Banking Awareness Question Day 20

Micro Units Development and Refinance Agency Bank (MUDRA)

MUDRA, which stands for Micro Units Development & Refinance Agency Ltd, is a financial institution being set up by the Government of India for the development and refinancing of micro-units enterprises. It was announced by the Hon’ble Finance Minister while presenting the Union Budget for FY 2016. The purpose of MUDRA is to provide funding to the non-corporate small business sector through various Last Mile Financial Institutions like Banks, NBFCs and MFIs.

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The biggest bottleneck to the growth of entrepreneurship in the Non–Corporate Small Business Sector (NCSB) is the lack of financial support to this sector. More than 90% of this sector does not have access to formal sources of finance. GoI is setting up MUDRA Bank through a statutory enactment for catering to the needs of the NCSB segment or the informal sector for bringing them into the mainstream. Pending enactment of an act for MUDRA Bank, a Non-Banking Finance Company as MUDRA Ltd has been set up as a subsidiary of SIDBI.

MUDRA would be responsible for refinancing all Last Miles Financiers such as Non-Banking Finance Companies, Societies, Trusts, Section 8 Companies [formerly Section 25], Co-operative Societies, Small Banks, Scheduled Commercial Banks and Regional Rural Banks which are in the business of lending 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.

Under the aegis of Pradhan Mantri MUDRA Yojana (PMMY), MUDRA has already created its initial products/schemes. 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 and also to provide a reference point for the next phase of graduation/growth to look forward to. The financial limit for these schemes are :-

 a. Shishu: covering loans up to  50,000/-
 b. Kishor: covering loans above  50,000/- and up to  5 lakh
 c. Tarun: covering loans above  5 lakh to  10 lakh

MUDRA’s delivery channel is conceived to be through the route of refinance primarily to Banks/NBFCs/MFIs.
At the same time, there is a need to develop and expand the delivery channel at the ground level. In this context, there is already in existence, a large number of ‘Last Mile Financiers’ in the form of companies, trusts, societies, associations and other networks that are providing informal finance to small businesses.

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Non–Corporate Small Business Segment (NCSB) comprising of millions of proprietorship /partnership firms running as small manufacturing units, service sector units, shopkeepers, fruits /vegetable vendors, truck operators, food-service units, repair shops, machine operators, small industries, artisans, food processors and others, in rural and urban areas.

Are Regional Rural Banks (RRBS) will be eligible for assistance from MUDRA?

Yes, MUDRA will be extending refinance support to RRBs for enhancing their liquidity.

What is the Rate of Interest charged by MUDRA?

MUDRA is a refinancing agency which will extend its funds to Last Mile Financiers to enable them to reach out to the sector. Access to finance in conjunction with the rational price is going to be the unique customer value proposition of MUDRA. It will use a variety of innovative financing means including technology to bring down the cost of funding for the ultimate borrower.

Monitoring of PMMY progress at the State level will be done through the SLBC forum and at the National level by MUDRA/Department of Financial Services, Government of India. For this purpose, MUDRA has developed a portal, wherein the banks and other lending institutions directly feed their achievement details which is consolidated by the system and reports are generated for review.