PM Narendra Modi launched the Rs 20,000 cr Micro Units Development Refinance Agency (MUDRA) Bank today and said , “the aim of the bank is to fund the unfunded small entrepreneurs and to strengthen savings habit in the country”.
Big industrial houses provide jobs to only 1.25 cr people, while small entrepreneurs employ 12 cr people. Prime Minister Narendra Modi.
MUDRA Bank will provide credit of up to Rs 10 lakh to small entrepreneurs and act as a regulator for ‘Micro-Finance Institutions’ (MFIs).
The roles envisaged for MUDRA include laying down policy guidelines for micro enterprise financing business and registration of MFI entities as well as their accreditation and rating.
There are about 5.77 crore small business units.
It will also lay down “responsible financing practices” to ward off over indebtedness and ensure proper client protection principles and methods of recovery, besides development of standardised set of covenants governing last mile lending to micro enterprises.
“Providing access to institutional finance to such micro/small business units/enterprises will not only help in improving the quality of life of these entrepreneurs but also turn them into strong instruments of GDP growth and employment generation,” the Finance Ministry said in a statement.
In his Budget speech, Finance Minister Arun Jaitley had proposed the Micro Units Development Refinance Agency (MUDRA) with a corpus of Rs 20,000 crore, and credit guarantee corpus of Rs 3,000 crore.
“The initial products and schemes under this umbrella have already been created and 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,” the Ministry said.
Shishu would cover loans up to Rs 50,000 while Kishor above Rs 50,000 and up to Rs 5 lakh. Tarun category will cover loans of above Rs 5 lakh and up to Rs 10 lakh.
MUDRA is to be set up through a statutory enactment. It would be responsible for developing and refinancing through a Pradhan Mantri MUDRA Yojana.
Since the enactment for MUDRA is likely to take some time, it is proposed to initiate the Bank as a unit of SIDBI to benefit from SIDBI’s initiatives and expertise.
MUDRA would also partner with state/regional level coordinators to provide finance to “Last Mile Financiers” of small/micro business enterprises.
“Further, the approach goes beyond credit only approach and offers a credit – plus solution for these enterprises spread across the country,” the Ministry said.
Among others, MUDRA would benefit small manufacturing units, shopkeepers, fruits and vegetable sellers, hair saloon, beauty parlours, truck operators, hawkers, artisans in rural and urban areas with financing requirements up to Rs 10 lakh.
The Finance Ministry said measures to be taken up by MUDRA are targeted towards mainstreaming young, educated or skilled workers and entrepreneurs including women entrepreneurs.
Mudra Bank can be positive for microfinance sector: ICRA
According to rating agency ICRA, with Non Banking Finance Companies-Microfinance Institutions (NBFC-MFIs) likely to have overall debt of Rs 360 billion to Rs 420 billion by March 2016, re-finance from MUDRA Bank could constitute a major portion of the overall debt of the MFIs.
As per ICRA estimates, the MFI sector, including self- help groups (SHGs) and NBFC-MFIs, had a total portfolio of Rs 780 billion as on September 30, 2014, ICRA said in a report here.
It said, assuming an annual growth rate of 10-15 per cent for SHGs and 30-35 per cent for NBFC-MFI for the next two years, the overall microfinance portfolio is likely to cross Rs 1 trillion.
“The NBFC-MFIs alone are likely to have overall debt of Rs 360-420 billion by March 2016. Refinance from Micro Units Development Refinance Agency (MUDRA) Bank could constitute a significant proportion of the overall debt of the MFIs,” it noted.
It further said that since MUDRA Bank is likely to have access to low cost funds from short falls in priority sector lending, it is likely to pass on the same, leading to lower funding costs for players.
Given that the present funding costs of MFIs vary from 12-16 per cent with the median cost of funds being 14 per cent, NBFC-MFIs cost of funds for MFIs could come down by 100-400 bps depending on the share of funding an MFI is able to receive from MUDRA bank.
However, it pointed out that it would be important to understand the criteria MUDRA Bank could follow for onward lending to players in the MFI space with respect to interest rates and allocation among various players.
A single regulator for all entities engaged in microfinance could lead to adoption of a uniform code of conduct for all players in the industry, which could also define the best practises for delivery of financial services to the under served, it added.
Currently, there are differences in regulations by different regulators.