The Prime Minister Narendra Modi launched the
promised Micro Units Development and Refinance Agency
Ltd (MUDRA) Bank on 8 April, 2015 with a corpus of Rs 20,000
crore and a credit guarantee corpus of Rs 3,000 crore. The launch was the
fulfillment of an announcement made earlier by the Finance Minister Arun
Jaitley in his FY 15-16 Budget speech.
"Big industrial houses provide jobs to only 1.25 crore
people, while small entrepreneurs employ 12 crore people. MUDRA Bank aims to
fund the unfunded small entrepreneurs; need to strengthen savings habit in the
country," Modi said.
He announced higher compensation for
crop damage and eased criteria for them to avail government support.
How Can MUDRA Bank Make a
Difference to the Economy?
Most individuals, especially those living in rural and interior
parts of India, have been excluded from the benefits of formal banking system.
Therefore, they never had access to insurance, credit, loans and other
financial instruments to help them establish and grow their micro businesses.
So, most individuals depend on local money lenders for credit. The loan comes
at high interest and often with unbearable conditions, which make these poor
unsuspecting people fall in a debt-trap for generations. When businesses fail,
the borrowers become vulnerable to the lender’s strong-arm tactics and other
forms of humiliation.
As per NSSO Survey of 2013, there are close to 5.77 crore
small-scale business units, mostly sole proprietorships, which undertake
trading, manufacturing, retail and other small-scale activities. Compare this
with the organised sector and larger companies that employ 1.25 crore
individuals. Clearly, the potential to harness and nurture these micro
businesses is vast and the government recognises this. Today, this segment is
unregulated and without financial support or cover from the organised financial
banking system.
The principal objectives
of the MUDRA Bank are:
1. Regulate
the lender and the borrower of microfinance and bring stability to the
microfinance system through regulation and inclusive participation.
2. Extend
finance and credit support to Microfinance Institutions (MFI) and agencies that
lend money to small businesses, retailers, self-help groups and individuals.
3. Register
all MFIs and introduce a system of performance rating and accreditation for the
first time. This will help last-mile borrowers of finance to evaluate and
approach the MFI that meets their requirement best and whose past record is
most satisfactory. This will also introduce an element of competitiveness among
the MFIs. The ultimate beneficiary will be the borrower.
4. Provide
structured guidelines for the borrowers to follow to avoid failure of business
or take corrective steps in time. MUDRA will help in laying down guidelines or
acceptable procedures to be followed by the lenders to recover money in cases
of default.
5. Develop
the standardised covenants that will form the backbone of the last-mile
business in future.
6. Offer a
Credit Guarantee scheme for providing guarantees to loans being offered to
micro businesses.
7. Introduce
appropriate technologies to assist in the process of efficient lending,
borrowing and monitoring of distributed capital.
8. Build a
suitable framework under the Pradhan Mantri MUDRA Yojana for developing an
efficient last-mile credit delivery system to small and micro businesses.
Can MUDRA Really Be a Game Changer for India?
Yes it can. See the existing demographics. Majority of Indians
are poor and live in rural and interior parts of India. Most are excluded from
getting facilities that would be termed very basic, even by Indian standards.
Most people do not have access to farmland and in the absence of
jobs, are left to their own creativity to feed themselves and survive. They
figure out ways to do odd jobs in exchange of money or barter their services.
Most of these people belong to scheduled castes, scheduled tribes and other
backward classes. It is to be noted that most of the micro enterprises, retail
or trading activity, are initiated and controlled by women, with no exposure to
education, formal training or access to any form of banking support.
Now visualize this. If India could harness this free spirit of
enterprise and offer some guidance, support, training and financial assistance,
the potential to get an immediate jump in GDP is there for the asking. Narendra
Modi recognizes this and was clear of the potential of this low-hanging fruit.
If MUDRA can continue to retain focus on the underprivileged and
extend its reach to the interiors, it can well emerge as a bigger success story
than what Grameen Bank of Bangladesh ever was or will be.
There is an old saying that goes like this: “Give a man a fish
you feed him for a day, teach him how to fish and he will never go hungry”.
MUDRA Bank is a step by the government that can be a game changer in giving
birth to a new set of entrepreneurs, some of whom may scale heights not
imagined today. This is far better than giving subsidy, which may seem
welcoming at first, but does little to help an individual strive for a better
life. MUDRA is the way to go.
The modalities of functioning of MUDRA Bank are in place and it
has been decided that the funding activity will be carried out by micro finance institutions. However, the small businesses have to wait to get full
information on Mudra Bank and have a clarity on who all are eligible for loans
and how to get the benefits of this scheme.
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