MUDRA stands for Micro Units Development and Refinance Agency. Micro Finance is an economic development tool whose objective is to assist the poor to work their way out of poverty. Micro-finance is an important tool in an economy like India where a million new workers are added to the workforce every month especially in small businesses. Read more about micro finances in this article on MUDRA Bank for SSC. Also, know how these businesses comprise 5% of the economy.
Micro Units Development and Refinance Agency (MUDRA) Ltd. Bank was launched on 8 April, 2015 as a subsidiary of SIDBI. The players in the Micro Finance sector can be qualified as falling into 3 main groups:
- The SHG-Bank linkage model started by NABARD
2. The Non-Banking Finance companies and
3. The others include Trusts, Societies etc.
Objectives of MUDRA Bank :-
The core objective of MUDRA bank is to fund the unfunded. It will finance “Last Mile Financiers” of small/micro businesses. The lending priority will be given to SC/ST enterprises. Mudra Bank is the vehicle to implement PM Mudra Yojana. The aim of MUDRA is to finance the Non – Corporate Small Business Sector (NCSBS).
MUDRA Bank will be set up as a statutory body. It will regulate and refinance all MFI (Micro Finance Institution) who lend to MSME (Micro, Small and Medium Enterprises) engaged in small manufacturing, trade or services. It will partner all state/regional level coordinators to provide easy finance to even the remote investors. The bank has been allotted a Refinance Fund of Rs. 20,000 Crores from the shortfalls of Priority Sector Lending.
Classification of MUDRA Bank :-
MUDRA Bank has rightly classified the borrowers into three segments:
- Starters
- Mid-stage finance seekers
- Next level growth seekers
To address the three segments, MUDRA Bank has launched three loan instruments:
- MUDRA Shishu Yojana: It covers loans up to Rs 50,000/-. This is the first stage when the business is just starting up. It has no loan processing charges and Interest is 10% to 12% per annum. Loan repayment tenure is up to 5 years
- MUDRA Kishor Yojana: It covers loans above Rs 50,000/- and up to Rs. 5 lakh. It is middle scheme & comes in the category of unsecured loan & its Interest rate is high from 14% to 17% depends on bank to bank.
- MUDRA Tarun Yojana: It covers loans above Rs 5 lakh and up to Rs 10 lakh. It is also an unsecured Loan and its rate of interest rate is high and starts from 16% and vary from bank to bank
Note that at least 60% of loans shall be disbursed under Shishu category and remaining for Kishor and Tarun categories.
Primary Functions of MUDRA Bank :-
- Frame policy guidelines for micro/small enterprise MFIs
- Registration and Regulation of MFIs
- Promoting and regulating responsible finance in favour of client welfare, remove indebtedness and provide proper protection principles and recovery methods
- Accreditation and rating of MFIs
- Promoting right technology solutions for problems faced by MFIs and borrowers
- Framing a robust architecture for Last Mile Credit Delivery to MSMEs under the umbrella of Pradhan Mantri Mudra Yojana
- Formulating and running a credit guarantee scheme for providing guarantees to the loans which are being extended to microenterprises
- Development of standardized covenants governing last mile lending to micro/small enterprises
List of activities of MUDRA Bank :-
- Transport Vehicle
- Community, Social & Personal Service Activities
- Food Products sector
- Textile Products sector/Activity
- Business loans for Traders and shopkeepers
- Equipment finance scheme for micro units
Advantages & Disadvantages of MUDRA Bank :-
Advantages –
- Development of SMEs
- Employment in Rural
- GDP
- Make in India
- Facilitates Infrastructure
- Increasing standard of living and poverty level
Disadvantages –
- Mudra bank seems to be promoting shadow banking as its operations are not under the administration and regulation of Reserve Bank of India (RBI). As such, there is a chance of potential operational risk when Mudra Bank grows in size.
- It makes sense to create small banks to finance micro and small business segment or migration of the existing MFIs to small banks than creating one more financing agency. They already have the required domain knowledge.
- In the past, similar attempts were made by the then Prime Minister Indira Gandhi, by nationalizing banks and compelling them to lend to small and micro businesses. Therefore it is questionable that how Mudra bank initiative will be any different from past attempts.
Impact on Indian Economy MUDRA Bank :-
- Increased entrepreneurial success will immediately boost GDP of a demographic region where the business is located.
- It increased business success results in increased employment and increased demand for goods and services.
- MUDRA Bank Increased demand in return stimulates the manufacturing segment of the economy and supply of goods.
