Answer:

With an initial corpus of Rs 20000 crores and a credit guarantee corpus of Rs 3000 crores Government recently launched MUDRA (Micro Units Development Refinance Agency) to infuse finance into MSME sector of the country. Formal sector generates about 29.6 million while 57.8 million small and micro enterprises provide 128 million jobs. Almost 2/3rd of them belong to the SCs, STs and OBCs. More than half of them operate from rural areas, where financial outreach of formal channels is limited and delivering economic growth difficult. A focused approach of finance availability through MUDRA has immense potential in development of MSME sector that will bring inclusive growth.

Following are the objectives of the MUDRA:

♤ Almost 90% of MSMEs depend upon the informal sector for financing where money lenders charge very high interest. Even the MFIs lend at a rate of about 25% to these enterprises because banks lend them at around 14%. MUDRA will partner state and regional level coordinators to enable them to provide refinance to last mile financiers of micro businesses and cut borrowing costs for the cash-starved domestic small businesses.

♤ It will create a framework that regulates and provides refinancing capital flows to micro-finance institutions that are in turn in the business of lending to micro/small business entities engaged in manufacturing, trading and services activities.

♤ MFIs do not meet the funding requirements of small entrepreneurs who want more than Rs.50,000 and up to a few lakhs. Commercial banks, too, are reluctant to give them loans. This lacuna will be addressed by the MUDRA bank.

♤ It will help in bringing transparency, accountability and technology to the sector.

♤ NABARD and SIDBI also refinance MSMEs. However, MUDRA will have sole focus on the Micro and Small businesses.

However, the following issues should be addressed to make MUDRA a success:

♤ There already exist financing schemes like Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Portfolio Risk Fund (PRF) etc and many others apart from the technical and managerial support. Hence, it is not only lack of finance but also the multiplicity of schemes, poor implementation, problems like corruption and complex processes and lack of awareness which is impeding the growth of sector.

♤ A redrawing of the functions of NABARD and SIDBI, which have not performed up to the mark, in the light of creation of MUDRA should be done.

♤ Regulatory and credit functions of the MUDRA should be separated to avoid conflict of interest.

♤ Small banks also have immense potential for the sector and can be used to supplement MUDRA.

♤ Introduction of electronic transfer facility for the sector.

While the global trend is discourage shadow banking and use the main-line banking system to meet the financing needs of all segments we are creating one more refinancing agency. Hence, a thorough redress of these issues should be done to ensure credit flow to SMEs also called as ‘missing middle’ and prevent MUDRA from being another lost opportunity.