Introduction
MUDRA bank the term
coined in this year Union Budget 2015-16 stands for Micro Units Development and
Refinancing Agency. This public institution has been created with the aim of
funding the unfunded 5.2 crore micro and small business spread across the length
and breath of India employing more than 12 crore individuals. It has been
formed with a corpus of 20000 crore INR and credit guarantee of 3000 crore INR
(2000 crore claimed by few sources too)
What
is micro and small business?
As per the
definition given by the RBI, micro units are those where the investments into
plant and machinery is not more than 25 lacs INR (for manufacturing, production
or processing) and less than 10 lacs INR in case of services. So who all
comprises micro businesses? They are none other than tailor shops, cycle
repairing shops, electrical and electronic repairing shops, weaving shops and
industries and many others.
Same is the case
with small businesses, with only difference of investment limit which is
between 25 lacs and 5 crore for manufacturing and in between 10 lac and 2 crore
INR for services. Local soap factories, paper industries (recycling of paper)
are few examples for these.
Why
them?
These micro and
small businesses employ more than 12 crore unskilled, low skilled and skilled
individuals (majority of work force) but only 4% of them have access to bank
credit. They usually borrow from individual lenders at exorbitantly high rate
(to the tune of 36% per annum) and thus very less fund available to them to
invest in training their employees or in
machinery. This on one hand reduces productivity of labor (calling for
Skill India Mission) and technological backwardness of industries on other hand
(calling for investment in R&D).
Funding these
businesses can serve multiple purpose like skilling India and innovation in
manufacturing and services. Also, it's the MSME sector only who are responsible
for bringing new technology and innovation in industries which later on
followed by bigger firms.
The other benefits
include more jobs creation, increased savings, increased standard of life style
and sociological change towards uplifting depressed section of society (as many
of them are owned by people from lower and downtrodden section of society).
Hasn't Government done anything for them?
Government has taken
many steps towards this direction and SIDBI is one such initiative. SIDBI
(Small Industries Development Bank of India) and Mahila Bank (credit to women
entrepreneurs) are such few initiative. SIDBI lend to public sector and private
sector banks for their exposure to MSME sector and also through direct credit
to needy units and achieved success in few industrial clusters.
But, given the large
number of needy units in MSME; one SIDBI is not enough and more such
institutions are required. Also, because of political interference in disbursal
of loan through public sector banks (local MLA directing list to poor bank
managers regarding beneficiaries) only a certain group/community reap the
benefits. It has also been responsible for high NPA for PSB and RRB. And thus
there is need for autonomous institutions with no government influence and can
distribute credit directly to needy
individuals.
Can
MUDRA solve this?
Answer to this
question lies in its implementation. For now, MUDRA acting as NBFC under the
guidance of SIDBI also given the task of micro-finance regulator. In future, if
MUDRA would not be kept out of government influence the fate would be similar
to SIDBI with little benefits reaching to micro businesses and more NPA.
Also, given the task
of regulating MFI (micro finance institution) as well as funding micro
businesses can be contradictory for MUDRA bank effective functioning. Alone, it
can't serve the vast needs of 96% of 5 crore businesses and more such
institutions are necessary (both in public and private sphere) to augment their
businesses.
