“MUDRA SCHEME- A MISSION FOR BANKING THE UN-BANKED”

CFA A. Jajoo, Assistant Professor- Jagran Institute of Management

Abstract

Tiny, small and medium business undertaking is the catalyst for the socio-economic
transformation of the Nation. With the contribution of about 33.4% in India’s manufacturing
output and employment base of over 120 million the vital role of this sector cannot be
undermined in fueling the growth engine of the economy. The biggest obstacle in to the growth
of this sector is the lack of financial support. Since decades government is paying a good
attention in the field of micro finance. Micro finance is not new to the country and has been a
key instrument in providing financial assistance to informal unorganized sector and generating
self employment. But the achievement of micro finance so far projects a dismal picture with a lot
of challenges these institutions (MFIs, SHGs, NBFC and cooperative societies) are facing.

Introduction of micro finance scheme MUDRA by Governmentt of India is a step ahead in

addressing the limitations/constraints /challenges faced by micro finance sector of the country.
This paper studies the role and achievement of MUDRA since its inception in taking a leap in the
area of micro finance availability and refinancing agency. An attempt is also been made to
highlight the factors that should be considered in evaluating how far this scheme strategically fit
in the prevailing micro finance ecosystem.

Key objectives and method of the study

 To understand the modus operand and relevance of Mudra.

 To discuss the model and ecosystem of the scheme.
 To highlight the concerns that have evolved around the working and implementation of
the scheme and evaluating how far this scheme strategically fit in the prevailing micro
finance ecosystem.
The study involves a critical analysis of functioning of some MUDRA scheme and intends to
identify the working model, major issues and challenges experienced by such institution. The
data are collected mostly from secondary sources by way of access to various Government
policies/ programs including published Reports, Journals, Books and available official websites.

Prologue of the Scheme

Micro, Small and Medium Enterprises plays a vital role in the economic development of the
India in terms of sizable contribution to GDP and enormous employment generation. With this
fact, it becomes critical for the growth and development of this sector to recognize the
importance of financial access to the players. The MSMEs primarily rely on bank finance for
their operations and first hand support to meet working capital & liquidity requirements.
Support of mainstream formal banking to MSME sector is very low at 15% of total bank credit
But there many constraints and complexities in getting the loan disbursed and structured. With in
the sector, micro enterprises are the hardest hit by the lack of access to financial resources
majorly because they were not capable to offer collateral. Informal moneylenders have harnessed
small entrepreneurs and they have no knowledge how to lend from formal banks. With this
backdrop Micro Units Development and Refinance Agency (MUDRA) was formally launched
in the 2015 Union budget of India.

The MUDRA scheme or the Pradhan Mantri Mudra Yojana (PMMY) is aimed at providing
financial assistance to the very small scale entrepreneurs located in remote areas, outside
the access of regular banking resources. MUDRA loans are available for non-agricultural
activities and other activities allied to agriculture such as dairy and poultry. The scheme was
introduced with the following objectives

 It aims to fund those who have a business plan to generate income from a non-farm
activity -- like manufacturing, processing, or trading -- but don't have enough capital to
invest.
 MUDRA scheme aims to reduce the unemployment by providing micro enterprises with
credit facility which will not only increase the country's GDP but also create jobs.
 The scheme also aims to boost the financial inclusion by taking the last mile credit
delivery to micro businesses.
 It also works on the entry of the informal/unorganized economy into the formal sector as
most of the time income from the informal sector is not taxed.
 Scheme refinances collateral-free loans given by the lenders to small borrowers. It has a
corpus of Rs 20,000 crore and has the provision of lending from Rs 50,000 to Rs 10 lakh
to small entrepreneurs.
 Other objective of MUDRA is to maintain a monitoring portal for the lending programs
under PMMY by regularly collecting information and data.
 It aims to increase the network of MFIs and helps to register new institutions.

Types of loans under PMMY

There are three types of loan under MUDRA scheme named as Shishu, Kishor & Tarun.
Categorization of the loans is done on the basis of the stage of growth / development and funding
needs of the beneficiary micro unit / entrepreneur. Categories also provide a reference point for
the next phase of graduation / growth for the entrepreneur to aspire for. These loan schemes are
available to businesses/entrepreneurs/units including proprietorship/partnership firms running as
small manufacturing units, shopkeepers, fruits/vegetable sellers, hair cutting saloon, beauty
parlours, 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 with financing
requirements up to Rs 10 lakh. There is no processing fee for Shishu and Kishore, but Tarun
loan attracts a fee of 0.5 per cent of the loan amount (plus applicable tax).

Loans from Rs
5,00,001 to Rs
10 lakh are
categorized as
TARUN

Three
Types of
Loans from Rs Loans up to Rs
50,001 to Rs 5
Loans 50,000 are
lakh are categorized as
categorized as SHISHU
KISHORE

Fig. 1 Three types of loans under PMMY

Products and services offered under the scheme

Primarily, the key product of MUDRA is the Refinance Scheme for Regional Rural Banks
(RRBs), NBFCs, MFIs Scheduled Co-operative Banks and micro units to commercial banks.
MUDRA offers credit support in terms of sector specific and activity specific schemes, such as
schemes for business activities in Land Transport, Community, Social & Personal Services, Food
Product and Textile Product sectors.etc. Besides this Micro Credit Scheme (MCS), Mahila
Uddyami Scheme is also included in the portfolio of products offered. The scheme has some
specialized products also like Business Loan for Traders & Shopkeepers & Equipment Finance
for Micro Units. Another significant scheme is the credit assistance to the SMEs that are known
as missing middle because they are not funded by either banks or MFIs.
Besides these key offerings the Scheme also includes services like MUDRA Card, Portfolio
Credit Guarantee, Securitization of loan portfolio and Credit Enhancement.
MUDRA endeavors development and promotional support to enhance skill and entrepreneurship
development, sectoral development and financial literacy.
Mudra Model:

Partner
Institutions
•1. Applies to loan
•4. Financing units •2. Sanction and structure the as per category
get refinance of loan under MUDRA after
loan disbursed •5.Borrower repays
scrutiny of application to financing
•3. Issues MUDRA Card institution
•6. Institutions repays to
MUDRA MUDRA BENEFICIARY

MUDRA is not a bank, it does not lend directly to micro entrepreneurs or individuals. Mudra
loans from PMMY can be availed of from nearly branch office of a bank, MFIs, NBFCs etc. A
loan seeker applies for loan to the institutes engaged in disbursing loans under PMMY. After
scrutinizing the application micro finance units sanction the loan. The repayments terms and
conditions are decided by the intermediary lending institution according to its rules considering
the cash flow of the business in question. Table

Table 1: Interest rate of major banks on loans under MUDRA

Mudra Loan Bank Interest rate Tenure
HDFC 12.75% to 20% 1-5 years
Kotak Mahindra Bank 11.5% to 18% 1-5 years
IndusInd Bank Ltd 12.99% to 18.25% 1-5 years
Standard Chartered Bank 12.50% to 17% 1-5 years
ICICI Bank 11.49% to 17.50% 1-5 years
Allahabad Bank 13.70% 1-5 years
Bank of Baroda 14.15% 1-3 years
Bank of India 12.7% to 14.7% 1-3 years
Central Bank 12.70% 1-3 years
Dena Bank 13 % to 14% 1-3 years
IDBI Bank 12.75% to 13.75% 1-5 years
Indian Bank 12.65% to 13.65% 3 years
Indian Overseas Bank 14.70% 1-5 years
State Bank of Bikaner and Jaipur 13.2% to 14.2% 1-5 years
State Bank of Hyderabad 15.25% to 15.75% 1-3 years
State Bank of India 17.80% 1-4 years
Source: bankbazaar.com
After the loan has been sanctioned under MUDRA Yojana, the candidate get a MUDRA Card, a
card like the credit card which the candidate can use to facilitates cash withdrawals to buy
business raw material, other working capital need etc. Mudra Card will have a limit of 10% of
the business loan (subject to Rs. 10000 maximum). At the end of loan term, borrower pays back
the loan to the lending unit which in term pays back to MUDRA.

The finance ministry has joined hands with over two dozen e-commerce firms, including major
players like Amazon, Flipkart, Ola and Uber, to provide easy finance to small entrepreneurs
under the Pradhan Mantri Mudra Yojana (PMMY). The three way partnership between lenders,
industry and the government aims to facilitate small business loans. Other companies
participating in the scheme include MakeMyTrip, Oyo, Meru Cab, Big Basket, Carz on Rent,
Habib Salon, among others.

Ecosystem of the scheme

Corporate structure: It is a refinance institution wholly owned by government of India. MUDRA

has been initially formed as a wholly owned subsidiary of Small Industries Development bank of
India (SIDBI) with 100% capital being contributed by it. A sum of Rs 20,000 crore was
allocated to the MUDRA Bank from the money available from shortfalls of Priority Sector
Lending for creating a Refinance Fund to provide refinance to the Last Mile Financers. Another
Rs 3,000 crore was provided to the MUDRA Bank from the budget to create a Credit Guarantee
corpus. It has been registered as an NBFC with the Reserve Bank.

The Partner Institutions: Department of Financial Services (DFS) has set a system to tie up with
Public Sector Banks, Scheduled Commercial Banks and Regional Rural Banks, Co-operative
banks, MFIs and NBFCs for bringing all loans up to Rs.10 lakhs disbursed for non-farm income
generation activities under the MUDRA Scheme. These micro unit institutes/departments are
powerful vehicles that are used to provide MUDRA Loans to the masses.

Table 2. Total number of partnering

institutes of MUDRA as on
Public sector banks 27
Private sector banks 18
Regional rural banks (RRBS) 31
Co-operative banks 14
NBFC 31
MFI 26
MFI-NBFC 47
Source: www.mudra.org.in

The beneficiary: Any Indian Citizen who has a wage producing plan from small scale business
exercises in exchanging, assembling and preparing and whose advance prerequisite is under
Rs.10 lakh can approach advances under PMMY. The usual terms and conditions of the lending
agency are followed for availing of loans under PMMY. The lending rates are as per the RBI
guidelines issued in this regard from time to time.

Progress of the scheme:

Table3: Loan sanctioned and disbursed so far

Financial years No. of loans sanctioned* Amount sanctioned Amount disbursed
2015-16 34880924 137449.27 crore 132954.73 crore
2016-17 39701047 180528.54 crore 175312.13 crore
2017-18 48130593 253677.10 crore 246437.40 crore
2018-19 18245677 96889.71 crore 91452.89 crore
*As on 21.09.18 Source: www.mudra.org.in

Bottlenecks and limitations of the scheme:

 The major concern is the loan without collateral. One year estimates shows that the gross
NPA was around 4% as compared to an average of 10% in mainstream PSU banks for
various diversified bank lending. The scheme is still in its budding stage and number may
worsen with time.
 The limit sanctioned for loan is not enough to start a venture that can actually push the
employment number, given the per capita income of the country is Rs 1.11lakh.
 The banking experts have a concern in the model of MUDRA as they consider the loan
without collateral is against banking principles.
 The model adopted may increase corruption on the part of personnel responsible for
disbursing loans. There may be a tendency to sanction loan without the comprehensive
appraisal about the end use of loan.
 74% beneficiaries are the women, women entrepreneurship is a good sign but there is no
denial about the creation of proxies and hidden intentions. The due diligence in this
respect is also evident.

Conclusion

Nearly 40% of the workforce in India is engaged in small and marginal business next to
agricultural sector. The financial support to this section is unarguably the most critical issue in
the holistic development of the country. Comprehending the sector’s contribution towards
employment numbers, towards GDP, innovation and entrepreneurship, the Government of India
has launched numerous initiatives to further the cause and MUDRA is a pivotal scheme in this
respect. It is the most cost effective way for financial inclusion and job creation. Realizing the
model of the scheme there are apprehensions amongst the organized players about the credit
recovery. In collateral free loan proper risk identification and management is very vital.
The MUDRA journey so far is concentrated to some states; geographical spread is required on
the road ahead for achieving the bigger socio-economic impact and inclusive growth. The three
way partnership between lenders, beneficiary and the government definitely facilitate regional
balance by taking economic activities to rural and backward areas.

Reference:

 https://www.mudra.org.in
 CII: Confederation of Indian Industry
 https://www.bankbazaar.com/personal-loan/mudra-loan-interest-rates.html