Non-Corporate Small Business Sector (NCSBS) is the economic foundation of India. It is perhaps one of the largest disaggregated business ecosystems in the world sustaining around 50 crore lives.
The sector comprises of myriad of small manufacturing units, shopkeepers, fruits / vegetable vendors, truck & taxi operators, food-service units, repair shops, machine operators, small industries, artisans, food processors, street vendors and many others.
Formal or institutional architecture has not been able to reach out to them to meet the financial requirements of this sector. They are largely self-financed or rely on personal networks or moneylenders. Addressing this need will give a big boost to the economy otherwise this segment would remain unfunded and a portion of the productive labour force would remain unemployed. The desired transformation in the society can be achieved through MUDRA bank.
According to NSSO Survey (2013), there are 5.77 crore small business units, mostly individual proprietorship. Only 4% of these businesses get finance from regular banks. Most of these ‘own account enterprises’ (OAE) are owned by people belonging to Scheduled Caste, Scheduled Tribe or Other Backward Classes. They get very little credit, and that too mostly from non-formal lenders, or friends and relatives. Providing access to institutional finance to such micro/small business units would turn them into strong instruments of GDP growth and also employment.
Figure : Composition of 5.7 crore Own Account Enterprises
The gross value addition of Non Corporate Small Business Sector (NCSBS) is 6.28 lakh crore annually.
Mainstreaming these enterprises will not only help in improving the quality of life of these entrepreneurs but will also contribute substantially to job creation in the economy thereby achieving higher GDP growth.
- The Genesis of MUDRA
The biggest bottleneck to the growth of entrepreneurship in the NCSBS is lack of financial support to this sector. The support from the Banks to this sector is meagre, with less than 15% of bank credit going to Micro, Small and Medium Enterprises (MSMEs).
A vast part of the non-corporate sector operates as unregistered enterprises. They do not maintain proper Books of Accounts and are not formally covered under taxation areas. Therefore, the banks find it difficult to lend to them. Majority of this sector does not access outside sources of finance.
It is in this backdrop that Government of India (GoI) is setting up a Micro Units Development & Refinance Agency (MUDRA) Bank through a statutory enactment. This Agency would be responsible for developing and refinancing all Micro-finance Institutions (MFIs) which are in the business of lending to micro / small business entities engaged in manufacturing, trading and service activities. The Bank would partner with state level / regional level co-ordinators to provide finance to Last Mile Financiers of small / micro business enterprises.
Since the enactment is likely to take some time, it is proposed to initiate MUDRA as a unit of SIDBI to benefit from SIDBI’s initiatives and expertise.
The bank will have an initial corpus of ₹200 billion (US$3.0 billion) and a credit guarantee fund of ₹30 billion (US$450 million). The bank will initially function as a non-banking financial company and a subsidiary of the Small Industries Development Bank of India (SIDBI). Later, it will be made into a separate company. Earlier, it was also to act as regulator of MFIs, but it will be done by RBI now.
The bank will classify its clients into three categories and the maximum allowed loan sums will be based on the category:
- Shishu: Allowed loans up to ₹50,000 (US$740)
- Kishore: Allowed loans up to ₹5 lakh (US$7,400)
- Tarun: Allowed loans up to ₹10 lakh (US$15,000)
(It would be ensured that at least 60% of the credit flows to Shishu Category Units and the balance to Kishor and Tarun Categories)
Government has decided to provide an additional fund of ₹1 trillion (US$15 billion) to the market and will be allocated as:
- 40% to shishu
- 35% to kishor
- 25% to Tarun
There is no fix Interest rate in MUDRA loan. banks are charging around Base Rate + 1% to 7% minimum. The interest rate can be higher according to risk and customer profile and it can be different in all banks.
There is no subsidy for the loan given under PMMY.
PMMY is available from all bank branches across the country.