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Pradhan Mantri Mudra Yojana: Funding the unfunded


 

Pradhan Mantri Mudra Yojana (PMMY) is a flagship scheme of Government of India to enable a small enterprise come into the formal financial system and get affordable credit to run his/ her business.

  • Who? Any Indian Citizen who has a business plan for a non-farm sector income generating activity
  • Credit need? Less than Rs 10 lakh
  • Possible Creditors? Banks, MFI, or NBFC

Types of Loans provided

Under the aegis of Pradhan Mantri MUDRA Yojana, MUDRA has already created the following products / schemes.

  • 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

Note that there is no subsidy for the loan given under PMMY. However, if the loan proposal is linked some Government scheme, wherein the Government is providing capital subsidy, it will be eligible under PMMY also.


What is MUDRA Bank and what is its role in the MUDRA Yojna?

  • MUDRA Bank = Micro Units Development and Refinance Agency Bank
  • The Rs 20,000 crore MUDRA Bank aims to provide refinancing to small and medium enterprises, particularly those from SC & ST
  • The idea is to refinance micro-finance institutions through Pradhan Mantri Mudra Yojana
  • This bank would be responsible for regulating and refinancing all MFIs which are in the business of lending to MSME

Are there any concerns regarding the structure or establishment of MUDRA bank?

  • The bank will be financially challenged since inception, if it is funded through non-budgetary support
  • The funds for the bank would be sourced from shortfall in the achievements of the priority sector lending (PSL) targets
  • Currently, the shortfall in the PSL targets of the domestic scheduled commercial banks are deposited in Rural Infrastructure Development Fund (RIDF) and for foreign banks in Small Enterprises Development Fund
  • The fact of the matter is that banks have been surpassing the targets in all years, since 2002, except for the last three years
  • The shortfall lies only in agricultural loans, but it would be unfair to divert the target for agriculture from RIDF to micro units

What are some of the positive points which go in favour of such a scheme?

  • Informal sector accounts for 90% of our non-agricultural workforce, 50% of the GDP & 40% of the non-farm GDP
  • Analysts point that the Indian GDP can be raised by almost 15% if the informal sector data is incorporated in the GDP series
  • The MUDRA bank aims to boost loans and cut borrowing costs for the cash-starved domestic small businesses

But has a direct intervention from government (to facilitate loans) worked in past?

What are some of the prominent concerns in this area?

  • There is always a case for direct government intervention to solve any one of our many chronic problems, to justify the need for MUDRA bank
  • The govt. is trying to ensure equity through determined government action that previously drove the govt. to nationalise banks and bring priority sector lending
  • However, such ‘directed credit’ has not worked successfully in the past
  • The govt. control over banks had led to large-scale corruption and repeated recapitalisation through taxpayers’ money
  • MUDRA bank has been over-burdened with many conflicting objectives and too-many roles, viz. a lender, consultant, regulator, think tank and an agent of social change

Any doubts?


  1. shankarrathode 9912241575

    can a bank or a MFI issue a loan to already availed customer (if Loan amount not exceeded 10L) ?

[pib] Schemes for Farmer’s Welfare

Note4Students

From UPSC perspective, the following things are important:

Prelims level: Kisan Credit Card (KCC) scheme

Mains level: Schemes for providing credit to farmers


News: 

  • Kisan Credit Card (KCC) scheme meets the financial requirements of farmers at various stages of farming.

Aim:

  • Providing adequate and timely credit support from the banking system under a single window with the flexible and simplified procedure to the farmers for their cultivation and other needs.
  • To meet the short-term credit requirements for cultivation of crops;
  • Post-harvest expenses;
  • Produce marketing loan;
  • Consumption requirements of farmer household;
  • Working capital for maintenance of farm assets and activities allied to agriculture;
  • Investment credit requirement for agriculture and allied activities.

Provisions

  •  The facility of ATM enabled RuPay Card, one-time documentation, built-in cost escalation in the limit and any number of drawals within the limit
  • The farmers eligible under the KCC scheme include small farmers, marginal farmers, sharecroppers, oral lessee and tenant farmers
  • The Self Help Groups (SHGs) or Joint Liability Groups (JLGs) are also eligible for availing benefits under the said scheme

[pib] Udyami Mitra Portal

Note4Students

From UPSC perspective, the following things are important:

Prelims level: Udyami Mitra Portal

Mains level: Measures for easing procedures and capital requirements for businesses


News:

  • Small Industries Development Bank of India (SIDBI) has launched the ‘Udyami Mitra’ Portal (www.udyamimitra.in) to improve the accessibility of credit and handholding services to Micro, Small and Medium Enterprises (MSMEs)
  • Scheduled Commercial Banks (SCBs) have been advised to ensure a target of 7.5% of Adjusted Net Bank Credit (ANBC) for Micro Enterprises
  • Collateral security is not required for loans up to Rs. 10 lakh to MSE sector, which has simplified working capital requirement for MSEs
PIB

Micro Finance encouraging income generation

  1. Source: The Bharat Microfinance Report 2016 by Sa-Dhan, the self-regulatory body for MFIs
  2. Analysis of the loan portfolio held by reporting MFIs for 2014-15 and 2015-16 shows that the proportion of income generation loan to non-income generation loan is 94:06
  3. Within the income-generating loans, largest proportion (39%) went to the animal husbandry sector
  4. It is followed by 29% to the trading & small business category
  5. Agriculture: Received 15% of the loans
  6. Background: In 2011, RBI (Reserve Bank of India) regulation stipulated that a minimum of 70 per cent of the MFI loans are to be deployed for income generating activities

Discuss: Microfinance institutions have been shifting their focus to urban areas from rural areas. What are the reasons and impacts of such a shift?

MFIs see higher growth in urban India than rural: Report

  1. Source: The Bharat Microfinance Report 2016 by Sa-Dhan, the self-regulatory body for MFIs
  2. Over the last year, microfinance institutions (MFIs) have seen their business grow faster in urban (@ 27%) India than in rural (@ 14%)
  3. These loans are being put to increasingly productive uses with a higher proportion of them going towards income generation than before (@ 90% against 80% last year)

Issues with microfinance sector

  1. Source: India Credit Rating Agency (ICRA)
  2. While the business opportunity is exciting, there is a need for establishing a credit culture in the new geographies and strengthening the credit appraisal processes
  3. The two operational credit bureaus have helped the sector maintain its asset quality
  4. Issues: Limited coverage of SHG bank linkage programme data, multiple identity cards being used by borrowers for availing loans from more than two MFIs and interlinking of retail credit
  5. Communal and political incidents in Madhya Pradesh, Uttar Pradesh, Bihar, Jharkhand and Karnataka did lead to some pressure on asset quality
  6. The sector remains vulnerable to asset quality shocks owing to the risks associated with unsecured lending business, political risks, and operational risks arising out of cash handling
  7. Largely on the bank of recognition as priority sector lending (PSL), the banking system’s credit to the NBFC-MFIs grew 60% in the last fiscal

Growth prospects of microfinance sector

  1. Source: Indian Credit Rating Agency (ICRA)
  2. The country’s microfinance sector will grow nearly three-fold to reach up to Rs 4.3 trillion over the next three years on account of expansion into newer segments and enhanced average loan sizes
  3. The estimate includes micro credit across self-help groups, microfinance institutions and banks
  4. Basis: Improving income levels, inflation, higher eligibility of borrowers moving to higher loan cycles
  5. Indian microfinance institution (MFI) sector grew 40% in 2015-16 to Rs 1.4 trillion (including the Bandhan Bank) as against a 38% growth in the previous fiscal

MUDRA not to regulate micro finance institutions: Govt

  1. The govt has said that the RBI would continue to regulate MFIs registered as NBFCs with the central bank.
  2. MUDRA Bank will regulate banks only for the purpose of MUDRA loaning.
  3. MUDRA Ltd currently operates as an NBFC registered with the RBI, but recently govt. approved conversion of MUDRA Ltd into MUDRA-SIDBI Bank.
  4. The proposed Bank will also oversee the Rs 3,000 crore Credit Guarantee Fund to facilitate the MUDRA scheme.
  5. The Fund will provide insurance against default on MUDRA loans to the maximum extent of 50%, thereby helping reduce risk taken by banks and financial institutions.

Cabinet approves creation of a Credit Guarantee Fund for MUDRA loans

  1. The Union Cabinet has given its approval for the creation of a Credit Guarantee Fund for MUDRA loans.
  2. The Fund is expected to guarantee more than Rs 1,00,000 crore worth of loans to micro and small units, sanctioned under Pradhan Mantri Mudra Yojana
  3. The objective is to reduce the credit risk to Banks / NBFCs / MFIs / other financial intermediaries.
PIB

What are the functions envisaged under TADF?

  1. Direct Support for Technology Acquisition
  2. In-direct Support for Technology Acquisition through Patent Pool.
  3. Technology / Equipment Manufacturing Subsidies.
  4. Green Manufacturing–Incentive Scheme facilitates resource conservation activities for implementation of renewable energy projects through TADF.
PIB

Launch of Technology Acquisition and Development Fund under National Manufacturing Policy

  1. Technology Acquisition and Development Fund (TADF) under National Manufacturing Policy being implemented by Department of Industrial Policy & Promotion (DIPP).
  2. TADF is a new scheme to facilitate acquisition of Clean, Green & Energy Efficient Technologies.
  3. It is in form of Technology/ Patents/ Industrial Design available in market available in India or globally, by Micro, Small & Medium Enterprises (MSMEs).
  4. Scheme would facilitate acquisition of clean & green technologies by micro, small and medium units across the sectors and thus, bridge the technological gap at an affordable cost.
  5. Scheme is conceptualised to catalyse manufacturing growth in MSME sector to contribute to the national focus of “Make in India”.
PIB

Utilising MSMEs as engines for growth

It is worth considering whether money lenders can be brought under regulation and an interest cap be imposed for lending to MSMEs, as is the case in Japan.

  1. Recent growth data for India reveals that there has been a significant slowdown in the industrial growth rate, especially manufacturing, in the first quarter, April-June, 2015.
  2. According to Annual Report (AR) of the RBI, gross capital formation has been declining over the years, especially households. The performance of the agriculture sector has also been slower due to uncertain rains.
  3. In context of continuing uncertainty in the agriculture sector because of substantial dependence on rain-fed irrigation, an alternative power pack, unutilised, is micro, small and medium enterprises (MSMEs).
  4. MSMEs are generally labour-intensive, they have the capability to create more jobs to cater to a young demographic country like India.
  5. Supply-side efforts is in action,but need is to generate demand-side requirement from the general public to set up MSMEs. Therefore, there is need to nurture entrepreneurs from a young age.
  6. If the country has to successfully launch the ‘Make in India’ programme, it needs to train young entrepreneurs, in addition to developing skills at skill development centres.

MSME’s main problem is finance

  1. Jan Dhan Yojana (JDY) could be used to direct financial resources to targeted MSMEs.
  2. In the case of Japan, the government has imposed a cap on interest rates on loans that a money lender extends to MSMEs.
  3. It is worth considering whether money lenders could be brought under regulation now, given technological progress, as achieved in the case of Japan, and an interest cap be imposed for lending to MSMEs.
  4. The role of financial education is very important for MSMEs in assessing appropriate start-up finance and in empowering them to use financial products and services to manage risks and other business needs.
  5. Skill development through training programms of bankers is also necessary for assessing MSMEs that can be bank-financed.

[cd explains] Mudra Bank: Funding the Unfunded

 

Microfinance industry is on the cusp of a great change

MUDRA is breaking the myth

  1. The corporate houses and big industries employ only 12.5 million people as against 120 million by the MSME sector.
  2. The large industries have wide variety of facilities for credit, whereas MSME suffer from credit crunch.
  3. MUDRA will focus on 5.75 crore self-employed people who use funds of Rs 11 lakh crore.
  4. NSSO Report 2013: There are 57.7 million small business units, mostly individual proprietorship, which run manufacturing, trading or services activities.
  5. The small business units include small manufacturing units, shopkeepers, fruits, vegetable vendors, truck and taxi operators, food-service units, artisans, food processors, street vendors.

New regime, old philosophy

  1. There is always a case for direct government intervention to solve any one of our many chronic problems, to justify the need for MUDRA bank.
  2. The govt. is trying to ensure equity through determined government action that previously drove the govt. to nationalise banks and bring priority sector lending.
  3. However, such ‘directed credit’ has not worked successfully in the past.
  4. The govt. control over banks had led to large-scale corruption and repeated recapitalisation through taxpayers’ money.
  5. MUDRA bank has been over-burdened with many conflicting objectives and too-many roles, viz. a lender, consultant, regulator, think tank and an agent of social change.
  6. This new bank has little accountability for taxpayers’ money, which has already wasted on numerous initiatives to “support” small businesses of various kinds.

MUDRA Bank to be launched on April 8

  1. The Rs 20,000 crore MUDRA Bank aims to provide refinancing to small and medium enterprises, particularly those from SC & ST.
  2. MUDRA Bank – Micro Units Development and Refinance Agency.
  3. The idea is to refinance micro-finance institutions through Pradhan Mantri Mudra Yojana.
  4. This bank would be responsible for regulating and refinancing all MFIs which are in the business of lending to MSME.

The fine print of Mudra Bank

  1. The bank will be financially challenged since inception, if it is funded through non-budgetary support.
  2. The funds for the bank would be sourced from shortfall in the achievements of the priority sector lending (PSL) targets.
  3. Currently, the shortfall in the PSL targets of the domestic scheduled commercial banks are deposited in Rural Infrastructure Development Fund (RIDF) and for foreign banks in Small Enterprises Development Fund.
  4. The fact of the matter is that banks have been surpassing the targets in all years, since 2002, except for the last three years.
  5. The shortfall lies only in agricultural loans, but it would be unfair to divert the target for agriculture from RIDF to micro units.

A catalyst for India’s 10% GDP growth

  1. Informal sector accounts for 90%of our non-agricultural workforce, 50% of the GDP & 40% of the non-farm GDP.
  2. Analysts point that the Indian GDP can be raised by almost 15% if the informal sector data is incorporated in the GDP series.
  3. The MUDRA bank will boost loans and cut borrowing costs for the cash-starved domestic small businesses.
  4. It is using micro finance, an economic development tool to assist the lower income groups to develop and grow their small businesses.
  5. This government is right to see the potential of this sector to drive up jobs and taxes.
  6. This will create a force multiplier on the economy and tax revenues by a successful formalisation of the informal sector.

MUDRA Bank: All rolled in one

  1. It will provide funds and promote microfinance institutions (MFIs), which are in the business of lending to micro and small business entities engaged in manufacturing, trading and service activities.
  2. It will also act as a regulator for MFIs.
  3. The bank will lay down policy guidelines for micro enterprise financing business, registration, accreditation and rating of MFI entities.
  4. The agency will also articulate responsible financing practices to ward off over-indebtedness and ensure proper client protection principles and methods of recovery.


:( We are working on most probable questions. Do check back this section.







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