finance seekers. That's the reason a separate institution called MUDRA was created so as to give undivided attention and pointed focus to this sector
What are the main objectives of MUDRA scheme?
The main objective of the MUDRA is to support the micro enterprises segment which is mostly unfunded by the formal credit institutions. This is done by providing the funding support to the institutions who lend in this segment by extending cheaper credit and also a credit guarantee.
Who are eligible to avail loans under this scheme?
Mudra loans are given through a special programme launched by the Hon'ble Prime Minister called Pradhan Mantri Mudra Yojana. All the persons who are otherwise eligible to take loans can apply for the same if he has a proper business plan.
Which banks can extend Loans / Credit facilities under the MUDRA scheme?
The loan is extended by Commercial Banks, both in public and private sector, Regional Rural Banks, Cooperative Banks, NBFCs and MFIs
For what purposes / activities Loans can be granted under the scheme?
The loan is extended for both establishing new enterprises and also for expansion of existing units. It could be for manufacturing activities, processing, trading, service sector activities or even activities allied to agriculture.
What type of Loans / Credit facilities can be sanctioned under MUDRA scheme?
The loans can be either working capital loan or term loan, depending on the need of the units. Again. there are three types of loan viz. Shishu, Kishor and Tarun depending on the size of the unit and size of loan
Is there any margin requirement for loans sanctioned under the scheme?
The Margin for the loan is based on the internal loan policy of lending institutions. Generally, margin is stipulated for having a stake of the owner in the project. However, for smaller loans many banks have waived this condition.
Whether collateral / primary security is required by the applicant availing loans?
As per RBI guidelines, the MSMSE units with loan upto Rs 10 lakh need not have to provide additional securities as a charge. In lieu of the same there are credit guarantee schemes like CGTMSE or CGFMU.
Under Mudra Yojana, a separate credit guarantee product has been designed and is operated by National Credit Guarantee Trust Corporation of SIDBI called Credit Guarantee Fund for Micro and Small Enterprises (CGTMSE) Units.
Is there any requirement for providing Guarantors for loans?
As mentioned above no grantors are required for Mudra loan
Is there any credit guarantee scheme?
MUDRA has constituted a guarantee Fund called 'Credit Guarantee Fund for Micro Units (CGFMU)', which is operated by NCGTC, an associate institution of SIDBI. The eligible activity would be covered under CGFMU cover
Is rate of interest charged by banks under the scheme is lower or same?
Rate of interest has been de regulated by RBI and each bank has to fix their rate of interest based on their marginal cost of funds. That's why there are MCLR rates at present. Although there is no interest stipulation in case of Mudra loans, many banks have decided to lend at their lower rates for Mudra loans.
Is the applicant required to submit certain documents with the loan application form like proof of identity & address, photograph, proof of SC / ST / OBC / Minority, if applicable, statement of bank account with existing bank, Quotations of Machinery/ items to be purchased, Copy of Balance-sheet of Unit, etc.
The relevant documents to be submitted for obtaining the loan are prescribed by Banks. But in case of Mudra loans minimum documents have been prescribed by most of the banks, as you can see from the Mudra loan application for Shishu loans, which is just a single sheet application form.
According to a recent report, 96% small enterprises do not come under the formal banking channel and are getting finance from SAHUKAR/ NBFC where the rate of interest is 40-50% or even 100% in certain cases. Also 5.77 crores small entrepreneurs who are creating more than 11 crore employment are not able to get the finance. Since MUDRA is mainly into MSME financing, what are your comments on this issue?
It is true that the so called informal sector or Own Account enterprises do not have access to banking credit and that is reason why a new dispensation by name MUDRA was created. The programme for extending loan is under PMMY. We hope to fund this unfunded segment through PMMY
Large borrowers are getting the loans at base rate but the micro enterprises are getting funds from MFI at 26% and at 50% to 100% from SAHUKARS. What is your roadmap for arranging the affordable finance to Micro and Small Enterprises?
There are two issues involved in the case of credit - the accessibility and affordability. Both are important. But which is more important is a matter of debate. We are basically aiming at accessibility as a first step. Affordability will automatically follow. It doesn't mean that anybody can charge any interest for these micro enterprises. If you see different categories of lending institutions, they operate differently and accordingly their cost operations also change. Again their capacities to raise funds also vary. Thus you find different rates in these three set of institutions from around 10% for banks to 16to 18% for NBFCs and 22% to 25% for MFIs. With newer institutions coming up like SFBs and Payment banks, I am sure there will be more efficiency in delivery of credit thereby reducing the interest rate further
What is the NPA status of MUDRA Loan?
It is still early to talk about NPA level in Mudra loan. The indications as viable for December end quarter shows below 2% delinquency, overall. Again it varies from institutions to institutions, from below 1% in MFIs to 5 to 6% in some RRBs
Is there any age limit for applicants under the scheme?
Anybody who is eligible to avail of a loan can also apply for a loan under Mudra yojana
Can MUDRA really be a game changer for India?
Definitely. It can become a game changer. Already Mudra has created an impact in funding through existing institutions. Better results will be possible if MUDRA can create a lending platform which can aid in analytics and giving right inputs to lenders, which can reduce the risk and better efficiency in lending. MUDRA would like to work towards that
How is the performance/achievements of the MUDRA scheme so far?
As you know during the first year, MUDRA has surpassed the target and reached around 1.32 lakh crore. During the current year, the achievement has already exceeded Rs 1.25 lakh crore. We hope to have a better performance by the end of the year, once we will be able to collect the entire data
Are you planning to bring any changes in MUDRA scheme?
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