Small Business is BIG Business- MUDRA Bank to rekindle growth of Micro & Small Business Segment

Sustainable Agriculture, MSME & Green Value Chain Finance | Priority Sector Finance | Manoj Rawat, ValueFin India

Small Business is BIG Business- MUDRA Bank to rekindle growth of Micro & Small Business Segment

Small Business is BIG Business
Micro Units Development and Refinance Agency (MUDRA) Bank
may rekindle growth for Micro and Small Business Segment
The Micro Units Development and Refinance Agency (MUDRA) Bank  will be set up through a statutory enactment and will be responsible for regulating & refinancing all micro-finance Institutions which are in business of lending to micro/small business entities engaged in manufacturing, trading and service activities. The bank will be setup with a corpus of Rs 20,000 crore and credit guarantee corpus of Rs 3,000 crore will be created.
 The new bank announced in the annual Budget last week could boost loans and cut borrowing costs for cash-starved small businesses – artisans, tailors, mechanics, small trade & restaurant owners, tea and fruit vendors  and phone booth operators who account for around a fifth of the economy. MUDRA Bank may be step forward to rekindle growth in Rural India.
The Bank would partner with state/regional level coordinators to provide finance to last mile financier of small/micro business enterprises. In lending, priority will be given to small businesses owned by scheduled class and scheduled tribes
MUDRA Bank to strengthen, promote and regulate MFI sector
The MUDRA Bank would primarily be responsible for

  1. Laying down policy guidelines for micro/small enterprise financing business
  2. Registration of MFI entities
  3. Regulation of MFI entities
  4. Accreditation /rating of MFI entities
  5. Laying down responsible financing practices to ward off indebtedness and ensure proper client protection principles and methods of recovery
  6. Development of standardised set of covenants governing last mile lending to micro/small enterprises
  7. Promoting right technology solutions for the last mile
  8. Formulating and running  a Credit Guarantee scheme for providing guarantees to the loans which are being extended to micro enterprises
  9. Creating a good architecture of Last Mile Credit Delivery to micro businesses under the scheme of Pradhan Mantri Mudra Yojana
India’s small businesses employ more than 106 million workers, according to government statistics, in a country that brings a million new workers into the workforce every month.
As per NSSO there are 5.77 crore business enterprises in un-organized sector which are contributing 45% to national GDP and providing employment to nearly 46 crore people. Only 4% of this sector could able to avail finance from core banking sector and rest of 96% depends upon private moneylenders, relatives and friends.
It is estimated estimates that microfinance lenders have loan assets totalling Rs. 35000 cr. But they have had a limited impact on small businesses as they primarily target lending to individuals or groups of individuals among the poor where they can lend to a single borrower at Rs 50,000, making it many a times unviable option for many businesses.
It is expected that funds to be made available through MUDRA will increase liquidity and so lower their borrowing costs and in turn the burden on borrowers.
This initiative could give a major boost to help micro and small businesses as also make the mainstream banks and financial institutions innovate products to address the needs of this segment.
 
It’s important to see how the policy and regulatory framework emerges under MUDRA bank, which now seems to become an over-arching Financial Institution for growth, development and regulation of Micro & Small Business Sector.
Manoj Rawat | India
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The views expressed are purely personal.

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