Mudra is one of the most recent initiatives of the Government of India to prepare the MSME Sector for the Technological up gradation and make it resilient for any downturn. Success for India lies in success of Small business units. Providing the flesh and blood to the economy, small businesses functioning either in form of partnership or proprietorship (Own Account Enterprises), adds nearly 50% of our GDP in the form of Manufacturing, Service and Trading. Alongside it is employment generation tool, with more than 12 Crores people associated. No wonder the support to this sector is support to government’s ambitious target of realizing the asset of India’s demography.
Therefore the government prioritized it through the current Pradhan Mantri Mudra Yojana (PMMY). The scheme focuses on alleviating the most pressing need of these small units, which is the credit provisioning. The scheme therefore runs on the motto “Funding the Unfunded”. Through PMMY the government seeks to create an enabling regime where formal channels of finance becomes easily accessible to these small units who will not be crippled on account of their scale and size.
Composition of 5.7 crore Own Account Enterprises sourced from www.mudra.org.in
MUDRA model is rolled out through all the banks, MFI’s/NBFC’s etc. for its pan-India availability and making loan, for promoting small entrepreneurial ecosystem framework, readily available. The scheme is being pushed through creation of MUDRA Bank that will act as a vehicle for its implementation. MUDRA stands for the Micro Units Development Refinance Agency.
- PMMY initiative is for non-farm ‘small and micro’ scale income generating enterprises engaged in manufacturing, trading and services with credit need up to 10.00 lakhs. The segment includes small manufacturing units, shopkeepers, fruits/vegetable vendors, truck & taxi operators, food-service units, repair shops, machine operators, food processors, etc.
- The scheme has designed three products under the name of Shishu, Kishor and Tarun for loans upto 50000, 50000-5lakhs and 5-10 lakhs respectively. All three signify the funding requirements of micro units and their stages of growth.
- Exemption exists from furnishing any sort of collateral against a loan. Asset will be created out of Bank’s finance. The usual terms and conditions of the lending agency may have to be followed for availing of loans under PMMY. The lending rates are as per the RBI guidelines issued in this regard from time to time.
- PMMY loans will be extended by all institutions such as PSB’s, Regional Rural Banks (RRBs), Cooperative Banks, Private Sector Banks, Foreign Banks, Micro Finance Institutions and Non Banking Finance Companies. All loans sanctioned on or after April 08, 2015 upto 10 lakh for non farm income generating activities will be branded as PMMY loans.
- Monitoring of PMMY’s progress at the State level will be done through SLBC forum and at National level by MUDRA/Department of Financial Services, Government of India. For this purpose, MUDRA has developed a portal, wherein the banks and other lending institutions directly feed their achievement details, which is consolidated by the system and reports are generated for review.
- The scheme also provides a MUDRA card that will allow credit in a hassle free and flexible manner. It will provide a facility of working capital arrangement in the form of CC/OD to the borrower. It will be RuPay debit card and can be used for drawing cash from ATM or Business Correspondent or make purchase using Point of Sale (POS) machine. Facility is also there to repay the amount, as and when, surplus cash is available, thereby reducing the interest cost.
AS a precursor to the success of PMMY, the government through its 2015-16 budget established MUDRA bank as a subsidiary under SIDBI. With a refinance fund of 20000 crore and credit guarantee fund of 3000 crore, MUDRA Bank will support the PMMY initiative by refinancing and supporting Micro Finance Institution (MFI’s) that are the best available last mile fund source for the non-corporate small businesses.
In addition it shall create a regulatory and supervisory framework for MFI’s, directly translating into better service delivery and accessibility, promote best business practices, establish comprehensive last mile credit delivery mechanism and infusing technology solutions for achieving the same. It will draft guidelines for financial solutions to avoid situations of bad loan and finally, lay down client protection and better recovery processes.
MUDRA, Manufacturing Sector & Make in India
India is making a shift to establish a robust manufacturing base for a sustained economic growth, job creation and to boost export earnings. However, this shift cannot solely rely on the big, corporate based enterprise because of their limited extent despite high value generation. On the other hand the NCSBS have a larger multiplier effect. Their presence is of local and regional extent that helps them permeate the domestic market better. They create indigenized inputs base and have potential to supplement the total output for the national and international consumption. This is the precise attempt of Make in India program that seeks creating self-sufficiency in the field of mass production and to convert India into a manufacturing hub for the entire world. Hence impetus for labour intensive indigenized manufacturing base. Integrating NCSBS to achieve this feat is essential; it will widen the program outreach and help it grow in the desired trajectory. Small business units therefore need to be mainstreamed into production cycle via better institutional financial support creating necessary condition for their success and capacity realization. This relies on successful and dedicated implementation of MUDRA.
MUDRA and TUFS
Introduced in 1999, TUFS stands for Technology Upgradation Fund Scheme. The purpose was to mobilize investments in textiles, especially jute industry by way of interest subvention or reimbursement. It was approved initially for 5 years and since has been extended. It made a remarkable contribution in productivity and quality. Contributes around 4% of GDP and employs around 35 million people. Indian textile sector today is faced with urgent need to modernize its designing and manufacturing technique making it viable and more internationally competitive. It suffers from value loss in face of high volume low value exports and low volume high value imports. The situation has become stricter with rising competition, dwindling market demand and rise of new categories of textile type. Improvement in process and manufacturing technique require installation of new machinery that warrants access to institutional credit, which is at present difficult to access for most firms in apparel sector given their confinement to the unorganized sector in the global commodity chain. In light of the above, continuation of TUFS in addition to MUDRA Yojana will complement the textile segment and help meet its immediate capital and credit requirement.
MUDRA and Indian Growth Story
Non Corporate Small Business Sector (NCSBS) dominates the economic landscape. They are the largest disaggregated businesses ecosystem and support directly and indirectly around 50 crore people. This business setup though made them more accessible as first line of providers or the initial units in a bigger business chain, but their structure and organizational pattern also severed their capacities. Fragmentation made it difficult to cover them under proper banking schemes of entrepreneurship promotion. Secondly, the nature of finance requirement peculiar to their business size, many a times did not find favour from formal finance channels. Thirdly, ill financial health and blunt bargaining power made them a riskier proposition. They couldn’t generate more resources as the formal source were almost difficult to access. Hence, they remained largely funded through personal networks or informal sources like money lenders etc. making these units fall into the trap of indebtedness.
This segment of population has huge potential as they possess innovative ideas that work on such small scale thereby having direct bearing on better conditions of life. Increased and newer source of income promotes consumption and savings both. Higher income generation means access to more resources and services thereby boosting consumption that is a necessity to keep the economic cycle rolling. In addition, household savings that are generated always remain a big source to be tapped for supporting long gestation infrastructure projects. This cycle of Income-Consumption-Saving is the trinity of sustainable growth in a vibrant economy. The desired transformation in the society will reflect, if focus is on alleviating all the bottlenecks associated with NCSBS segment.
Difficulties in achieving the Targets
Scheme has a target of covering 1.75 crore people and to disburse 1.22 lakh crore loan by March 2016 but the scheme before it meets such ambitious targets will need to overcome few hurdles like Infrastructure gaps that are seen in form of lack of entry level technology and access to institution in each and every corner.
- Following this, true realisation of intent of pmmy rests upon Skill Development and Knowledge promotion.
- Next, the small units generally lack the growth orientation and spirit of enhancing their scope as a result the linking of NRLM component needs thorough planning.
- Further, lack of Market Development could jeopardize pmmy. To make small units viable good market expansion and growth is necessary. Not so developed make can make them a riskier proposition, discouraging institutions.
- In rural sector, the information and skill quotient is meek because of illiteracy. There has been, traditionally, dependence on moneylenders. Also low presence of financial institutions does no help situation any better.
MUDRA and the NPA of the PSB’s
The RBI Data on credit disbursal by commercial banks highlights that Unlike 90’s where 60% of total credit was available for unincorporated segment; the present share has seen a substantial decline to meager 33%. This has been despite the growth trajectory and the volume of business that the NCSBS have managed, yet they have failed to attract formal credit. A major cause is the way banks conduct themselves towards the formal corporate sector because of two things easy collection of interests on loans advanced and secondly, PSB’s have to stand for the financing long gestation projects that private banking channels are not always upbeat about. Subsequently, large corporate private sector that contributes up to 15% of national income gets disproportionate 40% of credit pool. Nonetheless, over the past few years due to reckless lending by banks and poor financial decision making of corporate, has resulted into rising NPA’s due to defaults. This increased PSB’s exposure thereby stressing their assets. Consequently the pool and the will both to fund NCSBS shrank.
Where it needs improvement
The MUDRA bank that projects to reach the NCSBS segment through PSBs as well has not resolved two pending issues. The scheme seems to have not taken note of the existing NPA situation of the Banking sector. Secondly, the feature of almost zero percent lending, in case of default would accentuate the NPA mess further. Such loans will be difficult to re-collect, owing to their size and disbursal. As a result the Credit Guarantee Element of the Yojana of 1.2 lakh crore on security free loans has to be meticulously resolved and a blue print needs to be present for encouraging the PSB’s to push the scheme targets. Hence, the focus on MFI’s, RRB’s and NBFC’S has to be intensified as they cater best to needs of these small business units.
Micro Finance is a potent tool for development of economy, enhancing opportunity for income generation in India. This also promotes a rewarding entrepreneurial ecosystem for those with ideas but restricted due to their credit standing and accessibility. Such Micro enterprises are indispensible for Indian economy, as they possess multiplier effect in terms of job, wealth and capital generation. This is correct step towards a sustainable economy.
To be an integrated financial and support service provider par excellence, benchmark with the global best practices and standards for the bottom of the pyramid for the comprehensive economic and social development. PMMY aims “to create an inclusive, sustainable and value based entrepreneurial culture, in collaboration with partner institution in achieving economic success and financial security.”