MUDRA bank will be a game changer for small business

Non congress governments in the past have a tradition of giving something extra for smallindustries. Janata government of the post emergency period has launched a small scale industrial policy. Janata Dal government has established the SIDBI in 1990. Now the BJP has shown that non congress tradition by constructing the MDRA bank to refinance loans to the micro units.

Micro Units Development and Refinance Agency (MUDRA) Bank is not a small effort unlike many conventional budget initiatives that bears small budget money and big ambitions. From the financial angle, the government has provided Rs 20000 crores in a year of fiscal squeeze. Only handful of programmes like the NREGS has such an allocation scale in this year’s budget.

Another attraction of the Bank is that it is a refinance agency and especially for the MFIs. Refinance is giving loans to loan giving institutions. At present, institutions that have refinance facilities are: NABARD (agriculture), NHB (housing loans), and EXIM Bank (foreign trade). In this context, a refinance institution for the micro units is a welcome development given the care that the sector needs as well as the financial vulnerability of MFIs.

Finance Ministry note issued after the budget gives certain extra functions for the MUDRA Bank. These are related to the development of the micro units and the regulation and support to the MFIs.

For the micro/small units, it will provide guidelines and project implementation functions. Second, for the MFI sector financing micro units, it will be responsible for registration, regulation, and accreditation/rating of MFI entities.  

Many other responsibilities related with the MFIs as well as the micro units are provided by the finance ministry note. Though it seems that the institution has functional overload, the effort made on the entity by the government indicate that MUDRA as a development bank for micro units is capable of revolutionalising the sector. 

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