Mudra Bank or Micro Units Development and Refinance Bank may be described as a public sector entity that deals in various financial products and services. Primarily, it makes loans accessible to small entrepreneurs, who otherwise find it hard to procure financial assistance of any kind, and this is done in lieu of low rates of interest.
Objective of Mudra Bank
The main aim of the Mudra Bank programme is regulate the lending and borrowing activities in the microfinance setup of India and thus make it stable to a certain extent. It also looks to make this sector see greater levels of inclusive participation. The initiative aims to provide crediting services and financial support to those microfinance entities that are functioning across the country. These organizations primarily cater to small business units, self help groups, retailers and individual entrepreneurs. The Mudra Bank initiative will also be employed to register all the microfinance institutions and then start a system of rating their performances and accrediting them.
Products and Offerings
The Mudra Bank will provide three kinds of loans – Shishu, Tarun and Kishore. The maximum amount that will be lent under Shishu loan is Rs. 50,000. For Kishore loan, the upper limit is Rs. 5 lakhs and in case of Tarun loan, the maximum amount has been fixed at Rs. 10 lakhs. Now, the bank will determine which loan applicant falls under particular category and the loans will be provided in accordance to that. Shishu loans are basically for the ones who are just starting out their businesses, Kishore loans are for those who are in the middle stage of their business endeavours and Tarun loans are for those who are looking to move on to higher levels, such as doing business expansion.
Benefits and Demerits
The biggest potential advantage of the Mudra Bank programme is that it can help a large number of countless entrepreneurs across the country by providing financial support, which is such an important component in their existence and eventual success. With its focus on the underprivileged section of the Indian economic hierarchy, Mudra Bank may one day replicate what Grameen Bank has done in Bangladesh.
On the other hand, some experts feel that with a bank working as a microfinance institution, there may be a question of conflict of interest coming up soon. They have also questioned about the need of having a new microfinance entity when there are already several institutions like such in place. They feel that it may also give rise to shadow banking programmes.
Mudra Bank Scheme Highlights
Following are certain special features of the Mudra Bank:
- Mudra Bank is established via a statutory enactment.
- It will be a part of the Pradhan Mantri MUDRA Yojana.
- It will function in the service area that falls outside the purview of the conventional banks. For this purpose, it shall use last mile agents.
- The programme has used the NSSO Survey of 2013 to identify its prospective clients.
- Among its target clientele, only 4percent can access loans that are going to be provided by the banks.
- The bank will try and make sure that its clients never run up any debt; therefore, it will focus on responsible methods of lending.
- Mudra Bank will, at the start, have a corpus of Rs. 20,000 crore. It will also have a credit guarantee fund ranging between Rs. 2000 crore and Rs. 3000 crore.
How it can Help Indian Economy?
The Mudra Bank initiative is expected to help at least 5.77 crore small business entities in India. This is a major help considering that these organizations hardly get banks that provide loans to them and other financial assistance. Mudra Bank will work in association with coordinators who would work locally and provide finance to its intended beneficiaries. It is also expected to regulate different microfinance institutions in India and further aid them with refinancing services from time to time. It is also expected to provide guidelines for them and allot ratings so that they can function accordingly.
Mudra Bank will also help the job scenario in this sector, which, at present, employs around 12 crore workers across India. Each unit in this segment incurs debts of only INR 17,000. Self-employed people are also supposed to be benefited by the Mudra Bank programme. At present, there are 5 crore and 75 lakh such people in India and they work with an aggregate fund of Rs. 11 lakh crore.
As of now, Mudra Bank will work as a non banking financial company and it will also be a SIDBI (Small Industries Development Bank of India) subsidiary. However, later on, it is expected to become an independent entity. It will also look to increase its product line in the future with MUDRA Card, credit enhancement and portfolio credit guarantee facilities. As of now, only a few sectors – Land Transport, Food Products, Community, Textile Product, and Social and Personal Services – are being covered; however, the scope of the programme is set to be expanded in the days ahead.
Last Updated on 4/23/2015