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MUDRASCHEME:ACriticalAnalysis

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MUDRA SCHEME: A Critical Analysis

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According to the NSSO survey of 2013, there are 5.77 crore small business units, mostly individual
proprietorships, which run small manufacturing, trading or services activities. Many of these 'own
account enterprises are owned by people belonging to Scheduled Caste, Scheduled Tribe or Other
Backward Classes. However, only 4% of such units get institutional nance. Providing access to
institutional nance to such micro/small business units would turn them into strong instrument of
GDP growth and also employment.
Micro Finance is an economic development tool whose objective is to assist the poor to work their
way out of poverty. It covers a range of services which include, in addition to the provision of credit,
many other services such as savings, insurance, money transfers, counseling etc. The players in the
Micro Finance sector can be qualied as falling into 3 main groups: - the SHG-Bank linkage model
started by NABARD, the Non Banking Finance companies and the others including Trusts, Societies
etc.
The government set up a set up a Micro Units Development and Renance Agency (MUDRA) Bank
which would be responsible for regulating and renancing all Micro-nance Institutions (MFI) which
are in the business of lending to micro/small business entities engaged in manufacturing, trading and
services activities.
MUDRA scheme is aimed at funding the unfunded. The small entrepreneurs of India are used to
exploitation at the hands of money lenders so far, but MUDRA will instill a new condence in them
that the country is ready to support them in their e orts that are contributing so heavily to the task
of nation building.

MAJOR FEATURES
The primary product of MUDRA will be renance for lending to micro businesses/units under the
aegis of the Pradhan Mantri MUDRA Yojana.
MUDRA Bank has been established by government with a Renance corpus of Rs.20, 000 crore, and
credit guarantee corpus of Rs.3000 crore.
The products would be covered under three categories that are as follows:

Shishu : covering loans up to Rs. 50,000/-

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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

It is to be noted that at least 60% of loans shall be disbursed under Shishu category and remaining
for Kishor and Tarun categories.
All commercial banks (Private or Public), RRB, Cooperative Bank or other Micro Finance Institutions
are eligible for renance under PM Mudra Yojana.
Collateral Security: Banks have been mandated not to insist for collateral security in the case of
loans up to 10 Lakh extended to the units in the Micro Small Enterprises sector.
MUDRA: A GAME CHANGER
The idea of connecting every last mile nancer (either bank or MFI) to lending credit to all type of
business is not particular to India. To reach every common person is beyond imagination for Banks
and only MFIs or local money lender can do this to ow credit to every needed person.
Whenever informal sector people like rickshaw pullers, household factories etc., look for formal
credit then condition of security was major hurdle in getting loan ad cant be fullled as these people
does not own any property. As now in Mudra loan, there is no condition of collateral up to loan of Rs
10 Lakh and it will help to fund the unfunded.
It has various dynamic features like Mudra Card, Bank Limit etc. which make scheme more attractive.
In Bank Limit, amount sanctioned for loan shall be deposited into ones Mudra account and then one
can get credit any time from use of Mudra Card. The interest will be subjected to amount and time
period that one has used but not on whole amount for whole of the year.
As majority of loan amount i.e. 60% shall be allotted to Shishu category can be very useful for
extreme poor population included SC/STs, as majority of sole proprietor business in home based
processing units, such as pickles, papad is run by them.
There is no doubt that growth of informal sector has more e ect on every macroeconomic variable
like GDP, Per capita income, gross capital formation or employment generation etc. because this
sector already employ more than 12 Cr population in approx 5 Cr enterprises.
Challenges concerning MUDRA
Many put question of creating a new renance agency Mudra as we already have another agencies to
renance for purpose of business only like National Bank for Agriculture and Rural Development
(NABARD) and the Small Industries Development Bank of India (SIDBI).
The world is already in a path to discourage shadow banking (like renance agencies etc) and to
replace it with main line banking as far as possible. Thats why RBI has set up small nancial banks
and MFIs get a chance to shift to banking. It does not make much sense to establish a new renance
agency as it will not solve the purpose, but simply cause of tussle between many agencies and
regulators.
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The poor grievance redressal is one of major problem where government scheme end to a failure or
without success. The government has created new schemes and institutions for special focus on
micro business by passing the existing mechanism or institutions, but remains depend on same
mechanism of grievance redressal which is universally poor in India.
The idea of connecting last mile nanciers might only be limited to Banks or some big NBFCs because
to register with MUDRA, nanciers have to pass a litmus test of number of bureaucratic documents
and further need to comply with RBI guidelines which may be not be feasible for most of small
nanciers.

It is also said that Banks and MFIs are converting previous loans into MUDRA and thats why
government is able to showing large numbers of loans have already been given.
The NPA level, which is already a big problem, might grow at unexpected level due to this type of
easy loan to everyone.
As government banks provides nancial services to more than 70% population of India, the
bureaucratic nature of government employees (like lethargic or chalta hai attitude etc.) is among
major hurdles in implementation of Mudra scheme.
However NPA might get boost is just an apprehension by banks or people as track record of credit
given to Self Help Groups (SHGs) makes it clear that poor are more honest than the likes of corporate
leaders such as, Vijay Malya or Subrata Roy, who have defaulted billions of dollars. Also it might be
better to have NPAs of billion dollars by Lakhs of people than by only one or two person.
The only thing Banks or RBI has to do is to create a single platform to check past record of person
applying for loan and if never defaulted then provide loan to person as fast as possible.
Overall, MUDRA is a step in right direction for funding the unfunded but government shall set up a
robust monitoring and grievance redressal mechanism to take cognizance problems arrived under
the scheme.

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