As part of the announcements made during Union Budget 2015-16, Government of India under leadership of PM Narendra Modi will launch Micro Units Development and Refinance Agency (MUDRA Bank) for refinancing small and medium enterprises from India.
This new bank for entrepreneurs will have a corpus of Rs 20,000 crore, and as per reports coming in from various sources, Schedule Caste and Schedule Tribe members will get top priority for getting refinance and loan for their enterprises.
Finance Minister Arun Jaitley said that plans to help small and medium enterprises via refinancing through MUDRA Bank will be executed under Pradhan Mantri Mudra Yojana.
He said, “In lending, priority will be given to SC/ST enterprises,”
In a meeting attended by members of micro-finance institutions, NBFCs, banks, NABARD, SIDBI and RBI, he asked for a meeting by various stakeholders so that final draft of MUDRA Bank’s legalities and terms and conditions are formulated. Government will announce the official opening of MUDRA Bank on April 8th, 2015.
What Will It Do?
MUDRA Bank will basically provide refinance and assistance to those financers who finance SMEs and Entrepreneurs in India. Hence, this bank will act as a regulator and refinancer to MFI (Micro Finance Intuitions) which lend to small and medium enterprises to help them grow. In case these SMEs default on loan or are in need of further loans, then MUDRA Bank will get in, and help these MFIs to get further funds through refinancing, and in turn help SMEs with more funds.
As of now, MUDRA Bank will only assist to those MFIs and Investors who are investing in sectors such as manufacturing, trading and services niche.
Via various statutory enactments, this bank will reach out to the “last mile financier of small/micro business enterprises” and help them to manage their finances, increase investments and refinance SMEs loan for more action and more results.
Functionaries of MUDRA Bank
With a corpus of Rs 20,000 crore to start with, this one of its kind bank in India will have a credit guarantee corpus of Rs 3000 crore. Some of the tasks which are expected from this bank:
- Policy guidelines for Micro Finance Institutions which are lending money to SMEs
- Official registration of MFI entities in India, so that SMEs can have option before choosing their lenders, with the best interest rate
- Regulation of various MFIs, as majority of them are in the unorganized sector, with no paper work
- Accreditation and rating of MFIs entities in India
- Enforcing proper client-protection principles so that small scale enterprises are not cheated or made to pay more than what is due
- Ward off the “indebtness” and financial risk associated with entrepreneurship via refinancing their previous loans
- Partnership with regional/local coordinators so that even the weaker sections of the society gets benefitted
With around 5.5 crore SMEs present in India, almost 50-60% of them are operating without any legal framework or financial back-up from the Government. They rely on MFIs and other financial institutions which sometimes charge additional interest rates for loan, and get trapped into the vicious cycle of loan repayment with heavy interest.
MUDRA Bank will surely provide them greater assistance in managing their businesses, and growing it with proper framework.