MUDRA BANK-TIME TO LIFT MSMEs

ABSTRACT

This paper analysis the significance of MUDRA Bank in view of Micro as well as Small level entrepreneurs. The Micro Small Medium Enterprises (MSME) segment plays a significant role in the emergence of the Indian economy.

The development of this segment is extremely critical to meet the national imperatives of financial inclusion and generation of significant levels of employment across urban and rural are as a cross the country. Indian MSME sectors a reality by launching a

Dedicated bank for MSME sector is known as MUDRA Bank will spur the growth of Indian MSME Sector and help them increase their contribution to Indian GDP from its current level of 38%. This bank will greatly increase the confidence of young, educated or skilled workers who would now be able to aspire to become first generation entrepreneurs ;existing small businesses, too, will be able to expand their activities. The paper highlights the importance and the role of MUDRA bank towards the MSME sector. The main objectives of MUDRA Bank are, to encourage entrepreneurs and small business units to expand their capabilities and operations, to reduce over indebtedness and to provide formal system of credit.

The initiative will also lay down the norms for responsible financing practices for microfinance institutions.

KEYWORDS: MFI’s, MSME’s, MUDRA, PMJDY, GDP & TReDS

INTRODUCTION

                                 

Banks play a crucial role in the economic development of any country in the world. On a larger scale, national banks offer similar access to credit and financial services to larger businesses, local governments, and in some cases international customers. Most individuals, especially those living in rural and interior parts of India, have been excluded from the benefits of formal banking system.

Indian MSMEs contribution is highly remarkable in the overall industrial economy of the country. In recent years the MSME sector has consistently registered higher growth rate compared to the overall industrial sector. With its agility and dynamism, the sector has shown admirable innovativeness and adaptability to survive the recent economic downturn and recession. In Indian market, MSMEs rapid growth could be seen as Indian entrepreneurs are making remarkable progress in various Industries like Manufacturing, Precision Engineering Design, Food Processing, Pharmaceutical, Textile & Garments, Retail , IT and ITES, Agro and Service sector. The sector not only serves for urban market but also helps in industrialization of rural and backward areas, reducing regional Imbalances and assuring more equitable distribution of national income and wealth. MSMEs complement large industries as ancillary units and contribute enormously to the socio economic development of the country.The significance of MSMEs is attributable to calibre for      employment generation, low capital and technology requirement, promotion of industrial development in rural areas, use of traditional or inherited skill, use of local resources, mobilization of resources and exportability of products. The sector generates around 100 million jobs through over 46 million units situated throughout the geographical expanse of the country. With 38% contribution to the nation’s GDP and 40% and 45% share of the overall exports and manufacturing output, respectively, it is easy to comprehend the salience of the role they play in social and economic restructuring of India. Micro, Small and Medium Enterprises ( MSMEs) are the back bone of the Indian economy and the engine of growth and employment. While it put the infrastructure sector under the spotlight by promising to pump in additional funds, It also gave the IT and technology sectors a major push with Rs 1,000-crore fund for self-employment and talent utilization. It has been encouraging for MSMEs in general and entrepreneurship in particular. In India, MSME sector is capable of growing at a healthy double digit rate, providing the necessary impetus for our national GDP to achieve high single digit growth in the next 2 years. The initiative will also laydown the norms for responsible financing practices for micro-finance institutions so that the small businesses do not face hardship over indebtedness, while getting a fair environment for repayment. India’s small entrepreneurs were used to exploitation at the hands of money lenders so far, but MUDRA would instill new confidence in them. Small businesses in India are major source of employment, providing jobs to nearly 120 million people.

OBJECTIVES OF THE STUDY

To understand the role of MUDRA Bank for micro as well as small businesses

To identify the importance of MUDRA Bank for micro as well as small businesses

To know the functions of MUDRA Bank for micro as well as small businesses

To know the Government intervention in MUDRA Bank

MSME SECTOR OVERVIEW

                           

India is one amongst very few countries which has a legal frame work for the MSME Sector in the form of MSMED Act 2006 which has established provisions under which issues like public procurement and delayed payments. In order to enhance the capabilities of MSMEs, Ministry of MSME has been implementing a number of programs and schemes in the areas of finance, infrastructure, technology, marketing and skill development to address the problems confronting the sector. The micro, small and medium enterprise (MSME) sector in India is diverse in terms of it size ; levels of technology employed and range of products and services produced, starting from grass  root village Industries, the products from the sectors pans to auto components, micro processors, electronic components and electro-medical devices. MSMEs have shown constant growth rate of over 10 percent in recent years much a head of the large scale corporate sector.This sector contributes 8 percent of the country's GDP, 45 percent of the manufactured output and 40 percent of its exports. The MSMEs provide employment to over 80 million persons through over 36 million enterprises producing over 6000 products. Micro, Small and Medium Enterprises are the back bone of an economy. They are the most   prolific job creators and pioneers in developing new ideas. MSME wants to help these businesses in every possible way to facilitate the industry. Fast changing global economic scenario has thrown up various opportunities and challenges to the MSMEs in India. While on the one hand, many opportunities have opened up for this sector to enhance productivity and look for new markets at national and international level, it has also, on the other hand, put an obligation to upgrade their competencies in various fields like marketing, finance, business development,  operations, technology etc.

AN OVERVIEW OF MUDRA

Most individuals, especially those living in rural and interior parts of India, have been excluded from the benefits off or banking system. Therefore, they never had access to insurance, credit, loans and other financial instruments to help them establish and grow their micro businesses. So, most individuals depend on local money lenders for credit. The loan comes at high interest and often with unbearable conditions, which make these poor unsuspecting people fall in a debt-trap for generations. When businesses fail, the borrowers become vulnerable to the lenders strong-arm tactics and other forms of humiliation. The role of private sector is crucial in accelerating the pace of economic growth. The banks increase the participation of the private sector in economic development by making available loans easily on reasonable rate of interest. The expansion of financial sector encourages entrepreneurs to make investments by promoting entrepreneurship. Our honourable Prime Minister NarendraModi  has been launched the Micro Units Development and Refinance Agency Ltd (MUDRA) Bank with a corpus of Rs 20,000 crore and a credit guarantee corpus of Rs3,000 crore. Mudra Bank is for “funding the unfunded”. This will provide credit of up to Rs10 lakh to small entrepreneurs and act as a regulator for Micro-Finance Institutions(MFIs).It will also refinance Micro-Finance Institutions through Pradhan Mantri Mudra Yojana. The main objectives of Mudra Bank   are to encourage entrepreneurs and small business units to expand their capabilities and operations to reduce over indebtedness  and to provide formal system of credit (finance). It was set up through a statutory enactment which would be responsible for developing & refining all MFIs which are in the business of lending to micro/small business activities engaged in manufacturing, trading & service activities.The concept of MUDRA bank goes beyond credit approach only & offers a credit plus solution for these enterprises spread across the country. Setting up of MUDRA Bank as it is a great step forward in providing the much- needed financial access and support to the small and medium enterprises. This will go along way in stimulating the growth of MSMEs which is crucial for large scale job creation and accelerating GDP growth". MUDRA Bank envisaged as the nodal financing agency as well as regulator of Micro Finance Institutions, so that financial stress of MSMEs will now be alleviated". The idea of MUDRA Bank was first envisaged in Budget 2015-16. The Micro, Small and Medium Enterprises (MSME) sector employs a large number of people. Nearly 120 million people are employed with 57.5 million entrepreneurs and  entities in the MSME sector.

Role of Mudra Bank

• Laying down policy guide lines for micro/small enterprise finance business.
• Registration and Regulation of MFI (Micro-Finance Institutions) entities.
• Accreditation/rating of MFI entities.
• To assist the lower income groups to develop and grow their small businesses.
• To help in increasing the access of finance to the un-banked and to also bring down the cost of finance.
• To provide access to Institutional Finance for Small Business Units (SBU).
• Laying down responsible financing practices to prevent over indebtedness, ensuring client protection principles and methods of recovery.
• Development of standardized covenants governing last mile lending to micro/small enterprises.
• Formulating and running a credit guarantee scheme for providing guarantees to the loans which are being extended to micro-enterprises.
• MUDRA bank will also be responsible for regulating and refinancing all microfinance institutions (MFIs) which are in the business of lending to micro or small business entities engaged in manufacturing, trading and services activities.
•  To give priority to SC/ST enterprises in lending

MUDRA PRODUCTS & OFFERINGS

Businesses or Entrepreneurs would include proprietorship or partnership firms running as small manufacturing units, shopkeepers, fruits or vegetable sellers, hair cutting saloon , beauty parlours, transporters, truck operators, hawkers, co-operatives or body of individuals, food service units, repair shops, machine operators, small industries, artisans, food processors, self helpgroups,  professionals and service providers etc. in rural and urban areas with financing requirements upto Rs.10 lakh. The primary product of MUDRA will refinance for lending to micro businesses or units under the  Pradhan Mantri MUDRA Yojana. The initial products and schemes have already been created and the interventions have been named ‘Shishu’, ‘Kishor’ and ‘Tarun’ to signify  the stage of growth or development and funding needs of the beneficiary micro unit or entrepreneur as also provides a growth for the entrepreneur to aspire for :

ØSHISHU: Facilitating loans up to Rs.50,000 this is the first stage when the business is just starting up.

Ø KISHOR : Facilitating loans above Rs.50,000/- and up to Rs.5lakh

 Ø TARUN : Facilitating loans above Rs.5lakh and up to Rs.10lakh

Apart from these products, the other products are initially being launched as sector/activity specific schemes are like business activities in Land Transport, Community, Social & Personal Services, Food Product and Textile Product sectors. Schemes would similarly be added for other sectors/activities which are as follows:

• Micro Credit Scheme (MCS)
• Re finance Scheme for Regional Rural Banks (RRBs)/Scheduled Co-operative Banks
• Mahila Uddyami Scheme
• Business Loan for Traders &Shopkeepers
• Missing Middle Credit Scheme
• Equipment Finance for Micro Units

Importance of MUDRA Bank Loan:

Growth in small businesses is key thing for the Indian economy because the sector is estimated to account for 20% of economic output and 40% of India's exports.

PM said that Big industrial houses provide jobs to only 1.25 crore people, while small entrepreneurs employ 12 crore people.

The Mudra Bank has a corpus of Rs20,000 crore, and credit guarantee corpus of Rs 3,000 crore.

It will act as a regulator for micro-finance institutions and will be responsible for refinancing (provide low-cost loans) MFIs in the business of lending to small entities.

It will partner with state and regional level coordinators to provide finance to last mile financiers of small and micro business enterprises.

Currently in the country just 4% of 5.8crore small business units have access to bank loans. Such small units currently rely on informal lenders for credit.

It will provide credit of up to Rs.10lakhs to small entrepreneurs, benefiting small manufacturing units, shopkeepers, fruits and vegetable sellers, hair salon, beauty parlors, truckoperators, hawkers, artisans in rural and urban areas.

The Mudra Bank will also formulate lending norms for micro-finance institutions so that the small businesses do not face hard ship over indebtedness, while getting a fair environment for repayment.

Loans from Mudra Bank will help bridge the short fall in loans for small businesses, currently estimated at more than $ 80 billion (nearly Rs 5lakh)

MUDRA would also adopt a Credit Plus Approach and take up interventions for development support across the entire spectrum of beneficiary segments. The highlights of such proposed interventions/initiatives areas follows:

Supporting financial literacy

Promotion and Support of Grass Root Institutions

Creation of Frame work for “Small Business Finance Entities”

Synergies with National Rural Livelihoods Mission

Synergies with National Skill Development Corporation

Working with Credit Bureaus

Working with Rating Agencies 

MUDRA BANK FOR MICRO SMALL MEDIUM ENTERPRISES

The MSME sector has hailed the establishment of Micro Units Development Refinance Agency (MUDRA) Bank with an allocation of Rs.20,000 crore for micro and small units. It has also granted of Rs.3,000 crore a fresh for sanctioning loan to the MSME sector without collateral security or third party guarantee with a cap of Rs.1crore. The Credit Guarantee Fund Trust for Micro & Small Enterprises (CGFTMSE) had been granted over Rs.5,000 crore in the previous budgets. The MSME sector representatives feel that if implemented properly, the initiatives of the NDA Government will help achieve double digit GDP growth, surpassing China. “The banks are sanctioning, but are restricting the loan amount after a thorough scrutiny, defeating the purpose for which the fund has been created by the Centre, there by dampening the spirit of MSME entrepreneurs,”. Micro, Small and Medium Enterprises (MSME) sector employs a large number of people. Nearly 120 million people are employed with 57.5 million entrepreneurs and entities in the MSME sector. Micro Unit Development and Refinance Agency, or MUDRA to fund and promote Micro Finance Institutions (MFIs), which would in turn provide loans to small and vulnerable sections of the businesses which will have an initial corpus of Rs 20,000 crore and a credit guarantee corpus of Rs3,000 crore. The initial corpus would be provided by banks from their priority sector lending short fall. Small businesses can avail loan up to Rs50,000 ; businesses that are a little bigger could avail loan of up to Rs 5lakh ; the highest bracket of loans available to the MSME sector would be up to Rs10 lakh. For further financing, the MSME sector affiliated entrepreneurs would be given a ‘MUDRA card’, which could provide further credit of up to Rs20,000. MUDRA would also partner with state, regional level co-coordinators to provide finance to the last-mile financiers of small and micro business enterprises. MUDRA Yojana, will provide much needed financial access to MSMEs, promote growth of small businesses, help boost the country's GDP and create jobs.The average debt of Small business enterprises in India is around Rs17,000. If lending is increased to Rs 5 or 10Lakh, the sector would benefit immensely and may generate lot of selfemployment opportunities. Small business units generally face lot of challenges to get loans from Banks. So, they end up taking high cost loans from financiers or money lenders.

 IMPACT OF GOVERNMENT ON MUDRABANK

The Government of India for the launch of the MUDRA bank to small businesses and regulate micro-finance institutions, to promote their growth, add to the country’s output and create jobs is the step in the right direct or to leverage Indian MSME Sector especially in the Semi Urban and Rural India.It would allocate Rs20,000 crore through Micro Units Development Refinance Agency (MUDRA) Bank for the SME sector and will enhance credit facility to boost the growth of small businesses and manufacturing units, allocation of Rs1000 crore for support of Start-ups.

The Government’s ‘Make in India’ initiative is expanding on the share of manufacturing to India’s Gross Domestic Product (GDP) has the potential to transform the fortunes of the Micro, Small and Medium Enterprises (MSMEs) in the country. It also focus on Digital India and Swachh Bharat Abhiyan, the sector will get the needed impetus. The government has proposed and launched numerous initiatives which focus solely on small scale enterprises.

Recognizing the national imperative of financial inclusion, the government introduced the Micro Units Development and Refinance Agency (MUDRA) Bank during the budget announcement of 2015-16. With only 4percent of micro, small and medium enterprises (MSMEs) falling within the purview of the Indian banking system, the Bank has been launched with the aim of funding the unfunded across the country.

Budget 2015-16 has proposed To create a micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of Rs.20,000 crore, and credit guarantee corpus of Rs. 3,000 crore to enhance credit for SMEs. "MUDRA Bank to be setup for small and medium enterprises (SMEs) in lending priority was given to SC/ST enterprises, "MUDRA Bank will refinance Micro-Finance Institutions through a Pradhan Mantri Mudra Yojana.

In lending, priority will be given to SC/STenterprises. Rs 1,000cr also allocated for National skills Mission for more job creations which will also lead young generations to be first generations entrepreneurs. Government is also planning for electronic trade receivable discounting system (TReDS) for MSMEs.

Budget 2016-17 is sanctioned Rs.1laks crore to 2.5croreborrowers.

CONCLUSION

Bank is step by the government that can be a game changer in giving birth to a new set of entrepreneurs, some of whom may scale heights not imagined today. This initiation will greatly increase the confidence of our young educated and skilled workers who are able to become the first generation entrepreneurs and existing small businesses will be able to expand their activities just banking the unbanked/funding the unfunded. MUDRA is the way to go.Small business unit generally face lot of challenges to get loan from banks . So they end up taking high cost loans from financiers or money lenders. Launching bank like MUDRA will hugely benefit to small manufacturing units and selfemployed individuals in rural and urban areas.

The small scale industries which form the foundation of the economic strata need to be strengthened and supported. The numerous initiatives introduced in the past few years are a step in the right direction.Besides schemes being introduced for the overall growth and development of the MSME sector, initiatives have been launched which focus solely on entrepreneurs. The schemes will contribute to the well-being of the individuals engaged in small scale industries which will positively affect the progress of  the economy as a whole.

NDA Government promoting MSMEs through MUDRA Bank, It is proved in 2016 Budget by sanctioning Rs.1lakh crore to Pradhan mantra MUDRA Yojana.