Q.5 “MUDRA Bank is aimed at the twin objectives of financial inclusion and growth promotion.” In light of this statement, write a short note on the Bank.

Ans. As per the GoI, large industries provide employment to only 1.25 crore people in the country while the micro units employ around

12 crore people. There is a need to focus on these 5.75 crore self-employed people (owners of the micro units) who use funds of Rs. 11 lakh crore, with

an average per unit debt of merely Rs. 17,000. Capital is the key to the small entrepreneurs. These entrepreneurs depend heavily on the ‘local money lenders’ for their fund requirements.

Looking at the importance of these enterprises, GoI launched (April 2015) the Micro Units Development and Refinance Agency Bank (MUDRA Bank) with the aim of funding these unfunded non-corporate enterprises. This was launched as the PMMY (Prime Minister Mudra Yojana). Important features of the MUDRA Bank are as given below:

• Under this banking model, the micro units can avail up to Rs. 10 lakh loan through refinance route (through the Public and private sector banks, NBFCs, MFIs, RRBs, District Banks, etc).

• The products designed under it are categorized into three buckets of finance named Shishu (loan up to Rs. 50,000 ), Kishor (Rs. 50,000 to R5 lakh) and Tarun (Rs. 5 lakh to Rs. 10 lakh).

• Though the scheme covers the traders of fruits and vegetables, in general, it does not refinance the agriculture sector.

• There is no fixed interest rate in this scheme. As per the GoI, presently, banks are charging the interest rates between Base Rate plus one per cent to 7 per cent per annum. Interest rates on the loans are supposed to vary according the risk involved in the enterprises seeking loans. There is no general subsidy offered on interest rates except if the loan is linked to some other government scheme.

This way, the Mudra is aimed at twin objectives—

(i) it will make funds available to a large number of small enterprise (financial inclusion) which by now were not getting any such support from the organised financial system of the country;

(ii) by provided the scarce funds it will enhance the income and growth prospects of such a large number of firms—helping around 12 crore people earning livelihood in them.