Pradhan Mantri Mudra Yojna
- Micro Units Development and Refinance Agency Ltd. (MUDRA) is an NBFC that supports the development of the micro enterprises within the country. MUDRA offers refinance assistance to Banks or MFIs to lend to micro businesses with the requirement for loans of up to 10 lakh. MUDRA offers refinance to micro-businesses under the scheme that is part of the Pradhan Mantri MUDRA Yojana. The other offerings are for assistance to develop the sector. The array of products of MUDRA can be seen below. The services are focused on a variety of beneficiaries.
As part of Pradhan Mantri Mudra Yojana (PMMY), MUDRA has come up with schemes or products. The programs have been branded “Shishu,” “Kishor” and ‘Tarun’ to indicate the growth stage/development and financing needs of the micro-unit or entrepreneur. Additionally, they provide an indicator for the next stage of growth or graduation. be looking forward to:
- Shishucovering loan amounts up to 50,000or more
- Kishorcovering the loans of more than 50,000/- and up to 5 lakh
- Taruncovering loan amounts of more than 5 lakhs and up to 10 lakhs
It will be ensured that greater attention is paid more attention to Shishu Category Units and, after that, Kishor as well as Tarun Categories. In the context of and in line with the general objective of growth and development of micro-enterprises under Shishu, Kishor, and Tarun the services provided by MUDRA are specifically designed to satisfy the requirements of various industries/business activities and entrepreneurs and business segments. The financial support provided by MUDRA is of four kinds :
- Micro Credit Scheme (MCS) for loans that are up to 1 lakh in MFIs.
- Refinance Scheme for Commercial Banks / Regional Rural Banks (RRBs) / Scheduled Co-operative Banks
- Women Enterprise program
- Securitization of the portfolio of loans
Micro Credit Scheme:
Micro Credit Scheme is available predominantly by Micro Finance Institutions (MFIs) that offer credit of up to Rs.1 lakh, to be used for different micro-business activities. While the method of delivery could be through groups such as JLGs or SHGs, the loans are offered to individuals who are engaged in particular income-generating micro-enterprise activities. The MFIs to avail of financial assistance have to join MUDRA to meet the conditions specified by MUDRA at any time.
Refinance Scheme for Banks:
Different banks such as Commercial Banks, Regional Rural Banks, and Scheduled Cooperative Banks are eligible to receive refinance support from MUDRA to fund micro-entrepreneurial activities. Refinances are available for both term and working capital loans up to 10, 000 per unit. The banks that qualify, that have registered with MUDRA in compliance with the rules as stipulated in the notice, are eligible to obtain refinancing from MUDRA to obtain loans under the Shishu, Kishor, and Tarun categories.
Women Enterprise Programme:
To support women entrepreneurs, the lending banks or MFIs might look into extending additional facilities that include interest reductions on loans. As of now, MUDRA extends a reduction of 25bps in charges to MFIs and NBFCs that provide loans to female entrepreneurs.
Securitization of portfolios of loans:
MUDRA also assists Banks or NBFCs or MFIs in raising funds to finance micro-businesses through securitization of loan portfolios about microenterprise portfolios by offering an additional loss default guarantee for credit enhancement and taking part in the investment of the Pass-Through Certificate (PTCs) either as Junior or Senior investors.
Scope for MUDRA credit:
Mudra loans can be extended for many reasons, which can generate income and job creation. The loans are typically extended to:
- Business loan for Traders, Vendors Shopkeepers, Shopkeepers, and other service sector activities.
- Working capital loan with MUDRA Cards.
- Equipment Finance for Micro Units.
- Loans for Transport Vehicles.
This is an example of the types of actions that could be covered by MUDRA credit:
- Transportation VehiclePurchase from transporters to be used for transportation of personal or goods such as auto-rickshaw small transport vehicles for goods 3 wheelers, e rickshaw taxis, passenger vehicles, taxis, etc.
- Community, Social & Personal Service Activities
Saloons, beauty parlors shops, gyms tailoring shops, dry-cleaning, repair shops for bikes and cycles, DTP and Photocopying Facilities, Medicine Shops, Courier Agents, and more.
- Food Products Sector
Activities like papad making or achaar-making jam or jelly making, preservation of agricultural produce at the level of the countryside and sweet shops, small food service stands, day-to-day catering, and canteen services. cold chain vehicles as well as cold storage facilities and ice-making units Ice cream-making machines biscuit, bread, bun making, and so on.
- Textile Products Sector / Activity
Hand loom power loom, khadi, handloom Chikan work as well as zari and zardozi work traditional embroidery, handwork traditional printing and dyeing, garment design, knitting cotton ginning, computerized embroidery, stitching, and various textile products that are not garments, like bags, car accessories, furniture accessories, and so on.
- Corporate loans are for traders and Shopkeepers
Financial assistance for lending to individuals who run their businesses, shops, trading businesses, service companies, and other non-farm income-generating activities with a loan amount for the beneficiary of up to 10 lakh per borrower or enterprise.
- Equipment Finance Scheme for Micro Units
Micro-businesses can be set up through the purchase of necessary machines/equipment with each beneficiary’s loan amount of at least 10 lakh.
- Activities that are closely related to agriculture
“Activities related to agriculture”, e.g. pisciculture, beekeeping and poultry, livestock raising, grading and sorting, aggregation of agro-industries such as diary, fishery, agriclinics, centers for agribusiness, food, and processing, etc. (excluding crops loans or land improvement projects like canals, irrigation, as wells) and other services that help to improve livelihoods or generate income will be covered as part of PMMY during 2016-17.
MUDRA Card is an innovative product that provides working capital facilities in the form of a cash credit arrangement. MUDRA Card is a debit card that is linked to a MUDRA loan account. MUDRA loan account to pay for the working capital component that is a part of the loan. The borrower has the option of making use of the MUDRA Card in multiple ways, including withdrawals and credit transactions, to control their working capital efficiently, and to reduce the burden of interest. MUDRA Card can also assist in the digitization of MUDRA transactions as well as creating credit histories for the customer.
National Payment Corporation of India (NPCI) has provided RuPay with the RuPay brand for the MUDRA Card and also separated BIN or IIN to the MUDRA Card, through which the credit history of the card can be traced.
MUDRA Card can be used throughout the United States to withdraw cash at any ATM or micro ATM. It can also be used to pay at any point on the Sale machine.
The style of the MUDRA card as deemed by DFS, GoI, and NPCI is shown below. Banks can customize the card by adding their logo and names.
Portfolio Credit Guarantee:
Traditional financing in the Indian context follows the Asset Based lending model with a particular emphasis on collaterals. Micro units, the majority time do not offer the convenience of collateral. This is why MUDRA credit i.e. loans that are up to Rs.10 lakh have been made non-collateral free in accordance with the RBI rules in this area. To reduce the need for collateral, MUDRA offers a credit guarantee product. MUDRA Credit Guarantee can be extended with the establishment of a fund called “Credit Guarantee Fund for Micro Units” [CGFMUThe scheme has been announced by GoI through a notice dated April 18 16. In the same manner, all eligible microloans approved since April 8th, 2015 are covered by the scheme. The Scheme is managed through National Credit Guarantee Trustee Company Ltd. [NCGTCis an agency that is endorsed through the GOI.
Furthermore, in light of the nature of the segment, as the loan amounts are likely to be modest and the number of loans would be significant, the Mudra Credit Guarantee scheme offers a Portfolio Guarantee. In this scheme, a credit guarantee or risk-sharing is offered to a portfolio of loans that are homogeneous instead of individual loans – through – a loan guarantee. This will result in more efficiency in the administrative process and boost the demand to this Credit Guarantee product. It is one of the most important interventions to bring lower the cost of financing for the beneficiary in order to increase its creditworthiness.
Creation of Resources for Credit Enhancement / Guarantee Facility:
The proposed corpus in this Credit Guarantee Scheme would be frequently increased with charges on outstanding loans refinancing. This same method could be used for the first loss guarantee or credit enhancement for securitized portfolio loan which is discussed further below4.
Credit Enhancement: Services that are offered to help cover the risk of loss from securitized assets in the shape of credit risk protection by means of a credit letter or other guarantee from the originator/co-originator or an external third party to increase the investment quality of any securitization procedure. First loss facilities are the initial level of credit enhancement that is offered in the course of in bringing the securities up to investment quality. Second loss facility is the next layer of protection against loss.
Development and Promotional Support
In addition to the constraints on credit, The NCSBs also face a variety of other non-credit-related challenges, including,
- Skill Development Gaps
- Knowledge Gaps
- Information Asymmetry
- Financial / Business Literacy
- Insufficient growth orientation
To tackle these issues, MUDRA will adopt a credit-plus approach and will provide Developmental and Support services to the intended public. It will be a market maker and establish an ecosystem of capabilities to provide value sustainably and sustainably.
Imparting Financial / Business Literacy:
Business literacy, also known as financial or financial education can be described as providing familiarity with and knowledge of the financial market’s products, including risk and rewards and the need to make an informed decision. Financial Inclusion and Business Literacy are two of the components. While Financial Inclusion is a supply-side initiative by provides financial market services that consumers want, Financial Literacy stimulates the demand side by informing people about what they can purchase. The financial literacy initiative will significantly contribute from the demand-side to the national goal for financial inclusion.
In addition to that, the micro-enterprise segment also requires business literacy that will assist to gain knowledge about managing a business accounting, keeping track of accounts, working out ratios, etc. Promotion and support of Grass Root Institutions One of the main areas of focus is to formalize and establish the last mile financial institutions or grass-root institutions, to create a brand new category of financial institutions is created viz. Small Business Finance Companies can be established and an ecosystem created to facilitate their expansion.
Rural innovation at the micro-enterprise and unit levels would be among the most important areas of intervention and support. The support for micro-units via using the facilities of incubators could be provided. This will ensure that, at the simplest levels of the country, there is a favorable environment for the promotion of innovation, as well as the development of ideas from educated rural youths that could grow into viable micro-businesses.
Development of a Framework to support “Small Business Finance Entities” An enabling framework to provide support for “Small Business Finance Entities” will be developed which would lead to the formalization of the economy that is currently part of the informal market. A framework that allows assistance to “Small Business Finance Entities” is created, which would result in the formalization of the economic system that is currently part of the informal economy.
The government of India has initiated various steps to encourage the creation of businesses in our nation. One of them is the “Make in India” movement. Make in India is an important national program that aims to encourage investment in innovation, promote innovation, boost the development of skills, promote intellectual property, and develop top-of-the-line manufacturing infrastructure. This, along with Start-up India and Stand-up India campaign has created an environment for enterprise creation at various scales. MUDRA is an initiative that promotes micro-businesses and is in sync with the Make in India initiative for aiding these micro-businesses.
Synergies between National Rural Livelihoods Mission / National Urban Livelihood Mission The National Rural Livelihoods Mission [NRLMwas established “To reduce poverty by enabling the poor households to access gainful self-employment and skilled wage employment opportunities, resulting in appreciable improvement in their livelihoods on a sustainable basis, through building strong grassroots institutions of the poor.” To attain this goal, NRLM Mission inter alia employs a demand-driven strategy to continuously build capacity by educating the necessary abilities and establishing links with employment opportunities available to the poor which includes those that are who are not within an organized industry.
In the same way, the Deendayal Atodaya Yojana (DAY) National Urban Livelihood Mission is another initiative aimed to reduce Urban poverty through the creation of micro-businesses, both in a single and group way.
MUDRA is an initiative that promotes micro-businesses and will endeavor to create synergies among NRLM, NULM, and MUDRA interventions to help microbusinesses and provide sustainable livelihood opportunities to the most vulnerable. The synergies are with the National Skill Development Corporation
NSDC is currently involved with developing skills on a national scale. Working together with NSDC will assist MUDRA by enhancing the capabilities of sectoral players.
The collaboration together with Credit Bureaus With the growth of responsible lending practices Credit Bureaus (CB) has increased their acceptance within the microfinance industry. The CB’s culture can assist in the creation of credit history over a long period, which can facilitate rapid credit approval as the system grows.
Accreditation of Rating Agencies or rating of MFI companies is one of the roles that are slated for MUDRA. Additionally, a section of financial intermediaries serving small businesses that are not in the corporate sector is anticipated to appear in the financing structure. MUDRA will work in conjunction in conjunction with Rating Agencies so that appropriate frameworks for the rating (s) that are based on sector-specific aspects are designed for different sectors. In the longer term, the availability of ratings for participants in the sector would ease the formalization process and increase the transfer of capital into the sector.
The MUDRA pricing access to finance is crucial, as is the financial cost to the NCSB/the ultimate beneficiary. The micro-unit funds through informal sources have an expensive cost. There is room to rationalize costs. But, the rationalization process is inextricably linked to the cost of funds to the MFIs in the last mile. GOI in announcing the creation of MUDRA also declared a refinance corpus to MUDRA of 20000 crores to be distributed through RBI to cover its Priority Sector lending shortfall. Therefore, RBI has provided the allocation that helps bring lower the costs of loaning at the final borrower’s level since MUDRA refinance can lower the cost of borrowing from lending institutions. MFIs that are regulated by NBFC are currently supervised by the Reserve Bank of India and RBI has issued specific guidelines regarding margin caps for MFIs.
The margin cap is set to 10% in the case of MFIs that have a loan of more than 100 crores, and 12 percent for smaller MFIs that have a loan portfolio of less than 100 million (or 2.75 times the rates of the five of the major commercial banks, or less. With these guidelines, and given that the MFI sector has been continuously striving to cut expenses, MUDRA would also help MFIs cut their costs to lower their overall costs to final customers. In addition, at an appraisal MUDRA will be studying or reviewing each of the MFIs in this regard and other factors and then determining the appropriate price for its assistance based on this evaluation.
For Banks, RBI has also placed a cap on the interest rate to the Base rate/MCLR rate to micro-units that are lent to Commercial Banks by availing of MUDRA refinance. In the same way, RRBs and Cooperatives have been provided with a limit of 3.50 percent over and above the MUDRA refinance rate, when lending to MUDRA loans through MUDRA refinance. For NBFCs RBI has also imposed a limit on the interest of 6% above and over MUDRA refinance rates, while lending to the MUDRA segment.
These are all expected to positively impact the price of MUDRA loans in the country. Micro-sized enterprises can avail of credit with a reasonable interest rate. However, the main aim is to provide access to credit.