MUDRA MSME

MUDRA BANK

Introduction: Mudra Bank stands for Micro Units Development Refinance Agency (MUDRA). MUDRA

Bank was announced by the Finance Minister Arun Jaitley in his FY 15-16 Budget speech. Micro Units

Development and Refinance Agency Bank (or MUDRA Bank) is a public sector financial institution.

Mudra Bank is being set up through a statutory enactment and will be responsible for developing and

refinancing through a Pradhan Mantri MUDRA Yojana. Although 20% of the country's population is

dependent on 5.7 crore micro and small entrepreneurs, they do not have access to institutional credit.

Since small entreprenuers are businssess are often cut off from banking system because of limited

branch presence, Mudra Bank will partner with local coordinators and provide finance to "Last Mile

Financiers" of small/micro businesses. The aim is to provide financial assistance to the "unfunded"

small entrepreneurs who provide employment to a large number of people. The Government will

ensure that measures to be taken up by MUDRA are targeted towards mainstreaming young, educated

or skilled workers and entrepreneurs including women entrepreneurs. The MUDRA banks will be 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 (57.7 million)

small business have 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

indebtness and will lend responsibly. The bank will cater to 5.77 crore small business units that are

spread all across India who currently find it difficult to access credit from the regular banking system.

Objectives: 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 lastmile

credit delivery system to small and micro businesses.

9. Laying down responsible financing practices to ward off indebtedness and ensure proper client

protection principles and methods of recovery.

Major Product Offerings: MUDRA Bank has classified the borrowers into three segments: the

starters, the mid-stage finance seekers and the next level growth seekers. The Bank will nurture small

businesses through different stages of growth and development of businesses termed as Shishu,

Kishor and Tarun.

Shishu: This will be the first step when the business is just starting up. The loan cover in this stage

will be upto Rs 50,000.

Kishor: In this stage, the entreprenuer will be eligible for a loan ranging from Rs 50,000 to Rs 5 lakh.

Tarun: This last and final category will provide loans for upto Rs 10 lakh.





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.

Some of the Offerings Planned for the Future: (a) MUDRA Card; (b) Portfolio Credit Guarantee; (c)

Credit Enhancement

Impact of MUDRA Bank: Majority of Indians are poor and live in rural and interior parts of India. In

case of MUDRA, guidance, support, training and financial assistance will be provided resulting in jump

in GDP. MUDRA Bank is a step by the government that can give birth to a new set of entrepreneurs.

MUDRA Bank will instill a new confidence in the small entrepreneurs that have been to exploitation at

the hands of money lenders so far.

Recovery method: Mudra Bank will ensure clients are properly protected and will lay down principles

and methods of loan recovery in case of a default. The Bank will also rigidly follow "responsible

financing practices" so deter borrowers from indebtedness.

Corpus: The Bank will be set up with a corpus of Rs 20,000 crore and a credit guarantee fund of Rs

3,000 crore.

Organisation: 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. It will also serve as a regulator for other micro-finance institutions (MFIs) and provide them

refinancing services. It will provide guidelines for MFIs and give them ratings.

Start Up India Scheme

The Start-up India initiative was launched on Jan 16, 2016 as an action plan for developing an ecosystem

to promote and nurture entrepreneurship in India. This is based on an action plan aimed at promoting

bank financing for start-up ventures and encourage startups with jobs creation.

Start up entity : To be categorized such Entity, following requirements need to be fulfilled:

1. The entity should be a company, partnership or limited liability partnership.

2. It should be

(a) in existence at least for 5 years,

(b) its turnover should not be above Rs.25 cr and it should not be formed by splitting up or

reconstruction of existing entities.

(c) The entity should aim to develop and commercialise, a new product or service or process or a significantly

improved existing product or service or process, that will create or add value for customers. Products,

services or process, which do not have potential for commercialisation or is undifferentiated or have no or

limited incremental value are not eligible.

Certification : To be considered eligible as startup, the entity should be supported by a recommendation

with regard to innovative nature of business, in a format specified by DIPP, from an Incubator recognized by

Govt.

Funding :

1. Rs 10,000 crore fund: Govt. will develop a fund with an initial corpus of Rs 2,500 crore (total corpus of

Rs 10,000 crore over 4 years) to support upcoming start-up enterprises. LIC of India will play a major role

in developing this corpus. A committee of private professionals selected from start-up industry will manage

it.

2. National Credit Guarantee Trust Company : NCGTC is being set up with a budget of Rs 500 crore per

year for the next 4 years to support the flow of funds to start-ups.

3. The loans are available from Rs.10 lac to Rs.1 cr under the scheme.

Advantages :

1. Income Tax exemption is available for 3 years after certification by Inter-Ministerial Board.

2. Self certification : Start-ups will adopt self-certification to reduce regulatory liabilities for payment of

gratuity, labour contract, provident fund management, water pollution acts.

3. In patent costs, it can claim an 80% rebate.

4. Govt. is launching a Mobile App and a portal that will allow companies to register in a day.

5. An All-India Hub will be created as a single contact point to help the entrepreneurs to exchange

knowledge and access financial aid.

6. Startups in manufacturing sector exempted from the criteria of prior ‘experience/ tuturnover’ without

any relaxation in quality standards or technical parameters in public procurement.