Government brings more clarity in the functionalities of MUDRA Bank

Nearly one year after the establishment of the MUDRA Bank- the lender to small and medium enterprises; Finance Ministry has brought more clarifications on the functional aspects of the entity.

MUDRA (Micro Units Development and Refinance Agency) will not do any regulatory function and will concentrate on the core function of lending to the target group by setting itself as a wholly owned subsidiary of the SIDBI.

In a new round of fund injection Cabinet has cleared Rs 3000 crore credit fund for MUDRA. The Credit Guarantee Fund will give guarantee to loans under Pradhan Mantri Mundra Yojana availed from April 8 2015. The PMMY is a scheme to provide small and micro unit enterprises in the non-corporate, non-farm sector. The credit allocated under the scheme will be less than Rs 10 Lakh.

On the regulation function front, initially, the government has proposed the MUDRA as a regulator for microfinance institutions. But lending and regulation are conflicting responsibilities especially for a direct lender like MUDRA.

The Ministry’s spokesperson Anjuly Chib Duggal who is the Financial Services Secretary has clarified that the RBI is already regulating the MFIs.

Regarding the establishment of the MUDRA, the Cabinet has decided to form stick on to the earlier stance- the lender will function as a wholly owned subsidiary of SIDBI. SIDBI is the apex institution in lending to MSMEs. The difference between SIDBI and MUDRA will be that the former will provide big ticket loans and other traditional services to the sector.