All You Need to Know – Mudra Bank


PM Narendra Modi launched MUDRA (Micro Units Development and Refinance Agency) bank under the Pradhan Mantri Jan Dhan Yojana. The proposal to establish MUDRA Bank was first announced in the Union Budget. The Pradhan Mantri MUDRA Yojana will be the main support system for the bank and will be the part of Small Industries Development Bank of India (SIDBI).

It was launched with a corpus of Rs. 20,000 crores and credit guarantee corpus of Rs. 3000 crores. This will provide credit of up to Rs 10 lakh to small entrepreneurs and act as a regulator for ‘Micro-Finance Institutions’ (MFIs). This will give support to the farmers in form of compensation from government. The criterion of 50% crop damage for providing compensation to affected farmers has been reduced to 33%, which will help more farmers to get compensation for their crop loss. Moreover, the amount of compensation has been increased to 1.5 times. This is aimed at benefiting some 58 million small businesses in the country, who account for a mere 4% of institutional funding, despite employing over 120 million people, many from the unprivileged strata of the society.

“After ‘banking the un-banked’ with the Jan Dhan Yojana, it’s time to ‘fund the unfunded’,” the Prime Minister said at an event to launch what is called Micro Units Development and Refinance Agency – MUDRA. In spite of larger contribution to economy, millions of common men and women, who run small businesses, have remained outside the net of formal institutional finance. So by providing access to institutional finance to such micro and small business units and enterprises will not only help in improving the quality of life of these entrepreneurs, but also turn them into strong instruments of growth and employment generation.

The products and schemes under this umbrella have been named as ‘Shishu’, ‘Kishor’ and ‘Tarun’ to signify the stage of growth and funding needs of the beneficiary micro unit/ entrepreneur. Shishu would cover loans up to Rs 50,000, Kishor above Rs 50,000 and up to Rs 5 lakh, whereas Tarun would cover loans of above Rs 5 lakh and upto Rs 10 lakh.

As per the envisaged roles for MUDRA Bank, it will :

  • Provide loans to help bridge the shortfall in loans for small businesses, currently estimated at more than $80 billion (nearly Rs 5 lakh crore).
  • Formulate lending norms for micro-finance institutions so that the small businesses do not face hardship over indebtedness, while getting a fair environment for repayment.
  • Undertake rating and accreditation of MFI entities.
  • Formulate and operate credit guarantee schemes in order to provide guarantees to loans and portfolios that are extended to micro enterprises.
  • Support promotional and development activities in the sector and create a good architecture for last mile credit delivery.
  • Develop standardized set of guidelines in order to govern last-mile lending to micro enterprises and also promote appropriate technology solutions for the last mile.

Some more points to know :

  • Small entrepreneurs employ more people as compared to big industries; however they face difficulty in getting credit from established banks.
  • Currently, just 4% of 5.8 crore small business units have access to bank loans. Such small units thus have to rely on informal lenders for credit.
  • Growth in small businesses is important for the Indian economy as it estimated to account for 20% of economic output and 40% of India’s exports.