After the success of Pradhan Mantri Jan dhan Yojna, GOI launched another scheme to provide credit for Small and Medium Enterprises through MUDRA Bank. The basic aim for this is to provide funding for small business that employs over 12 crore people in the country. The scheme will provide credit upto Rs.10 lacs to small business and act as a regulator for Micro Finance Institutions.
Micro Units Development Refinance Agency (MUDRA) will provide credit to small entrepreneurs which are running approx. 5.77 crore units in India. The aim is to provide funding to small businesses for their growth or expansion who normally find challenges in getting such funding or credit. With Agriculture and Self employment as the focus, it will be a source of funding for ‘unfunded’.
The basic responsibilities of Mudra Bank includes
- Regulation of MFI (Micro-Finance Institutions) entities
- Fund the unfunded at a relatively lower cost/interest rates
- Provide financing assistance for small businesses necessary for their growth
- Registration and Accreditation/rating of MFI entities
- Lay down policy framework for micro/small enterprise financing
- Provide access to Institutional Finance for Small Business Units (SBU)
- Development of standardized covenants governing last mile lending to micro/small enterprises
- Formulate credit guarantee scheme for providing guarantees to the loans which are being extended to micro-enterprises
- Lay down responsible financing practices to prevent over indebtedness, ensuring client protection principles and methods of recovery.
Mudra Schemes Details
There are 3 scheme that has been started initially namely Shishu, Kishor and Tarun that signifying (in hindi) various stages of young and growing life. The basic difference between 3 schemes are the amount of lending.
- The first Scheme ‘Shishu’ covers loans up to Rs 50,000
- The second scheme ‘Kishor’ covers loans above Rs 50,000 and upto Rs 5 lakh.
- The third scheme, ‘Tarun’ covers loans of more than Rs 5 lakh and upto Rs 10 lakh.
Eligibility for MUDRA
Small or Medium Business or Entrepreneurs including proprietorship and partnership firms that has a financing requirement of Rs.10 lacs are covered under this scheme. Such businesses could be a small manufacturing units, shopkeepers, fruits/vegetable sellers, hair cutting saloon, beauty parlors, transporters, truck operators, hawkers, co-operatives or body of individuals, food service units, repair shops, machine operators, small industries, artisans, food processors, self help groups, professionals and service providers etc. in rural and urban areas.
This scheme is an ideal for small and medium business units who normally find challenges in procuring finance for their expansions. Generally, they found theme eligible only with smaller NBFCs that charges exorbitantly high interest rates along with various types of hidden charges. Also Self employed people with low income will find it easy to get a easy access to funds.
The products initially being launched are as under:
Sector/activity specific schemes, such as schemes for business activities in Land Transport, Community, Social & Personal Services, Food Product and Textile Product sectors. Schemes would similarly be added for other sectors / activities.
- Micro Credit Scheme (MCS)
- Refinance Scheme for Regional Rural Banks (RRBs) / Scheduled Co-operative Banks
- Mahila Uddyami Scheme
- Business Loan for Traders & Shopkeepers
- Missing Middle Credit Scheme
- Equipment Finance for Micro Units
- Currently an average debt of Small business enterprises in India is around Rs 17,000 which is expected to go up with scheme. Assuming an increase to an average of even 2-3 lacs, it will be a great support not only to small business but also for the GDP of India.