Micro Units Development and Refinance Agency Bank (MUDRA Bank)

Micro Units Development and Refinance Agency Bank (MUDRA Bank) was set up as a public sector financial institution on 8 April 2015 under Pradhan Mantri MUDRA Yojana (PMMY). It is set up to provide loans at low rates to Micro-Finance Institutions (MFIs) and Non-Banking Financial Companies (NBFCs) which then provide credit to MSMEs.

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Formation of MUDRA Bank:

  • The Non-Corporate Small Business Sector (NCSBS) forms important part of Indian Economy.
  • They feed large local and international value chains as well as domestic consumer markets as suppliers, manufacturers, contractors, distributors, retailers and service providers.
  • But the NCSBS have a little growth due to the lack of financial support by the banks.
  • Most NCSBS operates as unregistered enterprises. Because of this they do not maintain their proper book of transactions and thus are not covered under taxation areas. And this is the reason that the banks hesitate to provide loans to these NCSBS.
  • This became the genesis of MUDRA Bank which will develop and refinance all MFIs.

Three categories have been identified in which the loans will be disbursed by the MUDRA Bank. These are:

  • Shishu: Under this, loans up to Rs 50,000 will be provided.
  • Kishore: Under this, loans up to Rs 5 lakh will be provided.
  • Tarun: Under this, loans up to Rs 10 lakh will be provided.

Government has decided to provide an additional fund of Rs 1 trillion to the market and will be allocated as 40% to Shishu, 35% to Kishore, and 25% to Tarun.

Roles and Responsibilities of MUDRA:

  • Laying down policy guidelines for micro enterprise financing business.
  • Registration, supervision and rating of MFI entities.
  • Guaranteeing the loan/credit to the MSMEs.
  • Ensure proper client protection principles and methods of recovery.
  • Supporting development & promotional activities in the sector
  • Creating a good architecture of Last Mile Credit Delivery to micro businesses under PMMY.

Some important facts:

  • MUDRA bank is not a physical bank.
  • Eligible entities can apply for MUDRA Bank loan under PMMY in NBFCs, MFIs, Rural Banks, District Banks, Nationalize Banks, Private Banks, Primary Lending Institutions and other intermediaries.
  • Any person who is eligible and having the need of loan of up to Rs 10 lakhs can approach for loans under PMMY
  • It will not refinance agriculture sector under PMMY but the traders of vegetables & fruits are covered under MUDRA Bank Schemes.
  • The bank is set up as a subsidiary of the Small Industries Development Bank of India (SIDBI), and later it will be converted to a separate institution.
  • The bank was decided to act as regulator of MFIs, but later the decision was withdrawn and it will be done by RBI.
  • There is no fix interest rate in MUDRA loan; it will vary from bank to bank.
  • It was launched by Prime Minister Narendra Modi in New Delhi.