What is MUDRA? How it differs from SIDBI?

MUDRA or Micro Units Development and Refinance Agency Ltd is a government created development and finance agency aimed to give refinancing and several development functions to micro unit enterprises.

Its primary responsibility is to provide funding to nearly 5.8 crore Non-Corporate Small Business Sector (NCSB) units of the country through various Last Mile Financial Institutions like Banks, NBFCs and MFIs.

The micro enterprises or Non-Corporate Small Business sector (NCSB) are disadvantaged and disaggregated tiny entities that influences the lives of around fifty crore people. Their growth performances bring momentum in economic growth.

According to government estimates, more than 90% of the NCSB sector does not have access to formal sources of finance. It is to provide finance to this segment that the government has created MUDRA Limited as a subsidiary of SIDBI.

How Mudra will function?

The core function of MUDRA is refinancing. It will provide refinancing all Last Mile Financiers such as Non-Banking Finance Companies, Societies, Trusts, Co-operative Societies, Small Banks, Scheduled Commercial Banks, Regional Rural Banks and Section 8 Companies [formerly Section 25], which gives loans to micro/small business entities engaged in manufacturing, trading and services activities. MUDRA would also partner with State/Regional level financial intermediaries to provide finance to Last Mile Financier of small/micro business enterprises.

MUDRA’s support to Pradhan Mantri MUDRA Yojana (PMMY)

Pradhan Mantri MUDRA Yojana (PMMY), is a scheme launched by the government of India and implemented through MUDRA. The scheme contains three products to three levels of micro enterprises under the name Shishu, Kishor and Tarun. These products indicate the stage of growth / development and funding needs of the beneficiary micro unit / entrepreneur. It will also be used as a reference point for the next phase of graduation / growth. The PMMY sets financial limit for these schemes: –

1. Shishu : covering loans upto  50,000/-

2. Kishor : covering loans above  50,000/- and upto  5 lakh

3. Tarun : covering loans above  5 lakh to  10 lakh

MUDRA’s provides finance through other financial institutions including Banks/NBFCs/MFIs. This is called refinancing (Financing of loans given by other institutions). As per regulations, at least 60% of the loan amount should be given for Shishu categories.

The MUDRA is also supposed to extend several development functions to the microfinance sector. But the details of these activities with regard to the MFI sector is yet to be finalized by the government.

Progress of the scheme

MUDRA has emerged as a grant success in terms of the number of beneficiaries and amount sanctioned. In the first year, 2015-16, about 1.5 crore new entrepreneurs have got support from banks and microfinance institutions (MFIs) to set up small businesses under.

Overall, 3.5 crore new as well as existing entrepreneurs have been sanctioned loans under PMMY which is the main programme under MUDRA. Women entrepreneurs account for about 78 per cent (or 2.52 crore) of the total number of borrowers. During the first year, Rs 1.2 lakh crore has been sanctioned under the scheme and the government’s target is Rs 1.8 lakh crore for 2016-17.

The data captured by MUDRA shows that almost 50 per cent of the loans under PMMY have been taken by new enterprises.

Relationship between MUDRA and SIDBI

SIDBI is a development financial institution with multiple functions for the MSMEs (Micro, Small and Medium Enterprises) including financing and development responsibilities. It was established in 1990 it has become the principal financial institution for the promotion, financing and development of MSMEs. SIDBI gives refinancing as well as direct financing support to firms. Previously, it was the SIBDI that provided indirect loans to small units. The MUDRA aims to give loans below Rs 10 lakh. Micro units are the domain of MUDRA. Under the existing arrangement, SIDBI gives loans for higher amounts. Hence, MUDRA is established as a subsidiary of SIDBI.