By Vershika Sharma, National Law University, Jodhpur.
Pradhan Mantri MUDRA Yojana is an institution set up by the Government of India (GoI) to provide funding to the non-cooperate/non-farm sector income generating activities of Micro and Small Enterprises or Unorganised Business Enterprises whose credit needs are below 10 lack provided through various Last Mile financial institutions like Banks, NBFCs and MFIs.
Under this, three products have been created i.e. as per the stage growth and funding needs of the beneficiary micro unit:
Shishu: covering loans upto 50,000
Kishore: covering loans above 50,000 and upto 5,00,000
Tarun: covering loans above 5,00,000 and upto 10,00,000
It would be ensured that at least 60% of the credit flows to Shishu Category Units and the balance to Kishor and Tarun Categories.
Brief particulars of MUDRA are as follows:
- Sector/activity specific schemes: To maximize coverage of beneficiaries and tailor products to meet requirements of specific business activities. To begin with, schemes are being proposed for:
Land Transport Sector/Activity: Will support units for purchase of transport vehicles for goods and personal transport such as auto rickshaw, 3 wheelers, passenger cars, taxis, etc.
Community, Social & Personal Service Activities: Such as saloons, beauty parlours, gymnasium, boutiques, tailoring shops, dry cleaning, cycle/motorcycle repair shop, Photocopying Facilities, Medicine Shops, Courier Agents, etc.
Food Products Sector: Such as papad making, achaar making, agricultural produce preservation at rural level, sweet shops, small service food stalls and catering services, cold storages, biscuit/bread making, etc.
Textile Products Sector/Activity: To provide support for undertaking activities such as handloom, khadi/chikan work, zari/zardozi work, traditional embroidery/dyeing/printing work, knitting/ginning, computerized embroidery, stitching, etc.
- Micro Credit Scheme (MCS): Financial support to MFIs for lending to individuals//JLGs/SHGs for creation of qualifying assets as per RBI guidelines towards setting up/running micro enterprises.
- Refinance Scheme for Regional Rural Banks (RRBs)/Scheduled Co-operative Banks: Enhancing liquidity of RRBs/Scheduled Co-operative Banks by refinancing loan extended to micro enterprises.
- Mahila Uddyami Scheme: Timely and adequate financial support to the MFIs, for on lending to women/JLGs/SHGs for creation of qualifying assets as per RBI guidelines.
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- Business Loan for Traders & Shopkeepers: Timely and adequate financial support for on lending to individuals for running their shops/trading & business activities/service enterprises and non-farm income generating activities.
- Missing Middle Credit Scheme: Financial support to financial intermediaries for on lending to individuals for setting up/running micro enterprises as per MSMED Act and non-farm income generating activities with beneficiary loan size of 50,000 to 10 lakh per enterprise/borrower.
- Equipment Finance Scheme for Micro Units: Timely and adequate financial support for on lending to individuals for setting up micro enterprises by purchasing necessary machinery/equipments.
Innovative Offerings
MUDRA Card: The card offering will help provide pre-approved credit line to the members by providing a card that can be utilized to purchase raw materials and components, from registered producers on an online platform. The card could be linked with Pradhan Mantri Jan Dhan Yojana Savings Account of the borrower and the drawals could also be enabled through the Bank’s ATM network for meeting the immediate liquidity problems of the micro enterprise.
Portfolio Credit Guarantee: Since the individual loan sizes would expectedly be small and number of loans will be large, the option of a Portfolio Guarantee Product will be explored. Under this option, Credit Guarantee or Risk Sharing would be provided for a portfolio of homogenous loans instead of a Scheme for individual loan-by-loan guarantee. This is expected to create administrative efficiencies and increase receptiveness for the Credit Guarantee product.
Business/Banking Correspondent Model
To capitalize on expertise in lending and collections developed by intermediaries/last mile financiers in the small/informal business segment as also to meet their capital requirements, a product for lending through the Business/Banking Correspondent Model is envisaged.
MUDRA Offerings- Addressing the Non-Credit Gaps
Besides the credit constraints, the NCSBs face many non-credit challenges, like,
- Skill Development Gaps
- Knowledge Gaps
- Information Asymmetry
- Financial Literacy
- Lack of growth orientation
To address these constraints, MUDRA will have to adopt a credit-plus approach and offer Developmental and Support services to the target audience. It will have to act as a market maker and build up an ecosystem with capacities to deliver value in an efficient and sustainable manner.
Supporting Financial Literacy
Financial literacy or financial education can broadly be defined as providing familiarity with and understanding of financial market products, especially rewards and risks, in order to make informed choices. There is a pillar that is planned on being set up under MUDRA to educate people “financially.”
Promotion and Support of Grass Root Institutions
One of the major focus areas will be to formalize and institutionalize the last mile financiers/grass root institutions so that a new category of financial institutions viz. Small Business Finance Companies can be created and ecosystem developed for their growth.
Rural innovations at micro enterprise level would also be one of the key areas for intervention and support. Support to Micro units by way of the facility of incubators would be taken up. This would ensure that at the most grass root levels in the country, there is climate for promotion of innovation as well as incubation of ideas from educated rural youths which would germinate in viable micro enterprises.
The MUDRA Pricing
Access to finance is critical and equally critical is the cost of finance to the NCSB/ultimate beneficiary. The funds mobilized by micro units from the informal sources are at high cost. There is scope for cost rationalization. However, the rationalization is intricately linked with the cost of funds for the last mile MFIs.
The NBFC-MFIs are presently regulated by Reserve Bank of India and RBI has already prescribed detailed guidelines for margin cap in respect of MFIs. The margin cap has been pegged at 10% for MFIs having loan portfolio of more than 100 crore and 12% for smaller MFIs having loan portfolio of less than 100 crore. MUDRA would also help MFIs reduce their cost to bring down the overall cost to the end beneficiaries. MUDRA would also be studying/assessing individual MFIs on this as well as other related parameters and suitably price its assistance based on such assessment.
Working on the premise that the cost to the ultimate beneficiary should be reasonable and affordable, the cost of funds of MUDRA should be 150 bps to 200 bps below the benchmark repo rates. This seems to be very much feasible as GoI is willing to support MUDRA in mobilizing low cost funds through refinance support from RBI/multilateral institutions.
Benefits of MUDRA:
- Provides low cost funding for MFIs.
- It will increase liquidity and access for fundsfor small scale business.
- Uniformity in regulations and the best practices for the SHG Bank linkage programme, NBFC-MFIs, and trusts/societies/not for profit NBFCs/Section25 companies engaging in MFI activitiesas MUDRA Bank would be the sole regulator for all players in MFI sector.
MUDRA will thus be a refinancing agency which will need funding below market rates through State interventions which in turn will help it channelise the assistance to the last mile financiers as well as the ultimate beneficiary micro units at reasonable rates.