MUDRA - Funding the Unfunded

Pradhan Mantri MUDRA (Micro Units Development and Refinance Agency) Yojana

Mudra Innovation may Prove a Game Changer

By: Shri S Gurumurthy | Published: 10th April 2015

Pic Credit: The New Indian Express

In the above article published in TNIE today, Shri S Gurumurthy (SG) analyses MUDRA Yojana. Drawing here some key points form this article and listing them here for easy understanding of MUDRA:

First, the background with some numbers:

1. Corporate Sector in India accounts for just 15% of India’s GDP.
2. 50% of India’s GDP comes from non-Corporate or Informal Sector = 'Small and Micro Businesses’ (SMB)
3. Corporate sector accounts for just about 10% of the total Jobs.
4. 90% of the Jobs come from non-Corporate or Informal Sector.
5. There are about 5.8.Crore (58 Million) 'Small and Micro Businesses' that actually drive the Indian economy
6. These 'Small and Micro Businesses’ employ about 12.8 Crore of India’s total working population.
7. Corporate Sector employs totally about 1.25 Crore.
8. The value addition produced by 'Small and Micro Businesses’ (SMB) is about 55% as compared to 36% Value Addition of gross fixed assets produced by the Corporates.
9. As much as two-thirds of these 58 Million SMB are run by SC, ST & OBC and more than Half come from Rural areas.
10. 'Small and Micro Businesses’ that: a) employ 10 Times more than the Corporates, b) Contribute 35% more to GDP, c) Produce 20% more value addition; gets just about 4% of its total Credit requirement met by Banks. For the remaining 96% credit needs, they have to depend on money lenders with extortionate rate of interest. And yet, they come out looking much better across various indicators than the Corporates.  

So, to sum it up, 90% of jobs, 50% of India’s GDP & 20% more value addition comes from the non-corporate or informal sector (SMB), that has been completely ignored and gone unnoticed by the Banking and Finance sector, who spend 96% of their funds to finance the Corporates. Hence,

MUDRA: Funding the Unfunded ! sabka saath, sabka vikas

What is MUDRA all about? MUDRA is not a conventional bank that would start giving direct credit to these SMB, but a well thought out policy blue print, under the newly constructed Niti Aayog. This is basically a Credit delivery mechanism to reach out to the Geographically and Demographically backward part of India. MUDRA is purely an India-centric concept, has no precedent anywhere and based on Niti Aayog adopted theme of “what works in and for India”. MUDRA seeks to fertilise the Bottom-of-Pyramid (BoP) of the economy.

Quoting Shri SG: "The MUDRA yojana is an endeavour to give a policy orientation to the largest and yet neglected segment of the national economy to bring it within the orbit of organised economy. "

Some key points of MUDRA as elaborated in the article are as follows:

• MUDRA is not a Bank but a Refinance institution.
• MUDRA will register & regulate State and National level lenders.
• These lenders will in turn register small “Last Mile Financiers” (LMF).
• LMF will be in the form of local post-offices or lenders, who are already lending to SMB.
• State and National level lenders will then refinance these LMF.

LMF will be the key players in this scheme as they will connect with SMB directly at the local level. MUDRA will integrate these non-formal LMF with National lenders to deliver formal credit to the SMB.

***

Here is a You Tube video presentation of MUDRA Yojana: