Prime Minister Narendra Modi has inaugurated the Rs 20000 crore MUDRA bank by assigning a variety of functions to it; including lending to small units and regulation of Micro Finance Institutions (MFIs) and framing policy guidelines for micro units.
MUDRA (Micro Units Development Refinance Agency) will operate as a unit of SIDBI in the beginning phase.
The Small Industrial Bank of India is the first dedicated development bank launched for giving loans to the small industries in 1990.
While crafting the functions of MUDRA, government has taken care for not inducing any overlap between SIDBI and MUDRA activities.
Many of the schemes of SIDBI provide loans of higher amount- up to Rs 50 lakh. On the other hand, credit limit for MUDRA is Rs 10 lakh.
Though MUDRA is proposed as a lending institution providing small ticket loans, the entity has given regulatory power of the MFI sector. This regulatory responsibility is in addition to the core activity of lending.
As of now, the MFIs are mostly outside the regulatory umbrella as the existing financial regulators including RBI are overburdened because of the existing regulation and supervision workload.
Besides regulation of MFI entities, their accreditation and rating are now entrusted with the new born entity.
Speaking at the inauguration, Prime Minister has highlighted the employment elasticity of the micro units. Large business groups swallows huge funds for investment, but creates only 1.25 crore employment, on the other hand, the small units provides 12 crore employment while taking meager loans.
According to the government plan, the role of MUDRA also includes laying down policy guidelines for microenterprises.