Mudra Bank & Micro finance in India

1) Out of 577 lakhs small businesses only 4% able to get institutional finance (Say loan from Commercial banks, Rural banks et al.) Reason – Huge paper work, collateral, less branches etc.
2) If given proper finance, India GDP will rise, HDI will rise, Social indicators improve, Unemployment will go down etc.
3) Moreover MFI regulation important, “According to the List II of the Constitution, the regulation of money lending is the original jurisdiction of the state government”. Every state has it’s own Money lending regulations act.
Until now, Mudra Bill is not passed by Parliament, it is working as NBFC & Subsidiary of SIDBI (Small industries development bank of India). Plan is to make MUDRA Bank Statutory body by passing bill in Parliament.
But after Mudra bank comes into existence, it will be responsible for registration as well as regulations of MFI’s. So it is to see whether govt. will incorporate MFI bill within Mudra bill or will it be separate.
Remember Bandhan MFI got Banking license?? It is NBFC-MFI registered with RBI.
NBFC-MFI (Profit making) gets registered with RBI, with RBI also providing for Regulatory Framework (CRAR, How much Tier 1 ,2 etc.)

-Bring policy guidelines for MFI
-Regulate MFI’s
-Refinance – To lend cheap loans to “xyz” and they can pass on benefit to these Small business units. When “xyz” took money from other sources they were charged higher Interest rate and similarly they also charged higher interest rate to their customers (SHG/JLG/Individuals)
Xyz= NBFC, MFI, Small banks, SCB, RRB, Cooperative societies, trusts etc. lending money to small business units.
-Under Pradhan Mantri Mudra Yojana, loan given to these units be according to the juncture they have achieved, like 50k for starter, Max – 10 lakhs.
-Rate MFI’s

Corpus – 20k Crore
Credit Guarantee – 3k Crore (Will act as insurance money if more people defaults)
Responsible financing practice – Borrower doesn’t remains Indebted for Life.
Code of conduct for client protection, Technology etc.

Why Mudra
To give loan to 96% of 577 lakhs units that too cheap.
Less poverty, High employment, High growth.
Regulate and rein MFI’s (control high interest rates, coercive collections and illegal insurance practices by the MFIs.)

Why not Mudra ?
Open small banks and discourage shadow banking.
Those who are refinanced will still try to carve out bigger profit, So Intermediaries still in scenario.

Way ahead:
Increase Loan amount and Number of borrowers
Anyhow money should reach beneficiary and rate of interest rate should be much lower,
More banks in rural areas
More banking license
Make aware people of the benefits
Refinancing agency in other areas (NABARD, NHB, SIDBI) load will be shared by MUDRA

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