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Mudra Bank: Step in the right direction

Mudra Bank: Step in the right direction

Ravi Capoor, Former CEO, IBEF

Apr 10, 2015 12:27 PM

The Micro Unit Development and Refinance Agency or Mudra Bank recently launched by Mr Narendra Modi, Prime Minister of India is expected to fund and promote microfinance institutions (MFIs), which would in turn provide loans to small and vulnerable sections of the businesses. The new entity will be set up with a refinancing corpus of Rs 20,000 crore from the priority sector shortfall and credit guarantee corpus of Rs 3,000 crore through budgetary support. With the combined outreach of the microfinance sector at about 75 million clients, an apex bank, which provides undivided attention, is expected to give a boost to the sector.

"Through MUDRA Bank our target and focus is on 5.75 crore who use funds of Rs 11 lakh crore, with an average per unit debt of merely Rs 17,000," the Hon’ble PM said, adding that a loan benefit of Rs 1 lakh to these entrepreneurs will provide a big push to the country's gross domestic production (GDP) and these businesses would provide almost 10 times jobs to what was being generated by big companies. The Bank will nurture small businesses through different stages of growth and development of businesses termed as Shishu, Kishor and Tarun. Small businesses (Shishu) can avail loan up to Rs 50,000; businesses that are a little bigger (Kishor) could avail loan of up to Rs 5 lakh; the highest bracket of loans available to the MSME sector (Tarun) would be up to Rs 10 lakh.

Mudra Bank was introduced by Mr Arun Jaitley, Union Minister for Finance, Government of India in his budget speech earlier this year in February. Initially it was mentioned that it would fund the MFIs through a Pradhan Mantri Mudra Yojana and accord priority to SC/ST enterprises. Following the tradition of establishing separate all-India banks for specific sectors on the lines of Nabard and Sidbi, it was later announced that the bank will cover SHG-Bank Linkage Programme (SBLP) as well as MFIs organised as NBFCs and NGOs. Significantly, it added other critical aspects to its work area — regulation, accreditation/rating, laying down responsible finance practices, technology solutions and credit guarantee scheme.

The setting up of Mudra Bank is in the right step and can be expected to unify the sector under a single body leading to stability and growth.

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