INDEX

Serial No Topics Page No

1. Introduction………………………………………………………………………….….05-08
1.1.Vision…………………………………………………………………………………05-05
1.2.Mission……………………………………………………………………………….05-05
1.3.Key Objectives of MUDRA Scheme…………………………………………………06-06
1.4.Products and Offerings of MUDRA Scheme………………………………………..06-08
1.5.Beneficiaries of Mudra Scheme………………………………………………..…….08-08
2. SWOT Analysis of MUDRA Scheme…………………………………………..………09-09
3. Literature Review………………………………………………………………………10-10
4. Practical Implications of MUDRA Scheme……………………………………………11-12

4.1.Mudra and Small Business Finance MUDRA…………………………….…………11-12

5. Challenges Concerning MUDRA scheme………..……………………………………12-13
6. Recommendations………………………………………………………………………13-13
7. Conclusion………………………………………………………………………………13-13
8. References ………………………………………………………………………………14-14
8.1.Journal and Articles Referred………………………………………………………...14-14
8.2.Websites Referred………………………………………………………………..…..14-14

Page 1
Prepared By: Attaullah Hazrat
March 23, 2018 Review of MUDRA SCHEME

INTRODUCTION

Micro Unit Development and Refinance Agency (MUDRA) has been setup for ‘funding the
unfunded’. MUDRA has an initial corpus of Rs. 20,000 crore and a credit guarantee corpus of
Rs. 3,000 crore. The initial corpus would have be provided by banks from their priority sector
lending shortfall. It was set up through a statutory enactment which would be responsible for
developing and refining MFIs which are in the business of lending to micro and small business
units engaged in manufacturing, trading and service activities. According to the financial
services secretary Hasmukh Adhia, MUDRA is an NBFC and a part of SIDBI and will later take
the form of a bank through a bill within one year. MUDRA bank will provide credit of up to Rs.
10 lakh to small entrepreneurs and act as a regulator for Micro-Finance Institutions (MFIs).
MUDRA Bank will also refinance Micro-Finance Institutions (MFIs) through Pradhan Mantri
Mudra Yojana (PMMY). The main motive behind set up of Mudra Bank is, to encourage
entrepreneurs and small business units to expand their competences and operations, to diminish
over indebtedness and to provide formal and easy system of credit.

"To be an integrated financial and support services provider

Vision par excellence benchmarked with global best practices and

standards for the bottom of the pyramid universe for their
comprehensive economic and social development.”

"To create an inclusive, sustainable and value based

entrepreneurial culture, in collaboration with our partner
Mission institutions in achieving economic success and financial
security."

Prepared By: Attaullah Hazrat Page 2 Indian Economic Development

March 23, 2018 Review of MUDRA SCHEME

KEY OBJECTIVES OF MUDRA SCHEME

To fulfill the main objective of “fund the unfunded” MUDRA has following important
objectives.

1. Regulation of lender and borrower of micro-finance and to provide stability by ensuring

regulation and inclusive participation in micro-finance system.
2. To cooperate in financing and lending activities of microfinance institutions (MFIs), and
other lending agencies who provide credit to small traders, retailers, self-help groups and
individuals.
3. To registration of all MFIs and to introduce a performance level (performance rating) and
system of preferential treatment for first time. This will help in assessment before taking
loan and to reach that MFI which will meet the borrower’s needs and whose oldest record
is the most satisfactory. This will increase the competitiveness of the MFIs. Borrowers
will benefit from it.
4. To provide infrastructure guideline to borrowers, by implementing them business failure
can be avoided and appropriate measures can be taken timely. MUDRA will help in
making acceptable procedure or guidelines to follow for recover the money owed in case
of default.
5. Development of standard set of covenants governing last mile lending to micro units,
which in the future will be the backbone of the micro-business.
6. Formulating and running a credit guarantee scheme for providing guarantees to the loan
given to micro business units.
7. To monitoring of capital distributed and promoting right technology solutions for last
mile.
8. Creating a good architecture to develop an effective system for last mile credit delivery to
micro business units under the scheme of Pradhan Mantri MUDRA Yojana (PMMY).

Prepared By: Attaullah Hazrat Page 3 Indian Economic Development

March 23, 2018 Review of MUDRA SCHEME

PRODUCT AND OFFERINGS OF MUDRA

To start-with, MUDRA will need two categories of products; viz; refinance product for the micro
units having loan requirement in the range of 50,000 to 10 lakh and support to MFIs for on
lending etc. MUDRA will be providing refinance to micro business under the Scheme of
Pradhan Mantri MUDRA Yojana (PMMY). The other products are for development support to
the sector. The bouquet of offerings of MUDRA is depicted below. The offerings would be
targeted across the spectrum of beneficiary segments.

Source: www.mudra.org.in

Borrowers are divided into three categories under MUDRA based on the stage of growth and
funding needs of an entrepreneur or a micro unit. The initial products of MUDRA are as follows:

1. Shishu: the business units that are just started are covered under this category. Business
units under this category can get a loan up to Rs. 50,000.
2. Kishore: Business units that are set and in medium stage can get Rs. 50,000 to Rs. 5 lakh
of loan cover from MUDRA.
3. Tarun: Good established business units that need more funds to raise business cover
under this category and get loan cover up to Rs. 10 lakh.

Prepared By: Attaullah Hazrat Page 4 Indian Economic Development

March 23, 2018 Review of MUDRA SCHEME

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

BENEFICIARIES OF MUDRA SCHEME

Any Indian Citizen who has a wage producing plan from small scale business exercises in
exchanging, assembling and preparing and whose advance prerequisite is under Rs.10 lakh can
approach advances under PMMY. Loan rate is regulated by Reserve Bank of India (RBI) time to
time. Non corporate Small Business Sector (NCSBS) occupied with benefit division,
miniaturized scale fabricating units, natural products and vegetable distributing, support and
repairing, handiworks and working nourishment administrations and soon are benefited under the
plan.

Prepared By: Attaullah Hazrat Page 5 Indian Economic Development

March 23, 2018 Review of MUDRA SCHEME

SWOTANALYSIS OF MUDRA SCHEME

STRENGTHS

 The scheme can give support and empower the needy people and small business
 The scheme having the Interest rates which are nominal
 It is very easy to apply for loan.
 It also makes a credit guarantee to the one who has taken the loan. It means that the
person will not only go into debts. The government will also have to bear the
responsibility of the loan.
 There are certain agents hired under the committee who will guide on how to organize
and process a business so that there are minimum risks of getting a negative result.
 All the small business units and sectors will be placed under the surveillance, and a
regular evaluation will be made based on their performance.
WEAKNESSES

 There can be a potential of conflict of interest due to the nature of roles and
responsibilities of MUDRA Bank.
 There can be the promotion of shadow banking.
 There can be multiple regulators for MFIs.
 There is unawareness about the scheme.

OPPORTUNITIES

 There can be more focus on job creation

 There can be an extension of the Scheme to personal sector other than farms and
factories.
 There can be more collaboration with the MFIs.
 There can be more encouragement for women entrepreneurs and can be attached to the
scheme
THREATS

 There is a better solution to finance micro and small businesses.

 There are number of already existing refinancing agencies.
 There can be confusion due variable interest rates.

Prepared By: Attaullah Hazrat Page 6 Indian Economic Development

March 23, 2018 Review of MUDRA SCHEME

LITERATURE REVIEW
R. Rupa (2017) has showed that the MUDRA scheme is very much successful in Tamil Nadu. It
is found that the MFIs have contributed substantially to increase the number of accounts financed
under the PMMY.

Dr. J. Venkatesh and MS. R. Lavanya Kumari (2017) has showed that besides the schemes
that are being introduced for the overall growth and development of the MSME sector, initiatives
have been launched which focus solely on entrepreneurs. The schemes will contribute to the
well-being of the individuals engaged in small scale industries which will positively affect the
progress of the whole economy.

Roy, Anup Kumar (2016) has displayed that the small businesses are the foundation of
economic development. A major number of initiatives have been taken in the past few years in
the right direction.

Rudrawar, M. A. A. & Uttarwar, V. R. (2016) has explained that PMMY can bring desired
transformation. If it will be applied properly at the bottom level, it may act as a game changing
idea and boost the Indian economy. It should include less documentation and easily accessible.
In coming few years, MUDRA will play a crucial role for the development of entrepreneurship,
increase in GDP and development of employment.

Verma S. (2015) has explained that the design of MUDRA scheme wills not only caters to the
financial problems of MSMEs but also give moral support to a lot of young population to
become an entrepreneur.

Mol S.TP (2014) has clarified that there are some issues like money related Illiteracy, absence of
mindfulness and client securing is high. Reserve Bank of India has started different activities to
improved money related consideration. Information and communication technology offers the
opportunities enhancement of financial inclusion.

Mehar L (2014) has showed that the financial inclusion in India has increased in the last few
years with new innovations like mobile banking, ultra-small branches etc.

Prepared By: Attaullah Hazrat Page 7 Indian Economic Development

March 23, 2018 Review of MUDRA SCHEME

PRACTICAL IMPLICATIONS OF MUDRA SCHEME

The idea of connecting every last mile financer (either bank or MFI) to lending credit to all type
of business is not particular to India. To reach every common person is beyond imagination for
Banks and only MFIs or local money lender can do this to flow credit to every needed person.
Whenever informal sector people like rickshaw pullers, household factories etc., look for formal
credit then condition of security was major hurdle in getting loan ad can’t be fulfilled as these
people does not own any property. As now in Mudra loan, there is no condition of collateral up
to loan of Rs 10 Lakh and it will help to fund the unfunded.
It has various dynamic features like Mudra Card, Bank Limit etc. which make scheme more
attractive. In Bank Limit, amount sanctioned for loan shall be deposited into one’s Mudra
account and then one can get credit any time from use of Mudra Card. The interest will be
subjected to amount and time period that one has used but not on whole amount for whole of the
year.
As majority of loan amount i.e. 60% shall be allotted to Shishu category can be very useful for
extreme poor population included SC/STs, as majority of sole proprietor business in home based
Processing units, such as pickles, papad is run by them.
There is no doubt that growth of informal sector has more effect on every macroeconomic
variable like GDP, Per capita income, gross capital formation or employment generation etc.
because this sector already employ more than 12 Cr population in approx. 5 Cr enterprises.

MUDRA AND SMALL BUSINESS FINANCE MUDRA

Is launched with a motive to boost the small business in the country so that a large number of
people can get employed and self-employed and to contribute in the GDP of the country. The
major constraints of development of small business are unavailability of credit at required time,
lack of skill development , knowledge gaps , lack of financial literacy, lack of growth orientation
etc. one of the most significant constraints in formation and growth of small business units is the
unavailability of credit or difficulty process to avail credit facilities. The average debt of Small
business enterprises in India is around Rs. 17,000. If lending is increased to Rs. 5 or 10 Lakh, the
sector would benefit immensely and may generate lot of self-employment opportunities. Small
business units generally face lot of challenges to get loans from Banks. So, they required to

Prepared By: Attaullah Hazrat Page 8 Indian Economic Development

March 23, 2018 Review of MUDRA SCHEME

taking high-cost loans from financiers or money lenders. To remove this type of financial
restraints government of India launched MUDRA with a corpus of Rs. 20,000 crore, and credit
guarantee corpus of Rs. 3,000 crore. MUDRA would benefit small manufacturing units,
shopkeepers, fruits and vegetable sellers, hair salon, beauty parlours, truck operators, hawkers,
artisans in rural and urban areas with financing requirements up to Rs. 10 lakh depends upon the
business categories (i.e. Shishu, Kishore and Tarun ) of the business unit or entrepreneur.

CHALLENGES CONCERNING MUDRA SCHEME

Many put question of creating a new refinance agency Mudra as we already have another
agencies to refinance for purpose of business only like National Bank for Agriculture and Rural
Development (NABARD) and the Small Industries Development Bank of India (SIDBI).
The world is already in a path to discourage shadow banking (like refinance agencies etc) and to
replace it with main line banking as far as possible. That’s why RBI has set up small financial
banks and MFIs get a chance to shift to banking. It does not make much sense to establish a new
refinance agency as it will not solve the purpose, but simply cause of tussle between many
agencies and regulators.
The poor grievance redressal is one of major problem where government scheme end to a failure
or without success. The government has created new schemes and institutions for special focus
on micro business by passing the existing mechanism or institutions, but remains depend on
same mechanism of grievance redressal which is universally poor in India.
The idea of connecting last mile financiers might only be limited to Banks or some big NBFCs
because to register with MUDRA, financiers have to pass a litmus test of number of bureaucratic
documents and further need to comply with RBI guidelines which may be not be feasible for
most of small financiers. It is also said that Banks and MFIs are converting previous loans into
MUDRA and that’s why government is able to showing large numbers of loans have already
been given.
The NPA level, which is already a big problem, might grow at unexpected level due to this type
of easy loan to everyone.
As government banks provides financial services to more than 70% population of India, the
bureaucratic nature of government employees (like lethargic or chalta hai attitude etc.) is among
major hurdles in implementation of Mudra scheme.

Prepared By: Attaullah Hazrat Page 9 Indian Economic Development

March 23, 2018 Review of MUDRA SCHEME

However NPA might get boost is just an apprehension by banks or people as track record of
credit given to Self Help Groups (SHGs) makes it clear that poor are more honest than the likes
of corporate leaders such as, Vijay Malya or Subrata Roy, who have defaulted billions of
dollars. Also it might be better to have NPAs of billion dollars by Lakhs of people than by only
one or two person.
The only thing Banks or RBI has to do is to create a single platform to check past record of
person applying for loan and if never defaulted then provide loan to person as fast as possible.

RECOMMENDATIONS
 Scheme can be extended to personal sector other than farms and factories. They can start
a loan funding of less than Rs 50,000 so that the gap of 0- 50k can be fulfilled.
 There should be more concentration on the minority sector.
 MUDRA card can be used more intensively in the future.
 Women entrepreneurs should be more encouraged to wipe out the difficulties faced by
them

CONCLUSION

The small businesses form the foundation of the economic strata needs to be strengthened and
supported. A large number of initiatives have been taken in the past few years are a step in the
right direction. MUDRA Yojana is the latest scheme to boost the small and micro businesses in
India. This initiative has been taken to focus exclusively on entrepreneurs. This scheme will
contribute to the well-being of the individuals engaged in small scale industries which will
positively affect the progress of the economy as a whole. MUDRA as a financial tool is found
very effective in its initial stages across the country. This will surly make a dramatic change and
will help in making a developed India.

Prepared By: Attaullah Hazrat Page 10 Indian Economic Development

March 23, 2018 Review of MUDRA SCHEME

REFERENCES
 Journal and Articles Referred:
1. Dr. J. Venkatesh and Ms. R. Lavanya Kumari (2017), “Performance of MUDRA bank:
a study on financial assistance to MSME sector.” I-Scholar, Vol. 7, Issue No.5, Pp. 17-
45.
2. Mehar, L. (2014), “Financial inclusion in India.” Research Journal, Vol. 17, Issue No.
11, Pp. 11-15.
3. Mol, S. TP (2014), “Financial Inclusion: Concepts and Overview in Indian Context.
Abhinav International Monthly Refereed Journal of Research in Management &
Technology.” IOSR Journals, Vol. 10, Issue No. 19, Pp. 115-145.
4. R. Rupa (2017), “Progress of MUDRA with the special reference of Tamil Nadu.”
EPRA International Journal of Economic and Business Review, Vol. 5, Issue No. 9,
Pp. 1-18.
5. Roy, Anup Kumar(2016). “Mudra Yojana-A Strategic tool for Small Business
Financing”, International Journal of Advance Research in Computer Science and
Management Studies, Vol. 2, Issue No. 16 Pp. 25-45.
6. Rudrawar, M. A. A., & Uttarwar, V. R. (2016), “An Evaluatory Study of MUDRA
Scheme.” International Journal of Multifaceted and Multilingual Studies, Vol. 1, Issue
No. 4, Pp. 1-12.
7. Verma S. Chandra (2015), “Mudra Bank to “Fund small Businesses”” Anveshana’s
International Journal of Research in regional studies, Vol. 3, Issue No. 5, Pp. 1-5.

 Websites Referred:
1. file:///C:/Users/hazrat123/Downloads/Highlights%20of%20PMMY%20performance
%20during%20FY%202015-16%20(1).pdf
2. http://ksom.ac.in/wp-content/uploads/2018/01/97-106-PRADHAN-MANTRI-
MUDRA-YOJNA.pdf
3. http://www.ijstm.com/images/short_pdf/1483542577_N268_IJSTM.pdf
4. http://www.ijetmas.com/admin/resources/project/paper/f201703181489833554.pdf
5. https://www.researchgate.net/publication/303550577_MUDRA_Micro_Units_Develo
pment_and_Refinance_Agency_Ltd_Bank_Funding_to_Unfunded
6. http://www.livemint.com/Money/eTIWhV3Mxkrm9gdl7p1VhJ/Has-Mudra-scheme-
been-successful.html
7. http://ijarcsms.com/docs/paper/volume4/issue1/V4I1-0005.pdf
8. https://www.mudra.org.in/

Prepared By: Attaullah Hazrat Page 11 Indian Economic Development