MUDRA to regulate, refinance all micro-finance institutions

The government today said that Micro Units Development and Refinance Agency (MUDRA) Bank to be set up with a capital of Rs 20,000 crore would regulate and refinance all micro-finance institutions.
"The government proposes to set up MUDRA Bank through a statutory enactment. This Bank would be responsible for regulating and refinancing all Micro-finance Institutions (MFI) which are in the business of lending to micro/small business entities engaged in manufacturing, trading and services activities," the Finance Ministry said in a statement.
The Bank would partner with state level/regional level coordinators to provide finance to Last Mile Financer of small/micro business enterprises.

The MUDRA Bank would primarily be responsible for laying down policy guidelines for micro/small enterprise financing business, registration of MFI entities, regulation of MFI entities, accreditation /rating of MFI entities, laying down responsible financing practices to ward off indebtedness and ensure proper client protection principles and methods of recovery.
It would also responsible for development of standardised set of covenants governing last mile lending to micro/small enterprises, promoting right technology solutions for the last mile, formulating and running a Credit Guarantee scheme for providing guarantees to the loans which are being extended to micro enterprises and creating a good architecture of Last Mile Credit Delivery to micro businesses under the scheme of Pradhan Mantri Mudra Yojana, the statement said.

A sum of Rs 20,000 crore would be allocated to the MUDRA Bank from the money available from shortfalls of priority sector lending for creating a refinance fund to provide refinance to the last mile financers.

Another Rs 3,000 crore would be provided to the MUDRA Bank from the budget to create a Credit Guarantee corpus for guaranteeing loans being provided to the micro enterprises.
"The measures would not only help in increasing access of finance to the unbanked but also bring down the cost of finance from the last Mile Financers to the micro/small enterprises, most of which are in the informal sector," the Ministry said.

It further said that MSME loans would be treated as priority sector lending and a separate sub-limit of 7.5 per cent in priority sector lending is being created for the Micro Enterprises.
"'Tax pass-through' status for equity funds has been rationalized for supporting the venture capital eco-system. A Fund of Funds has been set up in SIDBI to act as a catalyst to attract Private Capital by way of providing equity, quasi equity and other risk capital for start up companies," it added.