Significance of MUDRA Bank

08 Apr 2015 (AIR News Analysis)

Significance of MUDRA Bank

Participants: Prof B B Bhatachariya, Noted Economist and Sanjay Thappar, Economic Journalist.

To push financial inclusion – big step – aide employment, spur growth, help underprivileged to get credit; How do you see this?

In principle – very good idea – much of industrial employment generated in MSME with micro credit – at present the big corporate utilize the bank funds;

1.     Critical question is now on the corpus whether it is solely form Govt or in fusion.

2.     Term & conditions of the loan;

Expected that 5.77 crore Small business enterprises would be benefited – would it affect the NPA of the banks – corpus of the bank to be 22k crore proposed by PM – in the current scenario of micro lending/ MFI in rural areas – will it enhance?

Micro credits are given through commercial banks but they are not specialized in that. In other countries Grameen bank (Bangladesh) – India to need such specialized banks;

First thing is to create an institute.

Secondly it should be ensured to function professionally – effective productive investment;

We already have SIDBI, SME banks.. etc Reports of coercing the lender on financial lines – borrowers end target – suicide cases – will it do away with such Coercive tactics?

Credit is not a grant – it should be repaid – success full stories of Micro financing depends on the 99% recovery; micro funding – high level difficulty in assessing the credential;

Largely, what will be the structure of the bank – in terms of capital accumulation?

Probably commercial bank & other financial institution will be asked to contribute some share – 1500 Crore – this would be the corpus/loan – they are not directly lending - they contribute fund through MUDRA bank – nominee of the commercial bank will be in the board of director;

Administrative part - Who will control it?

It should neither be bureaucratic nor under political influence; it could be completely immunized – be autonomous – prevent issues like ‘loan mela’ there by avoid defaulters;

Reluctance of RBI?

It would be a separate institution – neither under RBI nor under finance ministry; It should be a separate professional institution;

RBI can do Financial Audit not management;

Importance to promote micro financing/ funding?

Indian Corporate sector is very poor – 90% of the employment is in unorganized (including Agri, SME…) – so it is an urgent need to shift;

Micro Units Development and Refinance Agency MUDRA bank

FUNDING PUSH Primary product of MUDRA will be refinance for lending to micro businesses and units. The initial products are:

·         SHISHU: Covering loans up to Rs 50,000 ·         KISHOR: Covering loans above Rs 50,000 and up to Rs 5 lakh ·         TARUN: Covering loans above Rs 5 lakh and up to Rs 10 lakh MUDRA's role will include: ·         Laying down policy guidelines for micro enterprise financing business, registration of MFI entities ·         Accreditation, rating of MFI entities ·         Laying down responsible financing practices to ward off over-indebtedness and ensure proper client protection principles and methods of recovery ·         Development of standardised set of covenants governing last-mile lending to micro enterprises ·         Promoting right technology solutions for the last mile ·         Formulating and running  a credit guarantee scheme for providing guarantees to loans and portfolios being extended to micro enterprises ·         Support development and promotional activities in the sector ·         Creating a good architecture for last-mile credit delivery to micro businesses

Also refer: http://www.icra.in/Files/ticker/SH-2015-H1-1-ICRA-Micro%20Finance%20Institutions.pdf