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PM launches MUDRA Bank to fund small businesses

Business Standard:  April 09, 2015

New Delhi: Prime Minister Narendra Modi on Wednesday launched Micro Unit Development and Refinance Agency, or MUDRA to fund and promote microfinance institutions (MFIs), which would in turn provide loans to small and vulnerable sections of the businesses.

Modi said these businesses would provide almost 10 times jobs to what was being generated by big companies.

MUDRA will have an initial corpus of Rs 20,000 crore and a credit guarantee corpus of Rs 3,000 crore. The initial corpus would be provided by banks from their priority sector lending shortfall.

To be an Non-banking financial company (NBFC) and a part of Sidbi, MUDRA will later take the form of a bank through a Bill, which the government will present in Parliament within the next one year, according to financial services secretary Hasmukh Adhia. With this, the long-awaited Bill on MFIs would not come and some of its provisions would be incorporated in the Bill on MUDRA, Adhia added. "It will also put in place entire mechanism as to how much interest rate can be charged for micro sector," he said. The issue had become quite contentious after the MFI sector had faced tough time, particularly in Andhra Pradesh when the state government tightened the noose on MFIs for recovery of loans in the wake of over- indebtedness of the loanees.

On whether MUDRA would regulate the NBFC (MFI), Adhia said, "That decision would be taken when the Bill will be framed.” He added the government was yet to take a call on whether MUDRA would be transformed into a universal bank.

“The government can decide to make it a policy bank like NHB (National Housing Bank) or it can decide to make it a universal bank,” he said.

Speaking about the broad contours of the proposed Bill, he said: “It will define what is going to be MFI. What is our definition of MFI. It will try and put in some process of registering new MFIs with MUDRA Bank."

It will also define functioning and objective of MUDRA Bank, Adhia said.

During the launch, the Prime Minister said the MUDRA scheme was aimed at “funding the unfunded”. He said India’s small entrepreneurs were used to exploitation at the hands of money lenders so far, but MUDRA would instill new confidence in them.

Small businesses can avail loan up to Rs 50,000; businesses that are a little bigger could avail loan of up to Rs 5 lakh; the highest bracket of loans available to the MSME sector would be up to Rs 10 lakh.

For further financing, the MSME sector affiliated entrepreneurs would be given a ‘MUDRA card’, which could provide further credit of up to Rs 20,000.

MUDRA would also partner with state, regional level co-ordinators to provide finance to the last-mile financiers of small and micro business enterprises.

The idea of MUDRA Bank was first envisaged in Budget 2015-16.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.