MUDRA – Micro Units Development & Refinance Agency
Pradhan Mantri MUDRA Yojana (PMMY) is a scheme launched by the Hon’ble Prime Minister on April 8, 2015 for providing loans upto 10 lakh to the non-corporate, non-farm small / micro enterprises. These loans are classified as MUDRA loans under PMMY. These loans are given by Commercial Banks, RRBs, Small Finance Banks, Cooperative Banks, MFIs and NBFCs. The borrower can approach any of the lending institutions mentioned above or can apply online through this portal. Under the aegis of PMMY, MUDRA has created three products namely ‘Shishu’, ‘Kishore’ and ‘Tarun’ to signify the stage of growth / development and funding needs of the beneficiary micro unit / entrepreneur and also provide a reference point for the next phase of graduation / growth.
MUDRA or Micro Units Development & Refinance Agency Ltd, is a financial institution being set up by Government of India for development and re-financing micro units enterprises. It was launched by Prime Minister Narendra Modi on 8 April 2015. The purpose of MUDRA is to provide funding to the non-corporate small business sector through various Last Mile Financial Institutions like Banks, NBFCs and MFIs.
MUDRA Yojana: Function
Under the aegis of Pradhan Mantri MUDRA Yojana (PMMY), MUDRA has created its initial products / schemes. 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 and also to provide a reference point for the next phase of graduation / growth to look forward to. The financial limit for these schemes are:
- 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 to Rs. 10 lakh
MUDRA’s delivery channel is conceived to be through the route of refinance primarily to Banks / NBFCs / MFIs. Pradhan Mantri Mudra Yojana is a Government of India scheme, which enables a small borrower to borrow from banks, MFIs, NBFCs for loans upto Rs. 10 lakh for non farm income generating activities. Generally, loans upto Rs. 10 lakh issued by banks under Micro Small Enterprises is given without collateral.
MUDRA Yojana: Loan
As per Department of Financial Services, Ministry of Finance, Govt. of India’s letter No. 27/01/2015 – CP / RRB dated May 14, 2015 loans given to non-farm income generating enterprises in manufacturing, trading and services whose credit needs are below Rs. 10 lakh by all the Public Sector Banks, Regional Rural Banks, State Cooperative Banks and Urban Co-operative Banks will be known as MUDRA loans under the Pradhan Mantri MUDRA Yojana (PMMY). All such loans can be covered under refinance and/or credit enhancement products of MUDRA. Scheduled Commercial Banks (Public / Private) Regional Rural Banks (RRBs) Scheduled Urban Co-operative Banks / State Cooperative Banks Micro Financial Institutions viz., NBFCs, MFIs, Societies, Trusts,etc.For information on MUDRA products and any kind of assistance, the borrower can either approach / contact MUDRA office at Mumbai or the identified MUDRA Nodal Officers, whose details are made available at MUDRA’s Website. Borrower Borrower Borrower Borrower. In addition to these Banks, NBFCs and MFIs operating across the country can also extend credit to this segment, for which they can avail financial assistance from MUDRA Ltd., subject to their conforming to the approved eligibility criteria. Eligibility criteria for availing refinance / financial assistance by institutions from MUDRA has been finalized and hosted at MUDRA’s website. To begin with, based on eligibility criteria, MUDRA has enrolled 27 Public Sector Banks, 17 Private Sector Banks, 27 Regional Rural Banks and 25 Micro Finance Institutions (MFIs – list as per Annexure I) as partner institutions for channelizing assistance to the ultimate borrower.
MUDRA Yojana: Eligibility for availing MUDRA Loan
Any Indian Citizen who has a business plan for a non farm income generating activity such as manufacturing, processing, trading or service sector whose credit need is less than Rs. 10 lakh can approach either a Bank, MFI or NBFC for availing of MUDRA loans under PMMY. The usual terms and conditions of the lending agency may have to be followed for availing of loans under PMMY. The lending rates are as per the RBI guidelines issued in this regard from time to time.
MUDRA Yojana: Process
MUDRA’s delivery channel is conceived to be through the route of refinance primarily to NBFCs / MFIs, besides other intermediaries including banks, Primary Lending Institutions, etc.
At the same time, there is a need to develop and expand the delivery channel at the ground level. In this context, there is already in existence, a large number of “Last Mile Financiers” in the form of companies, trusts, societies, associations, etc. which are providing informal finance to small businesses.
Consultation with stakeholders has brought about a need to formalize and leverage upon this informal delivery channel which exists on the ground and has competence in lending as well as collections from the target segment.
The financing architecture conceptualized for the MUDRA Bank would thus also be aimed towards integration of these “last mile financiers” into the formal delivery channel by utilizing intermediaries such as NBFCs / NBFC – MFIs as also Non Corporate MFIs.
There is also a need to identify the financiers that are operating in small towns and cities of India meeting the local credit needs. Efforts are to be made to build up their capacities so that over a passage of time, they are able to grow their size, expand their area of operations as well as bring down their costs of funds.
This would enable them to upscale their lending capabilities to this sector as well as reduce cost of funds. Thus, one of the key issues before MUDRA would be to bring them in its financial architecture and recognize the rightful role that they have been playing in provision of credit in local markets for a long time.
Further, one of the key approaches of MUDRA should be to rekindle entrepreneurship by nurturing institutions in the financial sector which would provide easy and innovative access of credit to deserving entrepreneurs without any complex formalities attached.
The above would be in the nature of a multi-tier arrangement / inter-mediation and evolving a suitable delivery architecture for this route including requirements such as system of registration of the last mile financiers, inculcating responsible lending and collection practices amongst them, maintaining efficiencies in cost of delivery at different tiers / levels and development of a standardized set of covenants governing last mile lending would be taken up.
While the intermediaries to be refinanced by MUDRA Bank would initially be the existing NBFCs / MFIs, in the longer run, with the segment becoming formalized and therefore likely to attract more capital, the channel is expected to result in creation of an enabling ecosystem for a new type of financial intermediary called “Small Business Finance Companies” which would specialize in this segment.
Technology leveraging will form the backbone of the delivery system to be put in place by MUDRA in association with the intermediaries. For the last mile delivery, Mobile Technology holds immense potential.
An appropriate platform would have to be put in place for promoting right technology solutions for the last mile. System which is enabled for the following would be needed:
- Registration of non formal entities
- Linkages for uploading of beneficiary data by MFI / intermediaries to MUDRA Bank and capturing data relating to credit flow and beneficiary details such as area, type of activity, seasonality, types of product, community etc.
- Facility for inputs from Business / Banking Correspondents
- Facility for linkages to:
- the UID / Aadhaar database / system
- the Pradhan Mantri Jan-Dhan Yojana Bank Accounts.
- Credit Bureaus
- Entities such as Mix Market
- Technology flow to informal sector