Important Points to Know About MUDRA Bank

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Details about MUDRA Bank:

Type – Subsidiary

Industry – Business finance

Founded – 8 April 2015; 2 years ago

Headquarters – Mumbai

Area served – India

Products – Microfinance and refinance

Website – www.mudra.org.in

Micro Units Development and Refinance Agency Bank (or MUDRA Bank) is a public sector financial institution in India. It provides loans at low rates to micro-finance institutions and non-banking financial institutions which then provide credit to MSMEs. It was launched by Prime Minister Narendra Modi on 8 April 2015.

The formation of the agency was initially announced in the 2015 Union budget of India in February 2015. It was formally launched on 8 April.

The MUDRA banks were set up under the Pradhan Mantri MUDRA Yojana scheme. It will provide its services to small entrepreneurs outside the service area of regular banks, by using last mile agents. About 5.77 crore (57.6 million) small business have been identified as target clients using the NSSO survey of 2013. Only 4% of these businesses get finance from regular banks. The bank will also ensure that its clients do not fall into indebtedness and will lend responsibly.

The bank will have an initial capital of 200 billion (US$3.1 billion) and a credit guarantee fund of 30 billion (US$470 million). The bank will initially function as a non-banking financial company and a subsidiary of the Small Industries Development Bank of India (SIDBI). Later, it will be made into a separate company. However, it will not regulate Micro Finance institutions.

The bank will classify its clients into three categories and the maximum allowed loan sums will be based on the category:

• Shishu: Allowed loans up to 50,000 (US$780)
• Kishore: Allowed loans up to 5 lakh (US$7,800)
• Tarun: Allowed loans up to 10 lakh (US$16,000)

Government has decided to provide an additional fund of 1 trillion (US$16 billion) to the market and will be allocated as,

• 40% to shishu
• 35% to kishor
• 25% to Tarun

Those eligible to borrow from MUDRA bank are,

• Small manufacturing unit
• Shopkeepers
• Fruit and vegetable vendors
• Artisans

The basic criteria of age should be 18 years old. Now, coming to the gist, you can only have a long under the scheme of the Pradhan Mantri Mudra Bank Loan if and only if you are applying it for commercial and business purposes and not for personal purposes. At the most, borrower can buy vehicle from mudra loan, given that it is used for commercial purposes. Lastly, this loan is for new business is and its only applicable for small business owners and obviously, if you have your turnover higher than a bar which is set from before, then you won’t be able to apply.

Micro Units Development and Refinance Agency Limited (MUDRA Bank ) has been set up for ‘funding the unfunded’ micro enterprises in the country.  MUDRA will refinance all banks, Micro-finance Institutions (MFIs) and other lending institutions, which are in the business of lending to micro / small business entities, engaged in manufacturing, trading and services activities. Thus, MUDRA Bank will strengthen the Last Mile Financial Institutions by extending refinance and other development support to expand their outreach.  This will in turn help micro businesses across the length and breadth of the country. MUDRA’s mandate also includes developing the micro enterprise sector into a viable economic sector, for which various developmental interventions including financial/ business literacy programmes are planned.

PMMY loans will be extended by all Banks such as PSU banks, Regional Rural Banks (RRBs), Cooperative Banks, Private Sector Banks, Foreign Banks, Micro Finance Institutions and Non-Banking Finance Companies.

Any Indian Citizen who has a business plan for income generating micro/small business activity in manufacturing, processing, trading or service sector, and whose credit need is less than 10 lakh can approach a Bank/ MFI for availing of MUDRA loans under PMMY, or can apply online through website of standup India.

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 Bank 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.

Major Product Offerings

MUDRA Bank has rightly classified the borrowers into three segments:

• The starters,
• The mid-stage finance seekers and
• The next level growth seekers.

Initially, sector-specific schemes will be confined to “Land Transport, Community, Social & Personal Services, Food Product and Textile Product sectors”. Over a period of time, new schemes will be launched to encompass more sectors.

MUDRA Bank operates as a refinancing institution through State/Regional level intermediaries. It refinances NBFCs/MFIs and also banks, primary lending institutions etc.