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© SME Business Outsourcing & Training Solutions LLP
© SME Business Outsourcing & Training Solutions LLP
MUDRA – FUNDING THE UNFUNDED
• MUDRA is a new institution set up by GOI for
development and refinancing activities relating
to micro units.
• It was announced by the Hon’ble Finance
Minister while presenting the Union Budget for
FY 2016.
• MUDRA intends to reach out to these NCSBS,
either directly or through indirect channels of
last mile financiers such as commercial banks,
RRBs, Coop banks, NBFCs, MFIs, etc.
• The purpose of MUDRA is to provide funding to the Non Corporate Small Business Segment
(NCSBS). As per NSSO survey, there are 57.7 million entities in the NCSBS. 60% of the MUDRA
assistance is targeted towards the smallest segment of the NCSBS.
• First time entrepreneurs, youth entrepreneurs (i.e. entrepreneurs aged upto 30 years) and women
entrepreneurs are to be encouraged with emphasis on cash flow based lending and not security
based lending, keeping repayment obligations flexible based on business cash flows.
http://www.mudra.org.in/
© SME Business Outsourcing & Training Solutions LLP
PRADHAN MANTRI MUDRA YOJANA (PMMY)
• PMMY Schemes –
Shishu (Infant): covering loans upto 50,000/-
Kishor (Adolescent): covering loans above 50,000/- and upto 500,000/-
Tarun (Youth): covering loans above 500,000/- and upto 1,000,000/-
• Coverage extended to:
Manufacturing unit
Shopkeepers
Fruit vegetables vendors
Truck operator
Food service unit
Repair shop
Machine operators
Small industries
Artisans
Food processors and others
• As per http://www.mudra.org.in/pmmy-report.php Rs. 354.12 billion (as on October 24,
2015) has already been disbursed in about 7 months of MUDRA’s existence.
Impressive statistics, amidst some scrutiny:
http://economictimes.indiatimes.com/industry/banking/finance/banking/mudra-bank-may-miss-
loans-target-amid-weak-demand/articleshow/49470551.cms !
© SME Business Outsourcing & Training Solutions LLP
SOME UNANSWERED QUESTIONS:
• How can PMMY achieve lending of Rs. 354.12 billion in 7 months when banks
have found it difficult to achieve Y-o-Y priority sector lending (PSL) to the MSME
sector? In fact, the shortfall in PSL targets is presumably allocated to MUDRA as a
corpus (with maturity of one year, a maturity mismatch risk for MUDRA!).
http://www.livemint.com/Opinion/ZrYk3jP5eoCrhSfo3Pi1LP/The-fine-print-of-Mudra-Bank.html
• Is it that all existing loans under PMRY and other similar targeted schemes of
banks, reclassified as PMMY for statistical returns purpose?
• What are the specific tools being used by the last mile financiers to assess cash-
flows, viability and credit-worthiness of NCSBS especially when there are no
formal records maintained by the business entities? If the tools exists then why do
MSME segment face resistance in access collateral free credit from formal lending
channels including banks?
• Who bears the risk in case of default by the NCSBS – MUDRA or the last mile
financier?
© SME Business Outsourcing & Training Solutions LLP
SUGGESTIONS FOR MUDRA
• Explore and implement a lending model similar to Chit Funds borrowings and
distribution model.
• Lending can be linked with Aadhar to create a track record or credit behaviour
record.
• Introduce mutual credit guarantee linked facilities for new and existing NCSBS.
• Assessing cash flows in Bank accounts with introduction of brief cooling period
before the loan assistance can be given, in the absence of comfort of mutual credit
guarantee from a group of entrepreneurs.
• Create a corpus in MUDRA to take first-hit in case of default for the last mile
financiers.
• Remove quantum targets on a standalone basis and provide target which would
include lending to first time borrowers since inception of MUDRA to assess
incremental benefits to the NCSBS.
• Free interest rate chargeable based on risk-reward equilibrium and link the
maximum rate that can be charged as the maximum rate charged by MFIs
© SME Business Outsourcing & Training Solutions LLP
FEEDBACK AND COMMENTS INVITED
rdubey@smebots.in
smebots3@gmail.com
THANK YOU

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A Short Review of MUDRA

  • 1. © SME Business Outsourcing & Training Solutions LLP
  • 2. © SME Business Outsourcing & Training Solutions LLP MUDRA – FUNDING THE UNFUNDED • MUDRA is a new institution set up by GOI for development and refinancing activities relating to micro units. • It was announced by the Hon’ble Finance Minister while presenting the Union Budget for FY 2016. • MUDRA intends to reach out to these NCSBS, either directly or through indirect channels of last mile financiers such as commercial banks, RRBs, Coop banks, NBFCs, MFIs, etc. • The purpose of MUDRA is to provide funding to the Non Corporate Small Business Segment (NCSBS). As per NSSO survey, there are 57.7 million entities in the NCSBS. 60% of the MUDRA assistance is targeted towards the smallest segment of the NCSBS. • First time entrepreneurs, youth entrepreneurs (i.e. entrepreneurs aged upto 30 years) and women entrepreneurs are to be encouraged with emphasis on cash flow based lending and not security based lending, keeping repayment obligations flexible based on business cash flows. http://www.mudra.org.in/
  • 3. © SME Business Outsourcing & Training Solutions LLP PRADHAN MANTRI MUDRA YOJANA (PMMY) • PMMY Schemes – Shishu (Infant): covering loans upto 50,000/- Kishor (Adolescent): covering loans above 50,000/- and upto 500,000/- Tarun (Youth): covering loans above 500,000/- and upto 1,000,000/- • Coverage extended to: Manufacturing unit Shopkeepers Fruit vegetables vendors Truck operator Food service unit Repair shop Machine operators Small industries Artisans Food processors and others • As per http://www.mudra.org.in/pmmy-report.php Rs. 354.12 billion (as on October 24, 2015) has already been disbursed in about 7 months of MUDRA’s existence. Impressive statistics, amidst some scrutiny: http://economictimes.indiatimes.com/industry/banking/finance/banking/mudra-bank-may-miss- loans-target-amid-weak-demand/articleshow/49470551.cms !
  • 4. © SME Business Outsourcing & Training Solutions LLP SOME UNANSWERED QUESTIONS: • How can PMMY achieve lending of Rs. 354.12 billion in 7 months when banks have found it difficult to achieve Y-o-Y priority sector lending (PSL) to the MSME sector? In fact, the shortfall in PSL targets is presumably allocated to MUDRA as a corpus (with maturity of one year, a maturity mismatch risk for MUDRA!). http://www.livemint.com/Opinion/ZrYk3jP5eoCrhSfo3Pi1LP/The-fine-print-of-Mudra-Bank.html • Is it that all existing loans under PMRY and other similar targeted schemes of banks, reclassified as PMMY for statistical returns purpose? • What are the specific tools being used by the last mile financiers to assess cash- flows, viability and credit-worthiness of NCSBS especially when there are no formal records maintained by the business entities? If the tools exists then why do MSME segment face resistance in access collateral free credit from formal lending channels including banks? • Who bears the risk in case of default by the NCSBS – MUDRA or the last mile financier?
  • 5. © SME Business Outsourcing & Training Solutions LLP SUGGESTIONS FOR MUDRA • Explore and implement a lending model similar to Chit Funds borrowings and distribution model. • Lending can be linked with Aadhar to create a track record or credit behaviour record. • Introduce mutual credit guarantee linked facilities for new and existing NCSBS. • Assessing cash flows in Bank accounts with introduction of brief cooling period before the loan assistance can be given, in the absence of comfort of mutual credit guarantee from a group of entrepreneurs. • Create a corpus in MUDRA to take first-hit in case of default for the last mile financiers. • Remove quantum targets on a standalone basis and provide target which would include lending to first time borrowers since inception of MUDRA to assess incremental benefits to the NCSBS. • Free interest rate chargeable based on risk-reward equilibrium and link the maximum rate that can be charged as the maximum rate charged by MFIs
  • 6. © SME Business Outsourcing & Training Solutions LLP FEEDBACK AND COMMENTS INVITED rdubey@smebots.in smebots3@gmail.com THANK YOU