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16 January 2016 K2_CATEGORY IAS Blog

Pradhan Mantri MUDRA Yojana

Pradhan Mantri Mudra YojanaThe government proposes to set up a Micro Units Development and Refinance Agency (MUDRA) Bank through a statutory enactment. This Bank would be responsible for regulating and refinancing all Micro-Finance Institutions (MFI) which are in the business of lending to micro/small business entities engaged in manufacturing, trading and services activities. The Bank would partner with state level/regional level co-ordinators to provide finance to Last Mile Financer of small/micro business enterprises.

Since the enactment for MUDRA is likely to take some time, it is proposed to initiate MUDRA as a unit of SIDBI to benefit from SIDBI’s initiatives and expertise.

The MUDRA Bank would primarily be responsible for –

1)  Laying down policy guidelines for micro/small enterprise financing business 

2)  Registration of MFI entities 

3)  Regulation of MFI entities

4)  Accreditation /rating of MFI

5)  Laying down responsible financing practices to ward off indebtedness and ensure proper client protection principles and methods of recovery

6)  Development of standardized set of covenants (agreements) governing last mile lending to micro/small enterprises

7)  Promoting right technology solutions for the last mile

8)  Formulating and running a Credit Guarantee scheme for providing guarantees to the loans which are being extended to micro enterprises

9)  Creating a good architecture of Last Mile Credit Delivery to micro businesses under the scheme of Pradhan Mantri Mudra Yojana

A sum of Rs 20,000 crore would be allocated to the MUDRA Bank from the money available from shortfalls of Priority Sector Lending for creating a Refinance Fund to provide refinance to the Last Mile Financers. Another Rs 3,000 crore would be provided to the MUDRA Bank from the budget to create a Credit Guarantee corpus for guaranteeing loans being provided to the micro enterprises.

Products and Offerings: The primary product of MUDRA will be refinance for lending to micro businesses / units under the aegis of the Pradhan Mantri MUDRA Yojana. 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 as also provide a reference point for the next phase of graduation / growth for the entrepreneur to aspire for:

- Shishu: covering loans upto Rs. 50,000/-
- Kishor: covering loans above Rs. 50,000/- and upto Rs. 5 lakh
- Tarun: covering loans above Rs. 5 lakh and upto Rs. 10 lakh

The products initially being launched are as under: 

  • Sector/activity specific schemes, such as schemes for business activities in Land Transport, Community, Social & Personal Services, Food Product and Textile Product sectors. Schemes would similarly be added for other sectors / activities.
  • Micro Credit Scheme (MCS)
  • Refinance Scheme for Regional Rural Banks (RRBs) / Scheduled Co-operative Banks
  • Mahila Uddyami Scheme
  • Business Loan for Traders & Shopkeepers
  • Missing Middle Credit Scheme
  • Equipment Finance for Micro Units

Credit Plus Approach:
MUDRA would also adopt a credit plus approach and take up interventions for development support across the entire spectrum of beneficiary segments. The highlights of such proposed interventions / initiatives are as under:

  • Supporting financial literacy
  • Promotion and Support of Grass Root Institutions
  • Creation of Framework for “Small Business Finance Entities”
  • Synergies with National Rural Livelihoods Mission
  • Synergies with National Skill Development Corporation
  • Working with Credit Bureaus
  • Working with Rating Agencies

Other Proposed Offerings: Going forward, offerings as under are also envisaged: 

  • MUDRA Card
  • Portfolio Credit Guarantee
  • Credit Enhancement

Some Facts:

  • According to the NSSO survey of 2013, there are 5.77 crore small business units, mostly individual proprietorships, which run small manufacturing, trading or services activities.
  • The players in the Micro Finance sector can be qualified as falling into 3 main groups- the SHG-Bank linkage model started by NABARD, the Non-Banking Finance companies and the others including Trusts, Societies etc.

Recent Developments (Jan,2016):

  • The Cabinet approved conversion of MUDRA Ltd, an NBFC, into MUDRA Bank and also setting up of a Credit Guarantee Fund for loans disbursed under the Pradhan Mantri Micro Units Development Refinance Agency (MUDRA) Yojana.
  • The finance ministry said that MUDRA loans amounting to Rs 71,312 crore have been disbursed to 1.73 crore borrowers as on January 2016.
  • The government refinanced online Rs.2000 crore under the MUDRA scheme, the rest Rs. 69,312 crore are loans disbursed by MFI and banks which have now been renamed as MUDRA loans.
  • Shishu accounts for 40%, Kishor for 37% and Tarun for 23% of total loans disbursed.
  • States getting biggest chunk of loans include- Karnataka (Rs. 8114 crore), Maharashtra (Rs.6988 crore) and Uttar Pradesh (Rs. 6547 crore).
  • The top three institutions that received refinance under the MUDRA scheme are: SKS Microfinance (Rs.100 crore), Ujjivan Financial Services Pvt Ltd(Rs.100 crore) and  Equitas Microfinance Pvt Ltd (Rs. 75 crore).


[Sources: PIB, inbministry, Telegraph India, PM Website, The Indian Express, The Economics Times]