National awarded scheme for msme

National Award Scheme for MSMEs The Ministry of Micro, Small & Medium Enterprises with a view to recognize the
efforts and contribution of MSMEs gives National Award annually to selected
entrepreneurs and enterprises under the scheme of National Award. The awards are given for various categories in Research and Development
Efforts, Entrepreneurship and Quality Products. The First, Second and Third
National Award carry a cash prize of Rs.1,00,000/-, Rs. 75,000/- and Rs. 50,000/-
respectively, a certificate and a trophy. Selection for awards is made on the basis of a set criteria exclusively designed to evaluate performance of the MSMEs. The
awards to the selected entrepreneurs are given in a National Function organized
by Office of the DC(MSME). Besides Awards to the entrepreneurs, awards are also given to banks for lending
to MSME. Under the scheme an exhibition is also organized for MSMEs during
the India International Trade Fair (IITF) at Pragati Maidan to exhibit products manufactured by MSMEs and National Awardees. Types of Awards The awards are given for following categories: (i) National Award for Outstanding Entrepreneurship in Micro & Small
Enterprises Engaged in Manufacturing
1. First National Award : Rs.1,00,000/-cash prize, a Trophy and a Certificate
2. Second National Award : Rs. 75,000/- cash prize, a Trophy and a Certificate
3. Third National Award : Rs. 50,000/- cash prize, a Trophy and a Certificate
4. Special National Award to Out
standing Woman
Entrepreneur : Rs.1,00,000/- cash prize, a Trophy and a Certificate
5. Special National Award to Outstanding SC/ST Entrepreneur: Rs.1,00,000/- cash prize, a Trophy and a Certificate
6. Special National Award to Outstanding Entrepreneur from NER
including Sikkim : Rs.1,00,000/- cash prize, a Trophy and a Certificate. (ii) National Award for Outstanding Entrepreneurship in Micro & Small
Enterprises Rendering Services 1. First National Award : Rs. 1,00,000/- cash prize, a Trophy and a Certificate
2. Second National Award : Rs. 75,000/- cash prize, a Trophy and a Certificate. (iii) National Award for Outstanding Entrepreneurship in Medium Enterprises Engaged in Manufacturing
1. First National Award : Rs. 1,00,000/- cash prize, a Trophy and a Certificate
2. Second National Award : Rs. 75,000/- cash prize, a Trophy and a Certificate. (iv) National Awards for Research & Development Efforts in Micro & Small
Enterprises 1. First National Award : Rs. 1,00,000/- cash prize, a Trophy and a Certificate
2. Second National Award : Rs. 75,000/- cash prize, a Trophy and a Certificate. (v) National Awards for Research & Development Efforts in Medium
Enterprises 1. First National Award : Rs.1,00,000/- cash prize, a Trophy and a Certificate

2. Second National Award : Rs. 75,000/- cash prize, a Trophy and a Certificate. (vi) National Awards for the selected Product Group for Quality Products in Micro & Small Enterprises (MSEs)
Every year Product groups (10-15 Nos.) are selected for quality award. One
award is given in each group. Each award carries Rs.1.00 lakh cash prize, a Certificate and a Trophy. (vii) Special Recognition Award in all above Categories Special Recognition Award in all above categories is given to those MSMEs
scoring marks above 80% in all categories and 50% in case of North Eastern Region including Sikkim with a cash prize of Rs. 20,000/-, a Certificate and a Trophy. (viii) National Award to Banks for Excellence in MSE Lending
1. First National Award : A Trophy and a Certificate
2. Second National Award : A Trophy and a Certificate
3. Special Award : A Trophy and a Certificate
(ix) National Award to Banks for Excellence in Micro Lending
1. First National Award : A Trophy and a Certificate
2. Second National Award : A Trophy and a Certificate
3. Special Award : A Trophy and a Certificate Periodicity and Eligibility
The Awards are given for every calendar year to deserving entrepreneurs of
Micro, Small and Medium Enterprises having permanent registration/have filed
Entrepreneurs Memorandum with the authorities notified by respective State Governments/UT Administration in accordance with the provisions contained in
the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, which came into force on October 2, 2006. The MSMEs should

have been in continuous production/service for last three years. There will be no
bar for Awardees to be nominated or considered for a higher Award in the
subsequent year. The Awardees should not be nominated or considered for the
same or lower Award in the subsequent five year(s). Procedure for Selection
(i) Applications from MSMEs are invited through Advertisement in National/Regional Newspapers, Website on DC(MSME). Applications are
received at MSME-DIs in their respective States. (ii) Applications are evaluated by State Level Selection Committee (SLSC) under the chairmanship of Secretary (Industries) of the respective states and recommended and forwarded to the O/o DC(MSME). Minimum
Qualifying marks are 60% general categories and 50% in case of SC/ST
and NER. (iii) The applications recommended by SLSC are further scrutinized/ evaluated
by Technical Officers of the O/o DC (MSME). (iv) The applications are scrutinized and awardees are selected by National
Level Selection Committee(NLSC) under the chairmanship of AS&DC with
approval of Hon’ble Minister (MSME). (v) The selection of banks for awards is made on the basis of criteria devised
by the Standing Committee constituted under the Chairmanship of
AS&DC(MSME). Scheme for Capacity Building, Strengthening of Database and Advocacy by
Industry/Enterprise Associations and for holding
Seminar/Symposiums/Workshops by the Associations
It has been felt that the associations of Micro, Small and Medium Enterprise do
not have adequate capacity to collect and interpret data relating to changes in the market scenario, owing to the limited availability of funds and the absence of expertise in the matter. As a


result, their articulation of views on specific issues concerning to their product
group leaves much to be desired. In spite of the fact that the Associations of the MSEs have been made members of the SSI Board and the members of the
screening committee of certain national programmes for development of some
products, their existing weakness prevent them from playing the expected role
effectively. Even in their role as facilitators for their members in government assisted schemes like setting up of sub-contracting exchanges, testing
laboratories etc., the capacity of these associations has been found to be
deficient. To strengthen their role and increase their efficiency, financial assistance has been proposed for the secretarial and advisory/ extension services of the selected
associations depending on the size and the reach of the associations. The
beneficiary association is to provide the regular manpower and office space at
their own cost and also to bear 50 percent of the cost of modernization of their
facilities, equipment and training of their personnel. Under the scheme, National/Regional/State/Local level Industry Association, which are registered for at least 3 years and are having a regular charter, list of members and audited accounts etc; would be eligible for the financial assistance
for strengthening of database as well as for conducting
Seminars/Symposiums/Workshops. The scheme provides assistance for strengthening of Database– Financial assistance for the Secretarial, Advisory/Extension services up to a maximum of
Rs. 5 lakh and for organizing Seminars/ Symposiums/Workshops by the
associations up to a maximum of Rs. 2 lakh.

Very important MEME PRIORITY SECTOR ADVANCES & other Bits

MSME
1. A Small Manufacturing Enterprise unit is considered as Sick Industrial Unit: when account remains sub
standard for more than six months or there is erosion in the net worth due to accumulated cash losses to
the extent of 50% or more of its net worth during the previous accounting year and the unit has been in
commercial production for at least two years
2. A small scale unit (manufacturing) can be treated as micro unit if the original investment in plant and
machinery does not exceed : Rs.25 lac
3. A unit in service enterprise is considered as medium if the investment in equipment is: more than Rs 2
crore but up to Rs 5 crore.
4. A Unit will be called as Small Service Enterprise if investment in equipments is up to: Rs 2 crore.
5. Amount of maximum loan given to micro and small enterprises that is covered under-CGFTMSEscheme
: Rs.100 lac
6. As per Micro, small and medium enterprise development Act 2006, a small manufacturing enterprise is
one in which original investment in plant and machinery is: more than Rs 25 lakh and up to Rs 5 crore.
7. As per RBI guidelines, banks are required to provide__% of advance to small enterprises to units in
which original investment in plant & machinery does not exceed Rs 10 lac in the case of manufacturing
units and does not exceed Rs 4 lac in equipment in the case of service enterprises: 40%
8. As per RBI guidelines, Loans to Agro and food processing Units are eligible to be classified under
Agriculture Ancillary Activity under Agril. Finance Priority Per borrower Rs. 100.00 crores.
9. Bank limit for working capital based on turn over method: 20% of the projected sales turnover
10. Banks are required to make 40% of advance to Micro and Small enterprises to manufacturing units
with investment up to Rs 10 lakhs and/or service enterprises with investment in equipment up to: No
criteria (earlier Rs 4 lakh) and now Micro has to reach 7.00% by March 2016 & 7.5% by March
2017 of ANBC/ceobe which ever is higher.
11. Banks will not obtain collateral security in respect of loans to micro and small enterprises which are
covered by Credit Guarantee Scheme for Micro and Small enterprises?: Rs 1 crore
12. CGTMSE fee: For North East & women; Loan up to Rs 5 lakh – 0.75% p.a.; Loan more than
Rs 5 lakh – 0.85% p.a.
13. Composite loan limit for Small Manufacturing enterprises: Rs.1.00 crore
14. For being defined as Medium enterprise, the original investment in plant & machinery should be: More
than Rs 5 crore and up to Rs 10 crore.
15. For being eligible to be classified as small (service) enterprise, the original investment in equipment
should not exceed: Rs 2 crore.
16. Full form of CGTSME: Credit Guarantee Fund Trust for Micro & Small Enterprises.
17. If a small enterprise in manufacturing has a good track record, collateral security can be waived up
to: 25.00 lacs
18. If an MSME units holds a margin of Rs.20 lac and its projected sales are Rs.400 lac, its working
capital limit will be : Rs.80 lacs
19. In case of advance granted to Micro and small enterprises, banks will not obtain collateral security up
to: Rs 10 lakh
20. In case of advance to Micro and Small manufacturing enterprises, working capital limit by a bank as
per turnover method is calculated as: 20% of projected annual turnover.
21. In case of loan guaranteed under CGTMSE, what is the extent of cover for loan upto 50 lac granted to
a women?: 80% of amount in default.
22. In case of loan to micro and small enterprises guaranteed by CGTMSE, no collateral security is
required for loans up to: Rs 100 lac.
23. Khadi Village Industry part of MSE; irrespective of investment in P&M.
24. Maximum Guarantee coverage for loans guaranteed by CGTMSE if loan up to Rs 5 lakh: 85% of the
amount in default with a maximum of Rs 425000.
25. Micro, Small and Medium Enterprises is under which Ministry: Ministry of Micro Small & Medium
Enterprises.
26. SMERA stands for: Small & Medium Enterprises Rating Agency.
27. The definition of Micro and Small enterprise in the manufacturing Sector is based on investment in :
Plant and Machinery.
28. Under CGFT scheme for MSE, for loans up to Rs 50 lac, 80% coverage is not available for: SC/ST

PMEGP MCQs MSME

1. The Prime Minister's Employment Generation Programme (PMEGP):
(a) has been designed to generate employment opportunities in Rural & Urban areas.
(b) relates to the setting up of new self-employment ventures for industries, services and business.
(c) covers whole of the country including J & K
(d) has replaced PMRY & KVIC-REGP scheme (e) all above
2. To be eligible for loan under PMEGP, minimum qualification required is class pass in case project
cost is above Rs 10 lakh in the manufacturing sector and above Rs. 5 lakh in the business or service sector –
(a) 8 th (b) 9th (c)5th (d)7th (e) none of the above
3. To be eligible under PMEGP, the applicant's age should be :
(a) not-more than 40 years (b) not less than 18 years (c) between 25 to 40 years (d) abovel 8 years
4. Under PMEGP, ________ % of the margin money (subsidy) should go to projects in rural areas:
(a) 25% (b) 40% (c) 30% (d) 60% (e) 50%
5. To be eligible for assistance under PMEGP, family income of the applicant should not exceed:
(a) Rs. 24,000 p.a. (b) Rs. 30,000 p.a. (c) Rs.40,000 p.a. (d) Rs. 60,000 p.a. (e) No limit
6. Under PMEGP, the repayment period can be after moratorium period as per bank discretion.
(a) 3 to 5 year (b) 3 to 7 year (c) 5 to 7 year (d) 5 to 9 year (e) None of these
7. Rate of subsidy available under PMEGP is :
(a) General-category borrowers: 15% of project cost in urban areas and 25%o. in rural areas;
(b) Special category borrowers: 25% of project cost in urban areas and 35% in rural areas.
(c) 15% in rural areas and 25% in urban areas for general category borrowers
(d) Both (a) & (b) above (e) None of these
8. Under PMEGP, the borrower is required to contribute% of project cost as margin money :
(a) 5% for special category and 10% for general category
(b) 10% for special category and 5% for general category
(c) 5% for special category as well as general category
(d) 10% for special category as well as general category (e) none of the above
9. Maximum Project cost in the case of single borrower for business & service category under PMEGP is:
(a) Rs. 10 lakhs (b) Rs. 25 lakh (c) Rs.5 lakhs (d)Rs. 2 lakh (e) None of these
10. Under PMEGP scheme, rural area means place notified as rural area in revenue records and with
population:
(a) up to 10,000 (b)less than 10,000 (c) up to 50,000 (d)up to 20,000 (e) None of these
11. Banks will not insist on collateral security from beneficiaries under PMEGP for loans up to:
(a) Rs. 10 latch (b) Rs. 5 lakh (c) Rs. 1 lakh (d) Rs. 50,000 (e) Rs. 3 lakh
12. Banks should lend at least ___ % of advances under PMEGP to SC/ST
(a) 10% (b) 22.5% (c) 35% (d) 50% (e) None of these
13. Which of the following is not true about PMEGP scheme:
(a) There is no condition for education for project up to Rs 10 lac for industry and Rs 5 lac for service.
(b) There is no limit on Family income. (c) It is not applicable in J&K.
(d) it covers both the rural as well as urban centres
(e) The maximum cost of project for industry is Rs.25 lac and for service & business Rs 10 lakh.
14. Maximum Project cost in the case of single borrower for business & service category under PMEGP is:
(a) Rs. 10 lakhs (b) Rs. 25 lakh (c) Rs.5 lakhs (d)Rs. 2 lakh (e) None of these
15. For which of the following category of beneficiaries, targets have been set up under PMEGP?
(a) SC/ST (b) Women (c) physically handicapped (d) all of these (e) None of these
16. PMEGP is applicable in which of the following areas?
(a) Rural only (b) urban areas only (c) Both Rural and urban areas (d) None of these
17. Which of the following is not correct regarding PMEGP scheme?
(a) Both existing and new projects are eligible (b) Only one person from one family is eligible

(c) Family includes beneficiary and spouse (d) No concession in interest rate(e) None of these
18. Village Industry under PMEGP, means a unit located in the rural area which produces any goods or
renders any service with or without the use of power and in which the fixed capital investment per head
of a full time artisan or worker does not exceed :
(a) Rs. 1 lakh in plain areas (b) Rs.1.50 lakh in hilly areas (c) Rs 2 lac in North East
(d) Both (a) & (b) (e) All of these
9. Identification of beneficiaries under PMEGP will be done at the district level by a Task Force consisting
of representatives from:
(a) KVIC/State KVIB (b) State DICs (c) Banks (d) Both (a) & (b)(e) All of these.
!0. For the purpose of PMEGP scheme, which of the following is not included in special category?
(a) SC / ST, OBC (b) Minorities, Women (c) Ex servicemen & Physically handicapped
(d) North East, Hill and Border areas . (e) None of these
1. Which of the following is not correct regarding margin money (subsidy) under PMEGP?
(a) Subsidy should be kept in the Term Deposit Receipt of three years
(b)No interest will be paid on the TDR & no interest to be charged on loan on corresponding amount of TDR
(c) Subsidy will be credited to the Borrowers loan account after three years from the date of
first disbursement to the borrower.
(d) If loan goes bad before 3 year period, due to reasons, beyond the control of the beneficiary, subsidy can
be credited to loan account before 3 years (e) None of these
22. Under which situations, proportionate or entire subsidy for working capital component has to be returned?
(a) When utilization of limit does not touch 100% limit of CC on any day within three years of lock in period.
(b) When utilization of the sanctioned limit is less than 75% (c) either (a) or (b) (d) None of these
23. Which of the following is correct regarding training of beneficiaries under PMEGP?
(a) First instalment of loan will be released only after completion of EDP training of at least 2 weeks
(b) If beneficiary has undergone training from the recognized institution, no further EDP training is required.
(c) Both (a) & (b) (d) None of these
24. Which of the following is not correct regarding project cost in case of PMEGP scheme?
(a) Project cost will include Capital Expenditure and one cycle of Working Capital.
(b) Projects without Capital Expenditure are not eligible for financing under the Scheme.
(c) Projects. costing more than Rs.5•Iakh, not requiring working capital, need clearance from RO.
(d) Cost of the land should not be included in the Project cost. (e) None of these
25. Under which situations, proportionate or entire subsidy for working capital component has to be returned?
(a) When utilization of limit does not touch 100% limit of CC on any day within three years of lock in period.
(b) When average utilization of the sanctioned limit is less than 75%
(c) When average utilization of the sanctioned limit is lesS than 80%
(d) either (a) or (b) (e) Either (a) or (c)
26. Which of the following is correct regarding training of beneficiaries under PMEGP?
(a) First instalment of loan will be released only after completion of EDP training of at least 2 weeks
(b) If beneficiary has undergone training from the recognized institution, no further EDP training is required.
(c) Both (a) & (b) (d) None of these
27. Which of the following is not correct regarding project cost in case of PMEGP scheme?
(a) Project cost will include Capital Expenditure and one cycle of Working Capital.
(b) Projects without Capital Expenditure are not eligible for financing under the Scheme.
(c) Projects costing more than Rs.5 lakh, not requiring working capital, need clearance from RO.
(d) Cost of the land should not be included in the Project cost. (e) None of these
28. Which of the following is not eligible for loans under the scheme?
(a) Self Help Groups (b) Institutions registered under Societies Registration Act, 1860
(c) Production Co-operative Societies (d) Charitable Trusts (e) None of these

ANSWER
Q A Q A Q A Q A Q A
1 E 2 A 3 D 4 E 5 E
6 B 7 D 8 A 9 A 10 D
11 A 12 E 13 C 14 A 15 E
16 C 17 A 18 C 19 D 20 E
21 D 22 E 23 E 24 E 25 D
26 B 27 E 28 E

MSME 200 MCQs

MSME ::

1) The decision to develop a Monetary Policy Framework follows from the recommendation of the
Expert Committee to Revise and Strengthen the Monetary Policy Framework or what is popularly
known as the committee report, which had suggested that RBI target to bring down retail inflation to
8% by January 2015 and 6% by January 2016. a) Dr. Urjit Patel*. b) Dr. Usha Thorat,
c) Dr. Nachiket Mor d) Vijaya Bhaskar
2) As per the Monetary Policy Framework, the objective of monetary policy is to primarily maintain
price stability, while keeping in mind the objective of growth. The monetary policy framework in India
shall be operated by the Reserve Bank of India. Inflation means :
a) The monthly change in the CPI-C expressed in percentage terms.
b) The year-on year change in the half yearly CPI-C expressed in percentage terms.
c) The year-on year change in the monthly CPI-C expressed in
percentage terms* d) None of these.
3) As per the Monetary Policy Framework, the Reserve Bank will aim to bring inflation below ____
percent by January 2016. The Target for financial year 2016-17 and all subsequent years shall be ____
% with a band of +/- ____%.
a) 5;4; 2 b)7;5; 3 c)7 ; 4; 2 d) 6;4;2*
4) As per the Monetary Policy Framework, once every six months, the Reserve Bank shall publish a
document explaining Sources of Inflation; Forecasts of Inflation for the period between _____ to ______
months from the date of the publication of the document; and Flexible inflation target. a) Six ;
Eighteen* b) Five ; Fifteen, c) Four ; Ten d) Six ; Ten
5) As per the Monetary Policy Framework, the Reserve Bank shall be seen to have failed to meet the
target if inflation is more than ____ percent for three consecutive quarters for the financial year 2015-
16 and all subsequent year; Less than ____ percent for three consecutive quarters in 2016-17 and all
subsequent years. a) 8;4 b) 5;2 c) 6;2* d) 5;3
6) As per the Monetary Policy Framework, if the Reserve Bank fails to meet the Target it shall set out
in a report to the Central Government covering which of the following aspects:
a) The reasons for its failure to achieve the Target;
b) Remedial actions proposed to be taken by the RBI;
c) An estimate of the time-period within which the Target would be achieved pursuant to timely
implementation of proposed remedial actions.
d) All of the above*
7) The Government of India, Ministry of Housing and Urban Poverty Alleviation (MoHUPA), has
restructured the existing Swarna Jayanti Shahari Rozgar Yojana (SJSRY) and launched the ___.
a) National Urban Livelihood Mission (NULM)*, b) Prime Minister Rojgar Yojana., c) National Rural
Livelihood Mission (NRLM), d) Jan Dhan Yojana.
8) Under National Urban Livelihood Mission the maximum unit project cost for individual micro
enterprise cases is Rs.
_____ : a) 4 lac b) 3 lac c) 2 lac* d) 5 lac
9) As per National Urban Livelihood Mission scheme, which of the following statement is incorrect:
a) Two sub components in terms of beneficiaries are covered namely: Individual Enterprises (SEP-I), &
Group Enterprises (SEP-G).
b) In case of Individual Enterprises (SEP-I), Banks are mandated not to accept any collateral security.
c) In case of Individual Enterprises (SEP-I), the banks may approach Credit Guarantee Fund Trust for
Micro and Small Enterprises setup by SIDBI and Government of India for the purpose of


availing guarantee cover for SEP loans as per the eligibility of the activity for guarantee
cover.
d) In case of Individual Enterprises (SEP-I), repayment schedule ranges from 5 to 7 years after initial
moratorium of 6-18 months as per norms of bank.
e) None of the above*
10) Under the Group Enterprises (SEP-G) component of National Urban Livelihood Mission scheme,
which of the following statement is incorrect:
a) A Self Help Group (SHGs) or members of an SHG constituted under SJSRY / NULM or a group of
urban poor desirous of setting up a group enterprise for self-employment can avail benefit of
subsidized loans under this component from any bank.
b) The group enterprise should have minimum 5 members with a minimum of 70% members from
urban poor families.
c) The maximum unit project cost for a group enterprise is 10,00,000 (Rs. Ten lakhs) and no collateral
to be obtained.
d) The repayment schedule ranges from 5 to 7 years after initial moratorium of 6-18 months as
decided by bank.
e) The target is Women – 30%; Disabled – 3%; and SC / ST – on Pro – rata to local population.
f) None of the above*
11) With respect to loan against shares, debentures and bonds, which of the following is incorrect as
per RBI guidelines:
a) Loans against the security of shares, debentures and bonds should not exceed the limit of Rupees
Ten lakhs per individual if the securities are held in physical form and Rupees Twenty lakhs per
individual if the securities are held in dematerialised form.
b) Banks should maintain a minimum margin of 50 percent of the market value of equity shares /
convertible debentures held in physical form.
c) In the case of shares / convertible debentures held in dematerialised form, a minimum margin of 25
percent should be maintained. These are minimum margin stipulations and banks may stipulate higher
margins for shares whether held in physical form or dematerialised form.
d) The margin requirements for advances against preference shares / non-convertible debentures and
bonds may be determined by the banks themselves.
e) None of the above.*
12) As per RBI directions, all Credit Institutions (CI’s) should become member of Credit Information
Companies (CICs) and submit data (including historical data) to them with in a period of ____ months.
a) 6 b) 2 c) 3 * d) 1
13) How many CIC’s have been granted Certificate of Registration by RBI ?
a) 4* b) 3 c) 2 d) 1
14) The one-time membership fee charged by the CICs, for CIs to become their members, shall not
exceed Rs._____ each and annual fees charged by the CICs to CIs shall not exceed Rs. ______ each.:
a) Rs.5,000; Rs.2,500 b) Rs.10,000; Rs.2,500, c) Rs.10,000*; Rs.5,000* d) Rs. 20000;
Rs.5,000
15) As per RBI guidelines to banks, a credit card a/c will be treated as NPA if the minimum amount due,
as mentioned in the statement, is not paid fully within ____ days from the next statement date and the
gap between two statements should not be more than one month. a) 90* b) 60 c) 50 d) 30
16) Reserve Bank of India has decided that the interest rates charged by an NBFC-MFI to its borrowers
will be the cost of funds plus margin, or the average base rate of the five largest commercial banks by
assets multiplied by____:
a) 5 b) 2.50 c) 2.75* d) 3.5
17) Securitisation Companies / Reconstruction Companies (SC / RCs) are permitted to convert a portion
of debt into shares of the borrower company as a measure of asset reconstruction provided their
shareholding does not exceed ____ of the post converted equity of the company under reconstruction.
a) 30% b) 20% c) 26%* d) 28%
18) Securitisation Companies / Reconstruction Companies (SC/RCs) are required to obtain, for the
purpose of enforcement of security interest, the consent of secured creditors holding not less than
____of the amount outstanding to a borrower as against ____hitherto. a) 30%, 75% b) 75%,
60% c) 60%,75%* d) 50%,75%
19) A person makes a draft payable in the name of another person from any particular bank for
an amount less than Rs.49,000/-. This person, on whose name the draft is made, further
endorses it in the name of another person in lieu of payment for purchase of goods or services.
The draft is used as a payment cheque without real money changing hands. In the end, there is
a specific group of people who deposits these drafts in their bank accounts, and takes a
commission of 1-2% to encash them. This process of conducting transactions is called:

Foreign Trade Policy 2015-20

Foreign Trade Policy 2015-20
The Foreign Trade Policy (FTP), 2015-20, is notified by Central Govt., in exercise of powers conferred
under Section 5 of the Foreign Trade (Development & Regulation) Act, 1992 (No. 22 of 1992).
Duration of FTP : 2015-20 FTP, incorporating provisions relating to export and import of goods and
services, came Into force w.e.f. 01.04.2015 and shall remain in force up to 31st March, 2020, unless
otherwise specified. All exports and imports made upto the date of notification shall, accordingly, be
governed by the relevant FTP.
Director General of Foreign Trade (DGFT) can, by means of a Public Notice, notify Hand Book of
Procedures, including Appendices and Aayat Niryat Forms or amendment thereto, if any, laying down
the procedure to be followed by an exporter or importer or by any Licensing/Regional Authority or by
any other authority for purposes
of implementing provisions of FT (D&R) Act, the Rules and the Orders made there under and provisions
of FTP.
IMPORTER EXPORTER CODE (IEC): No export or import can be made by any person without
obtaining an IEC number unless specifically exempted. Further, only one IEC is permitted against one
Permanent Account Number (PAN). If any PAN card holder has more than one IEC, the extra IECs is
disabled.
IEC : An IEC is a 10-digit number allotted to a person that is mandatory for undertaking any
export/import activities. The facility for IEC in electronic form or e-IEC has also been operationalised.
Exports from India Schemes: There are two schemes for exports of Merchandise and Services
respectively: (I) Merchandise Exports from India Scheme (MEIS).
(ii) Service Exports from India Scheme (SEIS).
Niryat Bandhu - Handholding Scheme for new Exporters / Importers: As per provisions of Foreign
Trade Policy 2015-20, DGFT is implementing the Niryat Bandhu Scheme for mentoring new and
potential exporter on the inbicades of foreign trade through counselling, training and outreach
programs.
Towns of Export Excellence (TEE): Selected towns producing goods of Rs. 750 cr or more may be
notified as TEE, based on potential for growth in exports. For TEE in Handloom, Handicraft, Agriculture
and Fisheries sector, threshold limit would be Rs.150
EOU, EHTP, STP, BTP: Units undertaking to export their entire production of goods and services (except
permissible sales in Domestic Tariff Area-DTA), may be set up under Export Oriented Unit (EOU)
Scheme, Eledronics Hardware Technology Park (EHTP) Scheme, Software Technology Park (STP)
Scheme or 1310-Technology Park (BTP) Scheme for manufacture of goods, rendering of services,
development of software, agriculture induding bio-tedinology. Trading units are not covered under
these schemes.
Export Promojion Capital Goods Scheme: (a) Scheme allows import of capital goods for pre-production,
production and post-production, at Zero customs duty. The Authorisation holder may also procure
Capital Goods from indigenous sources: Capital goods shall indude capital goods as defined in foreign
trade policy; (ii) Computer software systems; (iii) Spares, moulds, dies, jigs, fixtures, tools &
refractories and spare refractories; and (iv) catalysts for initial charge-i- one subsequent charge.
(b) Import of capital goods for Project Imports notified by CBEC.
Second hand capital goods are not permitted.
Interest Equalisation Scheme on Pre and Post Shipment Rupee Export Credit (December 4,
2015): The scheme is effective from April 1, 2015. (a) The rate of interest equalisation would be 3 percent
and will be available on Pre Shipment Rupee Export Credit and Post Shipment Rupee Export Credit; (b)
The scheme would be applicable w.e.f 01.04.2015 for 5 years. (c) The scheme will be available to all
exports under 416 tariff lines [at ITC (HS) code of 4 digit] and exports made by Micro, Small & Medium
Enterprises (MSMEs) across all ITC(HS) codes; (d) Scheme would not be available to merchant exporters;
(e) A study may be initiated on the impact of the scheme on export promotion on completion of 3 years of
the operation of the scheme. The study may be done through one of the IIMs
Export Refinance
1. Who will provide? Export Refinance is provided by RBI.
2. Maximum period of refinance is 180 days.
3. Extent of Refinance: 15% (w.e.f. 27.10.2009) of eligible export finance outstanding on the reporting Friday
of the preceding fortnight. Outstanding Export Credit for the purpose of working out refinance limits will be
aggregate outstanding export credit minus export bills rediscounted with other banks/Exim Bank/Financial
Institutions, export credit against which refinance has been obtained from NABARD/Exim Bank, pre-shipment
credit in foreign currency (PCFC), export bills discounted/rediscounted under the scheme of 'Rediscounting of
Export Bills Abroad', overdue rupee export credit and other export credit not eligible for refinance.

Interest rate is Repo Rate. 5. Packing Credit in Foreign Currency is not eligible for export refinance
EXPORTS FROM INDIA
Export trade is regulated by DGFT under Govt. of India, which announces policies and procedures for
exports from India. AD-I banks conduct export transactions in conformity with the Foreign Trade Policy,
the Rules framed by the Govt. of India and the directions issued by RBI. Manner of receipt of export
proceeds: (i) The amount can be received through AD Banks in the form of (a) Bank draft, pay order,
banker's or personal cheques (b) Foreign currency notes/travellers' cheques from the buyer during his
visit to India. (c) Payment out of funds held in the FCNR/NRE account maintained by the buyer
(d) International Credit Cards of the buyer (e) Wef Jan 01, 2009, Asian Clearing Union participants can
settle their transactions in ACU Dollar or in ACU Euro (equivalent in value to one US Dollar and one
Euro, respectively). Payment can be received from 3rd parties named by exporters in EGF, subject to
compliance of certain conditions (RBI-Nov 08, 2013).
Time limits for realisation and repatriation of export proceeds:
(a) Units in SEZs, Status Holders, 100% Export Oriented Units and Units in EHTPs/STPsIBTPs: max 9
months
(b) Exported to a warehouse established outside India : Max 15 months from the date of shipment of
goods; and
(c) Other cases: Max 9 months.
Offices and Immovable Property for Overseas Offices: For setting up of the office, AD-I banks may
allow remittances towards initial expenses up to 15% of the average annual sales/income or turnover
during the last 2 financial years or up to 25% of the net worth, whichever is higher. For recurring
expenses, remittances up to 10% of the average annual sales/income or turnover during the last 2
financial years may be sent.
Advance Payments against Exports: The exporter shall ensure that -
i. the shipment of goods is made within one year (ADs can allow period above one year also w.e.f. 21.2.12 subject
to the condition that refund during the last 3 years is not more than 10% of advance payments received);
ii. the rate of interest payable on the advance payment does not exceed London Inter-Bank Offered
Rate (LIBOR) + 100 basis points.
(ADs to sent quarterly report to RBI, within 21 days, for delay in utilization of advance payments — 09.02.15)
LONG TERM EXPORT ADVANCE : RBI allowed (May 21, 2014) AD banks to permit exporters, having a
minimum of 3 years' satisfactory track record, to receive long term export advance up to a maximum
tenor of 10 years for execution of long term supply contracts for export of goods. The rate of interest
should not exceed LIBOR plus 200 basis points. Receipt of advance of USD 100 million or more should
be immediately reported RBI. Where AD banks issue bank guarantee (BG) / Stand by Letter of Credit
(SBLC) for export performance, BG / SBLC may be issued for a term not exceeding 2 years at a time
and further rollover of not more than 2 years at a time may be allowed subject to satisfaction with
relative export performance as per the contract.
Part Drawings /Undrawn Balances: Where it is the practice to leave a small part of the invoice
value (maximum of 10% of the full export value) undrawn for payment after adjustment due to
differences in weight, quality, etc. to be ascertained after arrival AD-I banks may negotiate the bills.
Opening / Hiring of Ware houses abroad: Banks may grant permission for opening / hiring
warehouses abroad if export outstanding does not exceed 5% of exports made during the previous
financial year and applicant has a minimum export turnover of USD 100,000/- during the last financial
year.
Supplier's Credit
Under supplier credit contracts the exporter supplier extends a credit to the buyer importer of capital goods. The
terms can be down payment with the balance payable in instalments. The interest on such deferred payments
will have to be paid on the rates determined at the time of entering Into such arrangement. The deferred
payments are supported by the promissory notes or bills of exchange often carrying the guarantee of importer's
bank. To finance the credit given to the Importer under such arrangement, the exporter raises a loan from his
banker under the export credit schemes in force. In general, the export credit insurance will be an inherent part
of the mechanism.
Buyer's credit
In a buyer credit transaction, the buyer importer raises a loan from a bank in the exporter's country under the
export credit scheme in force on the terms conforming to the OECD consensus. The loan Is drawn to pay the
exporter in full and thus for the exporter, the transaction is a cash sale. Another form of the buyer credit
arrangement is, for a bank in the exporter's country, to establish a line of credit in favour of a bank or financial
institutions, in the importing country. The later makes available, loans under the line of credit to its importer
clients for the purchase of capital goods from the credit giving country. In India BUM Bank makes available
supplier/buyer credits and also extends line of credit to foreign financial institutions to promote exports of capital
goods from India.
Export Credit Guarantee Corporation of India Ltd. (ECGC)

FUTURE OF MSMEs

FUTURE OF MSMEs
Micro finance sector consisting of a variety of players that include several Nongovernmental
organizations, cooperatives, Self-Help Groups of various hues, Non-Banking Finance
Institutions-some depending on donor funds and external borrowings and some others operating
with savings, donor resources and external debt is a major player in transforming the informal
economy of the country into a vibrant economy during the post liberalization economy. Apex
institutions like the NABARD, SIDBI and several State Governments realized the potential of this
sector in attaining financial inclusion
Relationship banking focuses more on the customer and the banks that were for a long time
inward-looking and delivering what they were having in their cupboards started looking out at
the customers' needs and preparing products that the customer needs. Although need-based
financing was originally introduced in SME lending in the past, post-reform period abandoned
those strategies and started looking at what the rest of the globe has been doing in the retail
segment that includes the SME sector. Inter-sectoral linkages have also come to occupy their
attention and cross-selling of products was found to be a way forward to improving their profits
and profitability as well as productivity at the some time meeting what the customer needs.
Customer Relationship Management embraced many such interventions and the chapter
discusses structural, economic and cultural issues in adopting these strategies.
Global financial integration being on the threshold has been demanding new financial order
acceptable to all stakeholders. While the Basel I could carry conviction over its Minimum
Capital Requirements (MCR) at 8 per cent of the risk weighted assets and saw most
countries veering round to it within certain set boundaries, Basel II standing on the tripod
of 1) Minimum Capital requirements in the 1988-refined framework; 2) Supervisory review
and 3) Market discipline, did not find ready pickers. The first Accord strengthened the
soundness and stability of the international banking system and enhanced competitiveness
among equally placed internationally active banks. The need for second Accord arose as a
result of changes in the risk profiles of the portfolios the banks have come to handle and
the risks that the adoption of new technologies ushered in. India and China are the two
major economies of the globe that have been drawing the attention of every researcher.
Consistency in growth levels and future opportunities in the Indian economy demands a
robust financial sector. Such robustness is receiving the regulator's attention. But the
compelling urge to embrace the Basel-II is going to affect the two most important sectors
of the Indian economy, viz., agriculture and SME that have the capability to generate
employment on a sustained basis. This paper studies the impacts of Basel II on the SME
sector and argues for re-engineering the credit risk management.
The highly regulated banking industry (especially the commercial side of the industry) was
shocked in the 1970s, not only by a turbulent interest rate environment but also by new,
fierce competitors from the non-banking world. With increased sensitivity to interest rate
fluctuations, borrowers and investors alike, began to scour global markets for the smallest
financial advantage. As rates arose further, deposits began to move out of the raterestricted
banking institutions into higher yielding alternatives:
Disintermediation. Consequently, newer forms of liabilities (jumbo CDs and money market
accounts) as well as assets of increasingly lower quality began to appear in bank's balance
sheets. Banking, thus, began to be transformed from conservative asset management into
aggressive liability management. This in turn dictated the acquisition of financial assets at
higher rates to cover liability costs. This is a traditional fault of the banking industry, forgetting
that the interest rates are not just a function of market conditions but also of risk. Thus, there
is always the inherent danger of reaching out to credits of lesser quality with higher risks to
realize higher returns. Accordingly, from 1988 onwards, is known as the era of Basle Capital
Accord, the primary objective of which was to strengthen the soundness and stability of the
international banking system by creating minimum Risk-Based CAPITAL ADEQUACY
REQUIREMENTS. This was especially for banks with international presence commensurate with
Credit Risk, thereby reducing global systemic risk without unduly comprising the competitive
differences between countries. All this also gave rise to various credit derivative products to
sustain Return on Capital ratios. Securitization became a major tool to make "illiquid assets" of

the banks tradable and marketable. Loans traditionally, are thought to be kept in the books till
maturity. With this new instrument, incremental origination of loans under Retail/consumer
banking could be planned without attendant constraints like, Capital, Cash Flows or Interest
Rate risks.
Most Indian Banks are reformulating their information systems to capture risk events, loan
default rates — sector wise, area wise, like probability of default, loss given default, and
exposure at default. Internal rating capabilities are also in the process of being built; The
country has only a few external rating institutions — most of which are adept at rating issues
and issuers, derivatives etc., (CRISIL-S&P, ICRA, FISCH) with little orientation to SMEs. It is
SMERA and M-ICRA that are exclusively rating the SME sector. The advantages of rating are yet
to be appreciated by the cash-strapped SME sector. A rating estimates the probability as to
whether a company will comply on time and in full their repayment obligations. A rating also
simplifies the comparability of companies and provides statements about future credit
worthiness. Most SMEs fall under retail portfolios of Banks. Almost 50 centres account for nearly
80 per cent of Banks' business. Eleven States account for 80 per cent of the SME sector in the
country. SIDBI's initiative of setting up SME Financial Centres in most clusters in the country
can improve the status of SMEs and could be seen as low-risk entities requiring less capital
provision by Banks. But all depends upon how the regulator allocates weightage for this sector.
Productive SME lending of the future lies in the post-harvest operations in the farm sector.
There are tremendous opportunities in financing agri-clinics manned by qualified management
and Agriculture graduates. These Agri-clinics carry mobile equipment, mobile testing
laboratories to test the genuineness of the agricultural inputs like seeds, fertilizers, pesticides
etc. Repairs to tractors, motors and pump sets, diesel engines, micro irrigation equipments etc.,
are carried out by service centres set up by entrepreneurs in the SME segment. Depending on
the size of the area served the investment in such service centre varies from Rs. 5 lakhs to Rs.
25 lakhs. Such loans qualify for guarantee from the Credit Guarantee Trust Fund. Farm sector
offers cross-selling opportunities in SME segment.
The impact of WTO and its agreements are on every economic activity be it agriculture,
manufacturing, trading or services. Following is the summary of the impacts:
♦ World markets are opening up due to lowering of tariffs and dismantling of other restrictions in
developed and developing countries. Enlightened and awakened entrepreneurs have greater
opportunities to benefit for their comparative advantages.
♦ Domestic markets will face an increasing threat because of lowering tariffs leading to freer
entry of foreign goods and because of larger number of foreign companies establishing their
manufacturing bases with state-of-art facilities.
♦ Export markets will become tougher because of competition among developing nations having
similar comparative advantages.
♦ The WTO regime will benefit those countries more, which show enormous negotiating skills in
the on-going dialogue. India is currently on a strong wicket on this score. The Government
that is in constant touch with the industry would stand to a significant advantage.
Opportunities for SMEs:
♦ Access to global markets
♦ Access to better technology
♦ Access to greater funding through FDI/Joint ventures Challenges
before the SMEs under WTO regime:
♦ Removal of Quantitative Restrictions — this would lead to liberal import of goods and thus
result in additional competition.
♦ Quality of goods — under a regime where better quality of goods imported from other
countries would be available to the consumer, Indian SMEs would have to ensure that their
products meet with international standards in order to remain competitive.
♦ Outdated technologies — Most of the SMEs use outdated technologies either because of lack of
knowledge or lack of capital. These deficiencies would have to be made good.
♦ Infrastructure — several SMEs are facing problems with basic infrastructure facilities like bad
roads, unreliable power supply, high pollution etc.
♦ This chapter gives examples of a few industrial sub-sectors that have put in place strategies to
reduce the adverse impacts of the WTO Agreements.

MUDRA Full details

MUDRA – Micro Units Development & Refinance Agency Ltd



Under the aegis of Pradhan Mantri MUDRA Yojana, MUDRA has already created its initial products / schemes. The interventions have been named 'Shishu', 'Kishor' and 'Tarun' to signify the stage of growth / development and funding needs of the beneficiary micro unit / entrepreneur and also provide a reference point for the next phase of graduation / growth to look forward to :


• Shishu : covering loans upto 50,000/-



• Kishor : covering loans above 50,000/- and upto 5 lakh



• Tarun : covering loans above 5 lakh and upto 10 lakh



It would be ensured that at least 60% of the credit flows to Shishu Category Units and the balance to Kishor and Tarun Categories.



Within the framework and overall objective of development and growth of Shishu, Kishor and Tarun Units, the products being offered by MUDRA at the rollout stage have been designed to meet requirements of different sectors / business activities as well as business / entrepreneur segments. Brief particulars are as under:







• Sector / activity specific schemes



• 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



The salient features of the schemes and innovative products, being worked upon, which will be offered by MUDRA going forward, are as below:







1 Sector / Activity Focussed Schemes



To maximize coverage of beneficiaries and tailor products to meet requirements of specific business activities, sector / activity focused schemes would be rolled out. To begin with, based on higher concentration of businesses in certain activities / sectors, schemes are being proposed for:







1.1 Land Transport Sector / Activity



Which will inter alia support units for purchase of transport vehicles for goods and personal transport such as auto rickshaw, small goods transport vehicle, 3 wheelers, e-rickshaw, passenger cars, taxis, etc.







1.2 Community, Social & Personal Service Activities



Such as saloons, beauty parlours, gymnasium, boutiques, tailoring shops, dry cleaning, cycle and motorcycle repair shop, DTP and Photocopying Facilities, Medicine Shops, Courier Agents, etc.







1.3 Food Products Sector



Support would be available for undertaking activities such as papad making, achaar making, jam / jelly making, agricultural produce preservation at rural level, sweet shops, small service food stalls and day to day catering / canteen services, cold chain vehicles, cold storages, ice making units, ice cream making units, biscuit, bread and bun making, etc.







1.4 Textile Products Sector / Activity



To provide support for undertaking activities such as handloom, powerloom, chikan work, zari and zardozi work, traditional embroidery and hand work, traditional dyeing and printing, apparel design, knitting, cotton ginning, computerized embroidery, stitching and other textile non garment products such as bags, vehicle accessories, furnishing accessories, etc.







Going forward, schemes would similarly be added for other sectors / activities as well.







2 Micro Credit Scheme



Financial support to MFIs for on lending to individuals/ groups of individuals /JLGs/ SHGs for creation of qualifying assets as per RBI guidelines towards setting up / running micro enterprises as per MSMED Act and non-farm income generating activities.







3 Missing Middle Credit Scheme



Financial support to financial intermediaries for on lending to individuals for setting up / running micro enterprises as per MSMED Act and non-farm income generating activities with beneficiary loan size of 50,000 to 10 lakh per enterprise / borrower.







4 Refinance Scheme for RRBs / Co-operative Banks



Enhancing liquidity of RRBs / Scheduled Co-operative Banks by refinancing loan extended to micro enterprises as per MSMED Act with beneficiary loan size upto 10 lakh per enterprise / borrower for manufacturing and service sector enterprises.







5 Mahila Uddyami Scheme



Timely and adequate financial support to the MFIs, for on lending to women / group of women / JLGs/ SHGs for creation of qualifying assets as per RBI guidelines towards setting up / running micro enterprises as per MSMED Act and non-farm income generating activities.



6 Business loans for Traders and Shopkeepers



Timely and adequate financial support for on lending to individuals for running their shops / trading & business activities / service enterprises and non-farm income generating activities with beneficiary loan size of upto 10 lakh per enterprise / borrower.







7 Equipment Finance Scheme for Micro Units



Timely and adequate financial support for on lending to individuals for setting up micro enterprises by purchasing necessary machinery / equipments with per beneficiary loan size of upto 10 lakh.







8 Innovative Offerings



8 (i) MUDRA Card



- Going forward, MUDRA would look at improving the offerings basket by looking at innovative ideas like a pre-loaded MUDRA Card, say with an assessed value.







- The card offering will help provide pre-approved credit line to the members by providing a card that can be utilized to purchase raw materials and components, from registered producers on an online platform.







- The card could be linked with Pradhan Mantri Jan Dhan Yojana Savings Account of the borrower and the drawals could also be enabled through the Bank’s ATM network for meeting the immediate liquidity problems of the micro enterprise.







The latest design of the MUDRA card as approved by DFS, GoI is attached for ready reference. For the convenience of Banks, the latest design approved by DFS, GoI in cdr format is also attached.







8 (ii) Portfolio Credit Guarantee



- Traditional financing in Indian context adopts an Asset Based lending approach with emphasis on collaterals. Micro units, most of the times, are unable to provide the comfort of collaterals.







- To mitigate the issue of collaterals, MUDRA will be offering a Credit Guarantee Product.







- Further, given the context of the industry / segment, since the individual loan sizes would expectedly be small and number of loans will be large, the option of a Portfolio Guarantee Product will be explored. Under this option, Credit Guarantee or Risk Sharing would be provided for a portfolio of homogenous loans instead of a Scheme for individual loan - by - loan guarantee. This is expected to create administrative efficiencies and increase receptiveness for the Credit Guarantee product. The Guarantee product would be one of the key interventions proposed with the objective of bringing down the cost of funds for the end beneficiary to improve its creditworthiness.







- Further, the time has come when there is a need to move away from the asset based lending approach to other innovative approaches, say Business Idea funding Approach or cash flow based lending schemes, where there may not be underlying tangible primary assets. The comfort of primary lenders for lending to such segment would increase if credit guarantee instrument is available.







8 (iii) Creation of Resources for Credit Enhancement / Guarantee Facility



The corpus proposed for the Credit Guarantee Scheme would be regularly augmented with a charge on the outstanding loans under refinance. The same would be utilized for providing first loss guarantee / credit enhancement for securitized portfolio loans, as discussed below.







4 Credit enhancement : Facilities offered to cover probable losses from a pool of securitized assets in the form of credit risk cover through a letter of credit, guarantee or other assurance from the originator / co-originator or a third party to enhance investment grade in any securitization process. First loss facility is the first level of credit enhancement offered as part of the process in bringing the securities to investment grade. Second loss facility provides the second / subsequent tier of protection against potential losses.







8 (iv) Underwriting for Intermediaries







As MUDRA evolves, it will have to look for newer innovative offerings based on the cardinal principle of 'problem solving.' It is necessary that the intermediaries and last mile financiers which have the real expertise in funding the NCSB sector have access to a steady flow of long term debt capital at a reasonable cost to smoothly continue their onlending activities as also scale up sustainably. As of now, these intermediaries face significant difficulties in raising debt. There is also a need to widen the investor / lender base for such intermediaries.



Securitization would be a useful tool for such long term capital flow. However, as the market for securitization deals from the asset class of NCSB is nascent, it would first need to be nurtured and developed. MUDRA proposes to step in through interventions such as :







Providing credit enhancements : Credit enhancements by way of first loss guarantee / collateral would be provided by MUDRA for securitization pools from the NCSBS asset class to be originated by MFIs and other intermediaries. MUDRA’s support to such transactions will facilitate improvement in credit rating of such asset pools and hence securitization deal flow in the sector.







Adopting Co/ Multiple Originator Models : There would be a need to bring about cost and administrative efficiencies in securitization transactions. Further, as the loan sizes are small, many smaller intermediaries may not be able to provide by themselves a threshold size of assets for securitization. To address such issues, the multiple originator model would be encouraged whereby asset pools of more than one originator / intermediary could be bundled for securitization.







MUDRA will build on experiences of some of the existing players who have demonstrated ability to cater to the NCSB segment. Models developed in the industry would be looked at for adaptation. Being an apex agency with whom intermediaries would be registered / availing refinance from, MUDRA would be well placed to play an effective role in helping crystallize such securitization deals under multiple originator models.







Similar other interventions for market making and creation of the right ecosystem would be taken up by MUDRA.







8 (v) Business / Banking Correspondent Model



- To capitalize on expertise in lending and collections [which is often segment / region specific] developed by intermediaries / last mile financiers in the small / informal business segment as also to meet their capital requirements, a product for lending through the Business / Banking Correspondent Model is envisaged.







MUDRA Offerings- Addressing the Non-Credit Gaps



Besides the credit constraints, the NCSBs face many non-credit challenges, like,







• Skill Development Gaps



• Knowledge Gaps



• Information Asymmetry



• Financial Literacy



• Lack of growth orientation







To address these constraints, MUDRA will have to adopt a credit- plus approach and offer Developmental and Support services to the target audience. It will have to act as a market maker and build –up an ecosystem with capacities to deliver value in an efficient and sustainable manner.







Supporting Financial Literacy



Financial literacy or financial education can broadly be defined as 'providing familiarity with and understanding of financial market products, especially rewards and risks, in order to make informed choices.'







Financial Inclusion and Financial Literacy are twin pillars. While Financial Inclusion acts from supply side providing the financial market / services that people demand, Financial Literacy stimulates the demand side – making people aware of what they can demand. Supporting the financial literacy drive will contribute substantially from the demand side to the national agenda of financial inclusion.

TYPE OF CUSTOMERS

TYPE OF CUSTOMERS

In this Chapter, for the convenience of study, types of Borrowers have been classified as under:

1. Individual

2. Partnership firm.

3. Hindu Undivided Family

4. Companies

5. Statutory Corporations

6. Trusts and Co-op Societies

7. Limited liability Patnership

One of the essential elements of a contract is “capacity of the parties to Contract”.

The Bank while dealing with an individual should ensure that he is competent to enter into contract. An individual is not competent to contract and money lent to him cannot be recovered in the following circumstances:

a) If an individual is a minor:

A person is minor in the eyes of the law if has not attained the age of 18 years under Indian Majority Act and the age of 21 years, if he/she is a ward, under the Guardians and Wards Act. The money lent to a minor cannot be recovered, if the minor fails to repay. Exception to this is a contract with a minor for supply of necessaries to the minor. If a Bank lends money to a minor to meet expenses for purchasing necessaries of life, then bank can recover the money from the estate of the minor.

b) If an individual is not of sound mind:

According to the Contract Act, if a person is not of sound mind, then he is incompetent to enter into a contract. The Act says that a person at the time when he makes the contract, he is not capable of understanding it and of forming a rational judgment as to its effect upon his interests, will be considered that he is ‘not of sound mind’. Hence, a contract would be invalid if it is proved that the time of entering into contract, the person was not in sound state of mind and could not understand what he was doing and could not understand the implications of entering into the contract.

c) Disqualified persons:

If a person is disqualified by the law in respect of his capacity to contract, then the contract entered into by such a person cannot be enforced. For example, a person might have been declared as insolvent under the Insolvency law. As long as the person continues to be undischarged insolvent, he cannot enter into contract.

2. PARTNERSHIP FIRM

‘Partnership Firm’ is another entity with which a Banker deals with in the course of his business. Partnership firm is governed by Indian Partnership Act 1932. A partnership is the relation between persons who have agreed to share the profits of a business, carried on by all or any of them acting for all. The relationship between partners is governed by partnership deed which can be written or unwritten.

Legal Position of a partnership:

A partnership is not distinct from its partners. The liability is joint and several. It means that they responsible for the act of the partnership firm in their capacity as partner as well as individual. The Indian Partnership Act 1932, provides for registration of the partnership and it is necessary that a Banker dealing with partnership firm, should verify as to whether the firm is registered or not. This would help him to know all the names of the partners and their relationship.

Authority of the Partners:

Section 19 of the Indian Partnership Act 1932 deals with the implied authority of a partner as an agent of the firm; and Section 22 deals with the mode of doing act to bind the firm. In view of the provisions of Section 19 and 22, it should be noted that the act of a partner shall be binding on the firm if done:

a) in the usual business of the partnership;

b) in the usual way of the business; and

c) as a partner, i.e. on behalf of the firm and not solely on his own behalf.

Business of partnership firm: Mode of Operation

Rights and duties of the partners are determined by Partnership Deed. It provides for opening of bank accounts, borrowing powers, signing of cheques etc. Generally there may be a managing partner, who conducts business on behalf of other partners. While dealing with partnership firms it should be ensured that business is conducted as per partnership deed. If the Managing Partner does not have power to conduct certain transaction, then it should be ensured that consent of all partners is obtained.

Partnership firm and transaction in immovable property:

Section 19 of the Indian Partnership Act 1932 states that a partner cannot effect transfer of immovable property of the firm unless expressly authorized. While taking mortgage security of firm’s immovable property, it should be ensured that the partner creating mortgage is expressly authorized to create mortgage. If the partner has no authority to create mortgage, then the banker should ensure that all the partners jointly create the mortgage.

Insolvency of the firm:

The banker on receiving notice of insolvency of the firm must immediately stop further transaction in the account irrespective of the fact that the account is in credit or debit. In case there is a credit balance, and the banker does not intend to set off the same against the dues in any other account, then the balance has to be handed over to the official receiver appointed by the Court or as directed by the Court. In case the account is in debit then the banker would be required to prove his debt before the Court and thereafter will be entitled to receive the same from the Official Receiver either in full or as per the dividend declared by the Court.

Insolvency of the Partner:

If at the time of insolvency of one of the partners the firms account is in credit then the same can be operated by the other partners, but the banker should obtain a fresh mandate and all previous cheques issued by the insolvent partner may be paid provided the other partners confirm the same. In case the account is in debit then further transactions in the account should be stopped.

Death of a partner:

In case of death, the principles, as stated* in the case of Insolvency of a partner, applies.

3. JOINT HINDU FAMILY (JHF) or HINDU UNDIVIDED FAMILY (HUF)

Joint Hindu Family is an entity of customary law among Hindus. This is governed by personal laws. In Bengal and other parts of erstwhile Bangal province, a Hindu Undivided Family is governed by Dayabhaga Law. In other parts of India, it is governed by Mitakshara Law.

Constitution of a Joint Hindu Family:

A Joint Hindu Family consists of male members descended lineally from a common male ancestor, together with their mothers, wives or widows and unmarried daughters bound together by fundamental principle of family relationship. The Joint Hindu Family is purely a creature of Law and cannot be created by act of parties.

in so far as he manages the family property or business or looks after the family interests on behalf of the other members. The Managership of the JHF property comes to a person by birth and he does not owe his position as Manager on consent of the other co-parceners. The liability of the Karta is unlimited, whereas the liability of the co-parceners is limited to their shares in the Joint Family Estate.

Powers and Duties of the Manager

A Manager or Karta of a Joint Hindu Family has the following powers and duties:

Powers:

i. Right to possession and management of the joint family property.

ii. Right to income from the joint family property

iii. Right to represent the joint family

iv. Right to sell the joint family property for family purpose.

Duties:

v. Duty to run the family business and manage the property for the benefit of the family

vi. Duty to account the income from the joint family business and property.

Banker and his dealings with Joint Hindu Family

i. A banker dealing with JHF, should know the Karta of the family.

ii. Banker should ensure that Karta of the Joint Hindu Family deals with the Bank and borrows only for the benefit of Joint Family Business.

iii. The application to open the account must be signed by all the members and all adult members should be made jointly and severally liable for any borrowings or if the account gets overdrawn.

4. COMPANIES

A Company is another type of customer, which a banker deals with. A company is a juristic person created by law, having a perpetual succession and Common Seal distinct from its members. A Company depending upon its constitution is governed by various laws.

Basic Law Governing Company:

In India Companies are governed by Companies Act, 1956. All the companies are required to be registered under Companies Act, 1956.

The Business and objectives of a company are known by two important documents called Memorandum of Association and Article of Association. Therefore for the formation of company these documents are essential.

Memorandum of Association

The Memorandum of Association is charter of a company. Its purpose is to enable the shareholders, creditors and those dealing with the company to know its permitted range of business.

Memorandum of Association of a company contains the following details among others:

i. Name of the company

ii. Place of the business of the company

iii. Objects of the Company

iv. Name of the first Directors of the company

v. Share capital of the company

Articles of Association

Articles of Association are rules and regulations governing the internal management of the company. They define the powers of the officers of the company. Articles of Association are subordinate to Memorandum of Association and it contains the following details among other things:

i. Number of Directors of the company

ii. Procedure for conducting meeting of shareholders, Board of Directors etc.

iii. Procedure for transfer and transmission of shares.

iv. Borrowing powers of the company

v. Officers of the company and other details

Types of Companies:

A. Private Company:

According to Section 3 (1) (iii), a Private Company is one which contains following provisions in its Articles of Association:

i. Restriction on the right to transfer its shares.

ii. ii. Limitation on number of members to fifty excluding the people, who are employees and ex-employees of the company.

iii. iii. Prohibition as to participation by General public in its capital requirements.

iv. B. Public Company:

v. A Public Company is one which is not a Private Company i.e. a Public Company does not have any restrictions of the Private Company and its main features are as follows:

vi. i. Shares are freely transferable.

vii. ii. No restriction on number of members

viii. iii. Public at large can participate in its share capital.

ix. The Public Company can be further classified as

x. (a) Limited Liability Company – Liability is limited to the share in capital.

xi. (b) Unlimited Liability Company – Liability of the members is unlimited

xii. (c) Limited by Guarantee - liability is limited to the amount guaranteed

xiii. C. Government Company:

xiv. A company in which Central Government or State Government or both has not less than 51 % of share capital.

xv. D. Statutory Companies:

xvi. There are some companies established by an act of Parliament. These are called Statutory Corporations. For example, State Bank of India is established under State Bank of India Act, 1955. Nationalised Banks are established under Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.

xvii. E. Other Companies:

xviii. Besides the above, Companies Act, 1956 classifies companies on the basis of time, place of incorporation and nature of working into the following categories:

xix. i.Existing Company:A company existing already before the coming into force of Companies Act, 1956.

xx. ii.Foreign Company: A company registered in a Foreign Country.

xxi. iii.Holding Company: A company owning more than 50 % of share capital in another company or a company which can appoint majority of Directors in another company.

xxii. iv. Subsidiary Company: it can be seen that when there is a holding company the other company is called Subsidiary Company.

xxiii. 5. OTHER TYPE OF CUSTOMERS

xxiv. (i) Clubs, Societies, Schools:

xxv. These bodies are usually governed by Companies Act or co-operative Societies Act and function within the ambit of those laws. For example clubs can be registered either under the Companies Act, 1956 or under Societies Registration Act or Co- operative Societies Act. In the case of lending to these bodies a Banker should study the bye-laws, rules and regulations applicable to them and ascertain the legality of lending to them.

xxvi. (ii) Trusts:

These are governed by Indian Trusts Act, 1882, if they are Private Trusts and if they are public trust, they are governed by Public Trusts Act or Religious and Charitable Endowments Act, if they are Trusts of Hindus and in the case of Muslims they are governed by Wakf Act.

A Banker dealing with Trusts should acquaint himself with the respective laws applicable to them and shall ensure that his lending is within the ambit of those laws.

(iii) Trustee:

The Trusts are managed by Trustees. The powers and duties of the Trustees are either provided in Trust deed or regulated by the respective laws applicable to such Trusts. For example in the case of Public Trusts, Charity Commissioners, or Commissioner of Endowments appointed by Government has power to supervise the activities of the Trusts. The Trustee of Muslim Wakf is called Mutawali and his conduct and function is regulated by Wakf Board. Therefore a Banker dealing with a Trust should ensure that all the permissions required for taking a loan is obtained from the respective Government authorities.

7. Limited Liability Partnership :

Limited Liability Partnership (LLP) is a new corporate structure that combines the

flexibility of a partnership and the advantages of limited liability of a company at a low

compliance cost. In other words, it is an alternative corporate business vehicle that

provides the benefits of limited liability of a company, but allows its members the

flexibility of organizing their internal management on the basis of a mutually arrived

agreement, as is the case in a partnership firm.

Owing to flexibility in its structure and operation, it would be useful for small and

medium enterprises, in general, and for the enterprises in services sector, in particular.

Internationally, LLPs are the preferred vehicle of business, particularly for service

industry or for activities involving professionals.