MUDRA Bank: How It Could Boost The SME Sector In India?

MUDRA Bank is the short form for Micro Units Development and Refinance Agency and the setting up was initiated in the Union Budget 2015-16 by Finance Minister Arun Jaitley. The Bank may not be a direct lender for the micro and small scale units of the country, but would be more of a regulator and a refinance institution.

The start of the MUDRA Bank is much needed as many times the small micro scale units in the country are starved of capital to start projects or for expansion purposes.

Capital for the MUDRA Bank

The Bank would be created from a sum of Rs 20,000 crores that has been allocated from the shortfalls of the priority sector lending. The Bank would largely be in the shape of a refinance fund to the last mile financiers in the country.

The Union Budget has also provided a sum of Rs 3000 crores to MUDRA Bank to create a credit guarantee corpus for guaranteeing amounts provided to the micro enterprises.

It is estimated that around 5.55 crores very small units, which are largely proprietorship run small manufacturing and trading activities, could have access to benefit through the Bank.

Interestingly, the MUDRA Bank would also regulate and refinance the other smaller micro finance institutions in the country.

The MUDRA Bank Would Also be Responsible For The following:

1) Laying down some of the guidelines required for other micro/small enterprise financing business.

2) It would also initiate norms with regards to registration of micro finance institutions (MFI).

3) Along with the guidelines it would also regulate such entities.

4) Where necessary, it would also accredit and rate MFI entities in the country.

5) The MUDRA Bank would also be responsible for laying down the financing practices to ward off indebtedness and ensure proper client protection principles and methods of recovery.

6) It would also help in the promotion of the right technology solutions for the last mile.

How The MUDRA Bank Would Be Beneficial?

By regulating the micro finance industry it would ensure that the micro units are benefited. On the other hand it would make capital available by funding the last mile financers. In short it would indirectly fund the small micro units in the country.

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