India is a vast country with a diversified population. Diversity in terms of culture, geographical location, and occupation. Occupational diversity is one of the major factors that affects the socio-economic growth of the country. While the banking sector and other financial institutions have shown exponential growth over the years, the underprivileged communities of the society have been unable to avail the benefit of financial services.
According to the 59th round of NSS0 survey, it was reported that 51.4 % of farmer households are financially excluded from both formal/informal sources of credit. Also, only 27% accessed formal credit and 73% have no access to formal sources of credit.
Pradhan Mantri Jan Dhan Yojana – The Genesis of MUDRA
In the year 2013, Crisil reported that only 40 % of India’s population had access to formal banking services. To address this issue, Hon’ble Prime Minister Narendra Modi launched the “Pradhan Mantri Jan-Dhan Yojana (PMJDY)” on 28th August 2014.
The objective of PMJDY is ensuring access to various financial services like availability of basic savings bank account, access to need based credit, remittances facility, insurance and pension to the excluded sections i.e. weaker sections and low income groups. This is by far the biggest financial inclusion initiative around the world and has been a spectacular success.
MUDRA – Next Stage of Financial Inclusion
Opening of accounts under the Pradhan Mantri Jan-Dhan Yojana was an important first step. The next step in the direction of financial inclusion was to enable the account holders to enjoy financial services, irrespective of their economic backgrounds. MUDRA or the Micro Units Development & Refinance Agency Ltd. was set up by the Government of India as a wholly owned subsidiary of Small Industries Development bank of India (SIDBI). The collateral free feature of the MUDRA scheme has enabled millions of borrowers to avail loans from the banks and other financial institutions. It has also enhanced the economic growth as the loans are given for any activity which results in income generation.
MUDRA – Micro Units Development & Refinance Agency Ltd – Funding the Unfunded
The survey reports pointed at the inefficient lending system that exists in the country. In order to rectify this imbalance in terms of lending practices, Pradhan Mantri MUDRA Yojana popularly known as MUDRA was launched by the Hon’ble Prime Minister of India, Shri Narendra Modi on 8th April 2015 at New Delhi. The agency would be responsible for developing and refinancing all Micro-enterprises sector by supporting the finance Institutions which are in the business of lending to micro/ small business entities.
Features of the Scheme
All loans under MURA are disbursed on a collateral free basis. This implies that the borrowers who could not apply for a loan due to absence of a collateral can now avail financial services with the help of Pradhan Mantri MUDRA Yojana.
There are 3 types of loan offered under the MUDRA scheme. The lending amount depends on the requirement of the borrower.
- SHISHU Loan – Offering financial support of up to INR 50,000
- KISHOR Loan – Offering financial support of amount ranging between INR 50,000 and INR 5,00,000
- TARUN Loan – Offering financial support of amount ranging between INR 5,00,000 and INR 10,00,000
An essentially great feature of the MUDRA loan is that the loan amount is provided through the MUDRA Card (Rupay Card). The card is provided by the bank through which the loan is being sanctioned. The card can be utilized for different purposes like–
- Online payments
- Used as a Debit Card, and
- ATM card
This would provide ease of payment and purchasing, and also encourage transparency in the business process.
Moreover, the borrower needs to pay interest only on the amount of money that the borrower has used. For instance, a borrower who obtained a loan of INR 60,000 and used only INR 40,000 from his/her loan amount. Then the borrower is liable to pay interest only on INR 40,000 that is the amount withdrawn.
Image Source – PMMY Annual Report – 2015-16