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MUDRA – Micro Units Development & Refinance Agency Ltd

Under the aegis of Pradhan Mantri MUDRA Yojana, MUDRA has already created its initial products / schemes. The interventions have been named 'Shishu', 'Kishor' and 'Tarun' to signify the stage of growth / development and funding needs of the beneficiary micro unit / entrepreneur and also provide a reference point for the next phase of graduation / growth to look forward to :

• Shishu : covering loans upto 50,000/-
• Kishor : covering loans above 50,000/- and upto 5 lakh
• Tarun : covering loans above 5 lakh and upto 10 lakh

It would be ensured that at least 60% of the credit flows to Shishu Category Units and the balance to Kishor and Tarun Categories.

Within the framework and overall objective of development and growth of Shishu, Kishor and Tarun Units, the products being offered by MUDRA at the rollout stage have been designed to meet requirements of different sectors / business activities as well as business / entrepreneur segments. Brief particulars are as under:

• Sector / activity specific schemes
• Micro Credit Scheme (MCS)
• Refinance 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

The salient features of the schemes and innovative products, being worked upon, which will be offered by MUDRA going forward, are as below:

1 Sector / Activity Focussed Schemes
To maximize coverage of beneficiaries and tailor products to meet requirements of specific business activities, sector / activity focused schemes would be rolled out. To begin with, based on higher concentration of businesses in certain activities / sectors, schemes are being proposed for:

1.1 Land Transport Sector / Activity
Which will inter alia support units for purchase of transport vehicles for goods and personal transport such as auto rickshaw, small goods transport vehicle, 3 wheelers, e-rickshaw, passenger cars, taxis, etc.

1.2 Community, Social & Personal Service Activities
Such as saloons, beauty parlours, gymnasium, boutiques, tailoring shops, dry cleaning, cycle and motorcycle repair shop, DTP and Photocopying Facilities, Medicine Shops, Courier Agents, etc.

1.3 Food Products Sector
Support would be available for undertaking activities such as papad making, achaar making, jam / jelly making, agricultural produce preservation at rural level, sweet shops, small service food stalls and day to day catering / canteen services, cold chain vehicles, cold storages, ice making units, ice cream making units, biscuit, bread and bun making, etc.

1.4 Textile Products Sector / Activity
To provide support for undertaking activities such as handloom, powerloom, chikan work, zari and zardozi work, traditional embroidery and hand work, traditional dyeing and printing, apparel design, knitting, cotton ginning, computerized embroidery, stitching and other textile non garment products such as bags, vehicle accessories, furnishing accessories, etc.
Going forward, schemes would similarly be added for other sectors / activities as well.

2 Micro Credit Scheme
Financial support to MFIs for on lending to individuals/ groups of individuals /JLGs/ SHGs for creation of qualifying assets as per RBI guidelines towards setting up / running micro enterprises as per MSMED Act and non-farm income generating activities.

3 Missing Middle Credit Scheme
Financial support to financial intermediaries for on lending to individuals for setting up / running micro enterprises as per MSMED Act and non-farm income generating activities with beneficiary loan size of 50,000 to 10 lakh per enterprise / borrower.

4 Refinance Scheme for RRBs / Co-operative Banks
Enhancing liquidity of RRBs / Scheduled Co-operative Banks by refinancing loan extended to micro enterprises as per MSMED Act with beneficiary loan size upto 10 lakh per enterprise / borrower for manufacturing and service sector enterprises.

5 Mahila Uddyami Scheme
Timely and adequate financial support to the MFIs, for on lending to women / group of women / JLGs/ SHGs for creation of qualifying assets as per RBI guidelines towards setting up / running micro enterprises as per MSMED Act and non-farm income generating activities.

6 Business loans for Traders and Shopkeepers
Timely and adequate financial support for on lending to individuals for running their shops / trading & business activities / service enterprises and non-farm income generating activities with beneficiary loan size of upto 10 lakh per enterprise / borrower.

7 Equipment Finance Scheme for Micro Units
Timely and adequate financial support for on lending to individuals for setting up micro enterprises by purchasing necessary machinery / equipments with per beneficiary loan size of upto 10 lakh.

8 Innovative Offerings
8 (i) MUDRA Card
- Going forward, MUDRA would look at improving the offerings basket by looking at innovative ideas like a pre-loaded MUDRA Card, say with an assessed value.
- The card offering will help provide pre-approved credit line to the members by providing a card that can be utilized to purchase raw materials and components, from registered producers on an online platform.
- The card could be linked with Pradhan Mantri Jan Dhan Yojana Savings Account of the borrower and the drawals could also be enabled through the Bank’s ATM network for meeting the immediate liquidity problems of the micro enterprise.
The latest design of the MUDRA card as approved by DFS, GoI is attached for ready reference. For the convenience of Banks, the latest design approved by DFS, GoI in cdr format is also attached.

8 (ii) Portfolio Credit Guarantee
- Traditional financing in Indian context adopts an Asset Based lending approach with emphasis on collaterals. Micro units, most of the times, are unable to provide the comfort of collaterals.

- To mitigate the issue of collaterals, MUDRA will be offering a Credit Guarantee Product.
- Further, given the context of the industry / segment, since the individual loan sizes would expectedly be small and number of loans will be large, the option of a Portfolio Guarantee Product will be explored. Under this option, Credit Guarantee or Risk Sharing would be provided for a portfolio of homogenous loans instead of a Scheme for individual loan - by - loan guarantee. This is expected to create administrative efficiencies and increase receptiveness for the Credit Guarantee product. The Guarantee product would be one of the key interventions proposed with the objective of bringing down the cost of funds for the end beneficiary to improve its creditworthiness.
- Further, the time has come when there is a need to move away from the asset based lending approach to other innovative approaches, say Business Idea funding Approach or cash flow based lending schemes, where there may not be underlying tangible primary assets. The comfort of primary lenders for lending to such segment would increase if credit guarantee instrument is available.

8 (iii) Creation of Resources for Credit Enhancement / Guarantee Facility
The corpus proposed for the Credit Guarantee Scheme would be regularly augmented with a charge on the outstanding loans under refinance. The same would be utilized for providing first loss guarantee / credit enhancement for securitized portfolio loans, as discussed below.
4 Credit enhancement : Facilities offered to cover probable losses from a pool of securitized assets in the form of credit risk cover through a letter of credit, guarantee or other assurance from the originator / co-originator or a third party to enhance investment grade in any securitization process. First loss facility is the first level of credit enhancement offered as part of the process in bringing the securities to investment grade. Second loss facility provides the second / subsequent tier of protection against potential losses.

8 (iv) Underwriting for Intermediaries
As MUDRA evolves, it will have to look for newer innovative offerings based on the cardinal principle of 'problem solving.' It is necessary that the intermediaries and last mile financiers which have the real expertise in funding the NCSB sector have access to a steady flow of long term debt capital at a reasonable cost to smoothly continue their onlending activities as also scale up sustainably. As of now, these intermediaries face significant difficulties in raising debt. There is also a need to widen the investor / lender base for such intermediaries.

Securitization would be a useful tool for such long term capital flow. However, as the market for securitization deals from the asset class of NCSB is nascent, it would first need to be nurtured and developed. MUDRA proposes to step in through interventions such as :

Providing credit enhancements : Credit enhancements by way of first loss guarantee / collateral would be provided by MUDRA for securitization pools from the NCSBS asset class to be originated by MFIs and other intermediaries. MUDRA’s support to such transactions will facilitate improvement in credit rating of such asset pools and hence securitization deal flow in the sector.

Adopting Co/ Multiple Originator Models : There would be a need to bring about cost and administrative efficiencies in securitization transactions. Further, as the loan sizes are small, many smaller intermediaries may not be able to provide by themselves a threshold size of assets for securitization. To address such issues, the multiple originator model would be encouraged whereby asset pools of more than one originator / intermediary could be bundled for securitization.

MUDRA will build on experiences of some of the existing players who have demonstrated ability to cater to the NCSB segment. Models developed in the industry would be looked at for adaptation. Being an apex agency with whom intermediaries would be registered / availing refinance from, MUDRA would be well placed to play an effective role in helping crystallize such securitization deals under multiple originator models.

Similar other interventions for market making and creation of the right ecosystem would be taken up by MUDRA.

8 (v) Business / Banking Correspondent Model
- To capitalize on expertise in lending and collections [which is often segment / region specific] developed by intermediaries / last mile financiers in the small / informal business segment as also to meet their capital requirements, a product for lending through the Business / Banking Correspondent Model is envisaged.
MUDRA Offerings- Addressing the Non-Credit Gaps

Besides the credit constraints, the NCSBs face many non-credit challenges, like,
• Skill Development Gaps
• Knowledge Gaps
• Information Asymmetry
• Financial Literacy
• Lack of growth orientation

To address these constraints, MUDRA will have to adopt a credit- plus approach and offer Developmental and Support services to the target audience. It will have to act as a market maker and build –up an ecosystem with capacities to deliver value in an efficient and sustainable manner.

Supporting Financial Literacy
Financial literacy or financial education can broadly be defined as 'providing familiarity with and understanding of financial market products, especially rewards and risks, in order to make informed choices.'

Financial Inclusion and Financial Literacy are twin pillars. While Financial Inclusion acts from supply side providing the financial market / services that people demand, Financial Literacy stimulates the demand side – making people aware of what they can demand. Supporting the financial literacy drive will contribute substantially from the demand side to the national agenda of financial inclusion.