AN ANALYSIS ON THE WORK OF MUDRA BANK PLAN

IN PROMISING SETTING UP BUISNESS IN INDIA

By SATHESH MS AND GEETHU VP
(Assistant Professors ;Dept of Economics,Holycross
Institute of Management and Technology ,Calicut )

ABSTRCT

MUDRA Bank is a suggestive initiative by Government of India to supply

bank finance to the vast segment of population seize in the informal sector
which does not have access to formal bank credit and are forced to depend
upon informal sources of finance at higher cost. These Micro Small and
Medium Enterprises (MSME) play an important role in the generation of
employment opportunities in the country. Creation of a dedicated bank for
MSME sector called Mudra Bank will improve the growth of Indian MSME
Sector and help them to increase their contribution towards the nations GDP.
This paper explains the scheme of Mudra Bank, objectives and purposes
behind Mudra Bank scheme, Mudra products & offerings, performance of
Mudra scheme, future prospects of Mudra Bank and how it contributes
towards the objectives of financial inclusion and entrepreneurship
development.

Key Words

MUDRA Bank, Entrepreneurship, MSME, financial inclusion.

INTRODUCTION

Micro Small Medium Enterprises (MSME) sector has contributed remarkably

towards the industrial and economic growth of the country. In the past few years the
MSME sector has registered consistent growth rate compared to the overall
industrial sector. The sector helps in the industrialization of rural and backward
areas of the nation. It also helps in ensuring balanced regional development and
equitable distribution of national income and wealth.

Micro, Small and Medium Enterprises have shown constant growth rate of over 10
percent in recent years, contribuites8 percent of the countrys GDP, 45 percent of
the manufactured output and 40 percent of its exports. MSME sector can be called
as the backbone of our economy. In India there are almost 5.77crore micro and
small scale business units and these units could provide employment opportunities
to more than 12 crore a person which is much more than what large industries could
provide. A majority of these micro small and medium scale businesses are owned
and operated by people belonging to economically and socially backward category.

By understanding the importance of this sector a number of programs were

initiated by governments since independence to encourage people to start their
micro, small and medium scale business units but unfortunately only 4percent of
such units were given institutional finance. That is the rationale behind the
introduction of a scheme called Micro Units Development and Refinance Agency
(MUDRA) Bank.

Objectives of the study:

To understand the importance of MSME sector

To study the features of the Mudra scheme
To evaluate the benefits attached to Mudra Bank scheme
To understand various schemes available under Mudra Bank
To identify the list of Lending Institutions that partners Mudra Bank
To study the future prospects of Mudra Bank

Research Methodology

Data Sources:

The study has been carried out with the help of secondary data, which was
collected mainly from the official website of the Mudra bank. Journals, research
papers and other published materials were also reviewed during the study.

An overview of Mudra Bank

Prime Minister Narendra Modi launched the Micro Units Development and
Refinance Agency Ltd (MUDRA)Bank on 8 April, with a refinance corpus of Rs.20000
crore and a credit guarantee corpus of Rs.3000 crore. Mudra in Hindi means
currency and Mudra scheme is set up to refinance all micro finance institutions (MFI)
which are in the business of lending to micro and small business units engaged in
manufacturing, trading and service activities through a scheme namely Pradhan
Mantri MUDRA Yojana(PMMY).

It will regulate and refinance all Micro Finance Institutions which are in the
business of lending money to small scale businesses. Mudra Bank will associate with
state level coordinator to provide finance to last mile financer of small business
enterprises. The initiative taken by the government is expected to be helpful for the
small and micro businesses. It is also expected that these businesses will generate
10 times more of jobs than are normally generated by big business firms and
companies.
 Mudra Bank was set up as a subsidiary of the small industries Development Bank
of India (SIDBI) and was later converted to a full-fledged bank through an Act of
parliament. As a new institution Mudra bank does not have a branch network so
they thought of associating with other banks and financial institutions. Now Mudra
bank has 27 public sector Banks, 17private sector Banks, 4 co-operative Banks, 31
Regional Rural Banks (RRBs), 36 Micro Finance Institutions (MFIs), and 25Mainline
NBFCs as their associates to reach the small entrepreneurs who have limited
resources presence and are excluded from the general banking system.

Mudra Bank is established for the funding of the unfunded micro small and
medium enterprises. This will provide credit of up to Rs.10 lakh to small
entrepreneurs and act as a regular of Micro Finance Institutions .Business units or
entrepreneurs covered would include sole-proprietors, self helps groups and
partnership firms running small manufacturing units, fruits or vegetable shops, hair
cutting saloons, beauty parlours, transportation business, truck operaters,
hawakers, food service units, repair shops, machine operators, small industries,
artisans, food processors etc. Sector-specific schemes will be confined to land
transport, community, social and personal services, food Product and textile Product
sector etc. In future new schemes will be introduced to include more sectors under
the purview of Mudra bank.

Majority of Indians are poor and live in rural and remote parts of the nation.
Most of them are excluded from getting basic facilities most of these people belong
to scheduled casts, scheduled tribes, other backward classes and women having
limited exposure to education, formal training or access to any form of banking
support. If Mudra Bank scheme can give proper guidance, support, training and
financial assistance to these people there is a potential; to get an immediate jump
in nations GDP. If Mudra can focus on these underprivileged sections in the society
it could emerge as a bigger success story like Grameen Bank of Bangladesh.

Role of Mudra Bank

To regulate and refinance all Micro Finance Institutions (MFIs) which are
lending money to MSMEs engaged in manufacturing trading and services
activities.
To provide access to institutional Finance for micro small and medium
enterprises.
Laying down policy guidelines for micro, small and medium enterprise
financing.
Registration of Micro Finance Institutions.
Accreditation and rating of Micro Finance Institutions.
Laying down responsible financing practices to prevent over indebtedness
and ensuring client protection principles and methods of recovery.
Development of standardized set of regulations governing last mile lending to
micro small and medium enterprises.
 Promoting technology solutions for the last mile lenders.
Formulating and running credit guarantee schemes for providing guarantees
to the loans which are being extended to micro small and medium
enterprises.
Support promotional and development activities in the sector.
Creating a good architecture of last mile credit delivery to micro small and
medium enterprises.
To assist the lower income groups in developing and growing their small
businesses.
To bring down the cost of finance lending.
To give priority to SC/ST enterprises in lending.

Mudra products

As per Department of Financial Services, Ministry of Finance, Govt. of Indias letter

No.27/01/2015-CP/RRB dated 14 May 2015 loans given to non-farm income
generating enterprises in manufacturing, trading and services whose credit needs
are below Rs.10 lakh by all the Scheduled commercial Banks (public and
private),Regional Rural Bnks(RRBs), Scheduled Urban Co-operative Banks, State
Cooperative Banks and Urban Co-operative Banks and Micro Financial Institutions
will be known as Mudra loans under the Pradhan Mantri MUDRA Yojana (PMMY).

Sole proprietorship or partnership firms running as small manufacturing units,

fruits or vegetable sellers, hair cutting saloon, beauty parlors, transporters, truck
operators, food service units, repair shops, machine operators, small industries,
artisans, food processors, self- help groups, professionals and service providers in
rural and urban areas with financing requirements up to Rs.10 lakh could get loan
under Mudra scheme. It is proposed to fund the business unit based on the stage of
growth and funding needs of the respective micro unit. The initial products and
schemes have already have been created namely Shishu, Kishor and Tarun to
signify the stage of growth or development and funding needs of the beneficiary
micro unit.

Shishu: covering loans up to Rs.50, 000. This is the first stage when the
business is just a start up.
Kishor: covering loans above Rs.50, 000/-and up to Rs.10 Lakh.
Tarun : covering loans above Rs. 5 Lakh and up to Rs.10 Lakh.

For further financing, the MSME sector affiliated entrepreneurs would be given
a Mudra Card, which could provide further credit of up to Rs 20,000. A part from
these products, the other products are initially launched as sector specific schemes
for units working in land transport, community, social &personal services, food
product and textile product sectors etc.

On the basis of certain eligibility criteria

Mudra bank has enrolled 27 public Sector Banks, 17 Private Sector Banks, 31
Regional Rural Banks and 36 Micro Finance Institutions (MFIs) 4 co-operative Banks
and 25 Non-Banking Financial Corporations (NBFCs) as partner institutions for
channelizing funds to the ultimate borrowers. Borrowers who wish to avail
assistance under Mudra Bank scheme can approach the local branch of any of the
partner institutions in their region. Sanction of financial assistance shall be as per
eligibility norms of respective lending institutions.

List of Lending Institutions Shortlisted to be partners of MUDRA Bank

Public Sector Banks Private Sector Banks Regional Rural

Banks(RRBs)
1.State Bank of India 1.Axis Bank Ltd. 1.Andhra Pragathi Grameena
Bank
2.State Bank of 2.Catholic Syrian Bank Ltd. 2.Chaitanya Godavari
Bikaner&Jaipur Grameena Bank
3.State Bank of Travancore 3.City Union Bank Ltd. 3.Deccan Grameena Bank
4. Bank of Baroda 4. DCB Bank Ltd. 4. Saptagiri Grameena Bank
5. Bank of India 5. Fedaral Bank Ltd. 5. Bihar Gramin Bank
6. Bank of Maharastra 6. HDFC Bank Ltd. 6.Madhya Bihar Gramin
Bank
7. Canara Bank 7. ICICI Bank Ltd. 7. Uttar Bihar Gramin Bank
8. Corporaton Bank 8. Indus Ind Bank Ltd. 8.Baroda Gujarat Gramin
Bank
9.Dena Bank 9.Jammu&Kashmir Bank Ltd. 9.Dena Gujarat Gramin Bank
10.IDBI Bank Ltd. 10.Karnataka Bank Ltd. 10.Saurashtra Gramin Bank
11.Indian Bank 11.Karur Vysya Bank Ltd. 11.Kaveri Gramin Bank
12.Oriental Bank of 12.Kotak Mahindra Bank Ltd. 12.Karnataka Vikas
Commerce Grameena Bank
13.Punjab National Bank 13.Nainital Bank Ltd. 13.Pragathi Krishna Gramin
Bank
14.Syndicate Bank 14.South Indian Bank 14. Kerala Gramin Bank
15.UCO Bank 15.Tamilnad Mercantile Bank 15.Maharastra Gramin Bank
Ltd.
16.Union Bank of India 16. The Ratnakar Bank Ltd. 16.Megalaya Rural Bank
17.Vijaya Bank 17.Yes Bank Ltd. 17.Puduvai Bharathiar
Grama Bank
18.Allahabad Bank Co- operative Banks 18.Malwa Gramin Bank
19. Andra Bank 1.Gujarat State Co-op Bank 19.Punjab Gramin Bank
Ltd.
20.Bhartiya Mahila Bank 2.Mehsana Urban Co-op 20.Sutlej Gramin Bank
Bank
21.Central Bank of India 3. Seriol No. Name of the 21.Marudhara Gramin Bank
Institution
22. Indian Overseas Bank 4. Kalupur Commercial Co-op 22.Pllavan Grama Bank
Bank
23.Punjab&Sind Bank 23.Pandyan Grama Bank
24.State Bank of Hyderabad 24.Tripura Gramin Bank
25.State Bank of Mysore 25.Baroda Uttar Pradesh

26. State Bank of Patiala
27.United Bank of India
Micro Finance Institutions( MFIs)
1. SV Creditline Pvt. Ltd.
2.Margdarshak Financial Service Ltd.
3.Madura Micro Finance Ltd.
4.ESAF Micro Finance &Investments
P.Ltd.
5.Fusion Micro Finance P. Ltd
6.Ujjivan Financial Services P.Ltd.
7.Future Financial Services Ltd.
8.SKS Microfinance Ltd.
9.Utkarsh Micro Finance P.Ltd.
10.Equitas Micro Finance Pvt. Ltd.
11.Sonata Finance Pvt. Ltd.
12. Saija Finance Pvt.Ltd.
13.Arth Micro Finance Pvt. Ltd.
14.Shikhar Microfinance Pvt. Ltd.
15.Navachetana Microfin Services Pvt. Ltd
16.Samasta Microfinance Ltd.
17.Satin Credit Care Network Ltd.
18.Sahyog Microfinance Ltd.
19.Arohan Financial Services P. Ltd.
20.Suryodaya Microfinance Ltd.
21.Belstar Investment & Finance P.Ltd.
22.Jagaran Micrifin P. Ltd.
23.Digamber Capfin Ltd.
24.Midland Microfin Ltd.
25.RGVN(North East) Microfinance Ltd.
26.Grameen Development & Finance P.Ltd.
Gramin Bank
26.Prathama Gramin Bank
27.Sarva UP Gramin Bank
28.Narmada Jhabua Gramin
Bank
29.Sarva Haryana Gramin
Bank
30. Kaveri Gramin Bank
31. Baroda Rajasthan
Kshetriya Gramin
Mainline NBFCs
1.Reliance Capital Ltd.
2.Fullerton India Credit Co. Ltd.
3.Shriram Transport Finance Co. Ltd
4.SREI Equipment Finance Ltd.
5. Magma Fincorp Ltd.
6. Religare Finvest Ltd.
7.Shriram City Union Finance Ltd.
8.Equitas Finance P.Ltd
9.India Infoline Ltd.
10.ECL Finance Ltd.
11.AU Financiers India Ltd.
12.SE Investments Ltd.
13.Electronica Finance Ltd.
14.MAS Financial Services Ltd.
15. IKF Finance Ltd.
16.Intec Capital Ltd.
17.Sakthi Finance Ltd.
18. Essakay Auto Finance Ltd.
19.Bansal Credits Ltd.
20.Five Star Business Credits Ltd.
21.Indiabulls Financial Services Ltd.
22.Vistaar Financial Services P.Ltd.
23.Shriram Finance Corporation Pvt
Ltd(SRFCL)
24.India Infoline Finance Ltd(IIFL)
25.Mahindra &Mahindra Financial
Services
27.Hindustan Microfinance P. Ltd.
28.Namra Finance Ltd.
29.Muthoot Fincorp Limited
30.Sambandh Finserve Pvt. Ltd
31.IDF Financial Services Pvt. Ltd
32.Bhartiya Micro Credit
33.Sakhi Samudaya Kosh
34.Cashpor Micro Credit
35. CDOT
36.Mahashakti Foundation

Performance of Mudra Scheme

Mudra Bank was established as subsidiary of small Industries Development

Bank of India (SIDBI) with an initial corpus of Rs.5, 000 crore to provide refinance to
all banks seeking refinancing facility for small business loans under the scheme
Pradhan Mantri Mudra Yojana (PMMY).As on 22 nd September 2015 a total of 35.60
lakh borrowers have availed of credit under Mudra scheme to the tune of Rs. 24,123
crore. Of these 52 percent beneficiaries are women and about 50 percent are new
entrepreneurs. All Public Sector Banks, Regional Rural Banks and Private Sector
Banks have been given a target of Rs. 1, 22,000 crore during the current financial
year 2015-16 for disbursement to small medium and micro enterprises up to Rs. 10
lakhs. As per the guidelines such loans need not be supported by collateral
securities. There are about 5.77 crore small business units in the country in the
informal sectors which are coming under the ambit of MUDRA Bank scheme apart
from the new aspiring micro entrepreneurs.

Steps have already been initiated to link trainers of various Government and
other institutions with banking finance channels to advance the skill development
effort of the Government to self-employment sector. Public Sector Banks (PSBs)
organized mega credit campaigns all over the Country from 25 th September to 2nd
October 2015 across the country to give a push to the PradanMantri Mudra
Yojana(PMMY). This campaign has created a sound eco system for bank credit to
aspiring entrepreneurs especially micro small and medium entrepreneurs. The
current focus of the government is on the Shishu category of micro loans so that the
borrowers need not have to access credit from informal sources such as money
lenders at higher interest rates. Beside Mega credit Campaigns, public awareness
initiatives are continuing through the print media, radio jingles, use of banners and
posters so that prospective micro entrepreneurs are sensitized about the availability
of finance the formal banking system under MUDRA Bank scheme.

Future prospects of Mudra Bank

 As per ICRA estimates, the MFI sector (SHGs and NBFC and MFIs) had a total
portfolio of Rs.780 billion as on September 30, 2014. Assuming an annual growth
rate of 10%-15%for SHGs and 30%-35% for NBFC- MFI for the next two years, the
overall microfinance portfolio is likely to cross Rs 1 trillion. The NBFC- MFIs alone are
likely to have overall debt of Rs.360- RS.420billion by March 2016. Refinance from
Mudra Bank could constitute a significant proportion of the overall debt of the MFIs.
Since Mudra Bank is likely to have access to low cost funds from short falls in
priority sector lending, it is likely to pass on the same which leads to lower funding
costs for players. Given that the present funding costs of MFIs vary from 12-
16%with the median cost of funds being 14%, NBFC-MFIs cost funds for MFIs could
come down by 100-400 dps depending on the share of funding an MFI is able to
receive from Mudra bank. However, it would be important to understand the criteria
Mudra Bank could follow for onward lending to interest rates and allocation among
various players.

A single regular for all entities engaged in microfinance could lead to adoption
of a uniform code of conduct for all players in the industry which could also define
the best practices for delivery of financial services to the underserved. At present
there are differences in regulations by different regulators, e.g. NBFC-MFIs are not
allowed to take deposits, whereas certain trusts or societies still take security
deposits from the end borrower. Further only NBFC-MFIs are required to share
information with credit bureaus whereas Self Helps Groups (SHGs) as well as the
societies or not for profit institutions are not required to do so. Therefore a uniform
code of conduct for all players would help in standardizing the regulations for the
sector as well. For Housing Finance Companies National Housing Bank (NHB) has
been played a similar role of a regulator and refinance agency. At the same time
regulations for Banks and HFCs have generally moved in tandem with NHB following
the change in regulations being brought about by RBI.

Further, the credit guarantee corpus of Rs. 30billion for providing guarantees
extended to microenterprises could encourage the lenders to take higher exposures
with limited risk. This may have moral hazard issues, which could be addressed by
structuring the product in a way that the credit quality remains under check. The
micro enterprises are typically asked for collateral at the time of applying for a
loan which is difficult for them to provide- a part of this can now be met out of this
corpus .However the corpus would need to be expanded over time to increase
outreach. It could also encourage MFIs to increase their exposure in relatively higher
ticket size loans (more than Rs 50000) within the 15% qualifying assets window.
Nevertheless a challenge would be on incentivizing lenders and the appropriation of
this fund across different segments of the society including women and weaker
section in general while maintaining best practices.
Conclusion

Micro, Small and Medium Enterprises (MSME) sector employs a large number
of people. Nearly 120 million people are employed with 57.5 million entrepreneurs
and entities in the MSME sector. Micro Unit Development and Refinance Agency or
Mudra Bank to fund and promote Banks and Micro Finance Institution (MFIs)which
would in turn provide loans to small and vulnerable sections of the businesses which
will have an initial corpus of Rs 20,000 crore and a credit guarantee corpus of
Rs3,000 crore. The initial corpus would be provided by banks from their priority
sector lending shortfall. Small businesses can avail loan up to Rs50, 000 (Shishu);
businesses that are a little bigger could avail loan of up to Rs 5 lakh (Kishor); the
highest bracket of loan available to the MSME sector would be up to Rs 10 lakh
(Tarun). For further financing, the MSME sector affiliated entrepreneurs would be
given a Mudra card, which could provide further credit of up to Rs 20, 000. Mudra
would also partner with state, regional level co-coordinators to provide finance to
the last mile financiers of small and business enterprises.

Mudra Yojana, will provide much needed financial access to MSMEs, promote
growth of small businesses, help boost the countrys GDP and create jobs. The
average debt of Small business enterprises in India is around Rs 17, 000.If lending is
increased to Rs 5 or 10 Lakh, the sector would benefit immensely and may generate
lot of self-employment opportunities. Small business units generally face lot of
challenges to get loans from Banks. So they end up taking high cost loans from
financiers or money lenders. Once this unfunded or underfunded segment of the
economy is included in the mainstream of bank finance the lower cost of debt
should enhance livelihoods while also bringing them into the growth stream of the
economy.

Works cited

[1] Puli Subramanyam B, Ramachandra Reddy (2012), Micro, Small and

Medium Enterprises in India An Overview VSRD international Journal of Business
and Management Research, Vol.2 No.11, ISSN No.2231-248X.

[2] Dr. J. Venkatesh , Ms. R.Lavanya Kumari (2015), Performance of Mudra Bank:
A Study on Financial Assistance to MSME Sector International Journal of Research
in Economics& Social Sciences, Vol.5, issue 7 (July , 2015) ISSN No. 2249-7382.