MUDRA bank not to regulate MFIs

18 Jan 2016 | By Achin Garg
All about MUDRA

Government has said that the MUDRA (Micro Unit Development and Refinance Agency) Bank will not act as regulator for Micro Finance Institutions (MFIs)

RBI will continue to regulate them as NBFCs (Non-Banking Finance Companies) as it was doing earlier.

The clarification comes as Finance Ministry had proposed last year on 1 March 2015 that MUDRA apart from refinancing may also regulate MFIs.

In context: All about MUDRA

Microfinance What is microfinance?

Microfinance is a developmental tool that aims to make low income individuals/groups financially self-sufficient by providing them access to cheap credit to help them improve their living condition.

Microfinance services include providing credit, saving instruments, insurance, money transfers, financial counseling, etc.

They act as last mile lenders for poor people as banks may not find catering to them economically feasible.

Size of the microfinance sector

According to the Indian Credit Rating Agency (ICRA), the size of microfinance sector in India stood at Rs.1.1 lakh crore as on 30 September 2015.
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1 Mar 2015Financing the unfinanced

According to the National Sample Survey Organisation (NSSO) 2013 survey, India has 57.7 million small business units, majority of which are owned by Scheduled Castes(SCs), Scheduled Tribes(STs) and Other Backward Castes(OBCs) people.

Only a paltry 4% of these units get institutional finance, leaving others to borrow money at usurious rates from money lenders.

Providing cheap finance can turn them into a potent economic force.

Rs.20,000 crore fund for MUDRA

The FM during his 2015 budget speech had announced a Rs.20,000 crore corpus fund for MUDRA (Micro Units Development Refinance Agency) over a period of 4 years along with a Rs.3000 crore credit guarantee fund to provide insurance to the extent of 50% against default of MUDRA loans.


Micro Units Development and Refinance Agency (MUDRA), is a new financial institution that provides cheaper credit to MFIs so that the end customers (small businesses) can get affordable loans.

It aims to promote entrepreneurship in India by providing funds to non-corporate small businesses.

Based on growth stage of business, it provides 3 loan products- Shishu (loan less than Rs.50,000), Kishor (Rs.50,000-Rs.5,00,000), and Tarun (Rs.5,00,000-Rs.10,00,000).

Products based on business size

Shishu loans support very small businesses such as vegetable vendors, beauty parlour, hair saloons, etc. Kishor and Tarun support slightly bigger businesses such as production of paper cups, dairy products, pickle units, etc.
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6 Jan 2016MUDRA Ltd. converted in MUDRA SIDBI Bank

Government had converted MUDRA Ltd. into MUDRA Small Industries Development Bank of India (SIDBI) bank to have greater availability of money for Small and Micro Enterprises (SMEs).

MUDRA SIDBI bank will operate as a fully owned subsidiary of SIDBI.

The bank will not only provide refinancing to MFIs but also provide them support services such as portal management, data analysis, etc.

7 Jan 2016Rs.71,312 crore disbursed under MUDRA

According to Finance Ministry, Rs.71,312crore worth of loans have been disbursed to 1.73crore borrowers under the 'Pradhan Mantri Mudra Yojana'(PMMY) as on 1 January'16.

Under PMMY, Government had set a target of Rs.1,22,000crore for fiscal year 2015-16 for banks to give loans.

However, in-depth scrutiny suggests that only Rs.2000 crore was refinanced by the government and rest are MFI loans renamed as MUDRA loans.

18 Jan 2016MUDRA bank not to regulate MFIs