PM Modi Launches Rs 20,000 Crore Mudra Bank to 'Fund the Unfunded'

NDTV Profit Desk

08 Apr 2015, 03:05 PM IST

PM Modi at the launch of Mudra Bank

Prime Minister Narendra Modi on Wednesday launched the Mudra Bank to cater to small businesses such as tailors, mechanics and agro-entrepreneurs. "After 'banking the un-banked' with the Jan Dhan Yojana, it's time to 'fund the unfunded'," PM Modi said at the launch of the bank that will have a corpus of Rs 20,000 crore.

Here are 10 things to know:

1) Big industrial houses provide jobs to only 1.25 crore people, while small entrepreneurs employ 12 crore people, PM Modi said. Despite employing such a large number of people, small businesses have difficulty in getting credit from established banks. This has stifled growth and limited employment.

2) Growth in small businesses is key for the Indian economy because the sector is estimated to account for 20 per cent of economic output and 40 per cent of India's exports.

3) Just 4 per cent of 5.8 crore small business units in the country have access to bank loans currently. Such small units currently rely on informal lenders for credit.

4) The Mudra Bank has a corpus of Rs 20,000 crore, and credit guarantee corpus of Rs 3,000 crore.

5) It will act as a regulator for micro-finance institutions and will be responsible for refinancing (provide low-cost loans) MFIs in the business of lending to small entities. It will partner with state and regional level coordinators to provide finance to last mile financiers of small and micro business enterprises.

6) The Mudra Bank will also formulate lending norms for micro-finance institutions so that the small businesses do not face hardship over indebtedness, while getting a fair environment for repayment.

7) It will provide credit of up to Rs 10 lakh to small entrepreneurs, benefitting small manufacturing units, shopkeepers, fruits and vegetable sellers, hair saloon, beauty parlours, truck operators, hawkers, artisans in rural and urban areas.

8) The Mudra Bank will launch three products initially - Shishu would cover loans up to Rs 50,000 while Kishor above Rs 50,000 and up to Rs 5 lakh. Tarun category will cover loans of above Rs 5 lakh and up to Rs 10 lakh.

9) Loans from Mudra Bank will help bridge the shortfall in loans for small businesses, currently estimated at more than $80 billion (nearly Rs 5 lakh crore)

10) The proposal to establish Mudra Bank, an acronym for Micro Units Development and Refinance Agency, was first announced in the Union Budget in February.