Manoj Rawat | mkrawat@gmail.com

Small Business is BIG Business | Manoj Rawat Micro Units Development and Refinance Agency (MUDRA) Bank

May rekindle growth for Micro and Small Business Segment

The Micro Units

Development and

Refinance Agency

(MUDRA) Bank will be

set up through a

statutory enactment and

will be responsible for

regulating & refinancing

all micro-finance Institutions which are in business of lending to micro/small

business entities engaged in manufacturing, trading and service activities. The bank

will be setup with a corpus of Rs 20,000 crore and credit guarantee corpus of Rs

3,000 crore will be created.

The new bank announced in the annual Budget last week could boost loans and cut

borrowing costs for cash-starved small businesses artisans, tailors, mechanics,

small trade & restaurant owners, tea and fruit vendors and phone booth operators

who account for around a fifth of the economy. MUDRA Bank may be step forward to

rekindle growth in Rural India.

The Bank would partner with state/regional level coordinators to provide finance to

last mile financier of

small/micro business

enterprises. In

lending, priority will

be given to small

businesses owned by

scheduled class and

scheduled tribes.

Manoj Rawat | mkrawat@gmail.com

MUDRA to strengthen, promote and regulate MFI sector

The MUDRA Bank would primarily be responsible for

1) Laying down policy guidelines for micro/small enterprise financing business

2) Registration of MFI entities

3) Regulation of MFI entities

4) Accreditation /rating of MFI entities

5) Laying down responsible financing practices to ward off indebtedness and

ensure proper client protection principles and methods of recovery

6) Development of standardised set of covenants governing last mile lending to micro/small enterprises

7) Promoting right technology solutions for the last mile

8) Formulating and running a Credit Guarantee scheme for providing guarantees to the loans which are being extended to micro enterprises

9) Creating a good architecture of Last Mile Credit Delivery to micro businesses under the scheme of Pradhan Mantri Mudra Yojana

This step is aimed to bring informal business into formal sector.

India's small businesses employ more than 106 million workers, according to

government statistics, in a country that brings a million new workers into the

workforce every month.

As per NSSO there are 5.77 crore business enterprises in un-organized sector which

are contributing 45% to national GDP and providing employment to nearly 46 crore

people. Only 4% of this sector could able to avail finance from core banking sector

and rest of 96% depends upon private moneylenders, relatives and friends.

Manoj Rawat | mkrawat@gmail.com

It is estimated estimates that microfinance lenders have loan assets totalling Rs.

35000 cr. But they have had a limited impact on small businesses as they primarily

target lending to individuals or groups of individuals among the poor where they can

lend to a single borrower at Rs 50,000, making it many a times unviable option for

many businesses.

It is expected that funds to be made available through MUDRA will increase liquidity

and so lower their borrowing costs and in turn the burden on borrowers

This initiative could give a major boost to help micro and small businesses as also

make the mainstream banks and financial institutions innovate products to address

the needs of this segment.

Its important to see how the policy and regulatory framework emerges under

MUDRA bank, which now seems to become an over-arching Financial Institution for

growth, development and regulation of Micro & Small Business Sector.

Manoj Rawat | India

EVP & Head, Agribusiness Group | RBL Bank ---------------------------------------------------- mkrawat@gmail.com

Linkedin : https://in.linkedin.com/in/mkrawat Twitter :TheManojRawat

----------------------------------------------------- The views expressed are purely personal.