MUDRA is the Real Game Changer

The Budget announcement of the formation of Micro Units Development and Refinance Agency (MUDRA) can be termed as the most significant new initiative in 67 years of independence to support the non-corporate small business sector. This single initiative is expected to add a couple of points to GDP growth of the country. The Action Committee representing non corporate sector of the Country express its deep gratutude to Hon’ble Prime Minister Shri Narendra Modi and Hon’ble Finance Minister Shri Arun Jaitley for such a landmark initiative which will prove to be a game changer.

The small business sector is the most dynamic in the country. They contribute 45% to the GDP, and employ 450 million peopleout of which 262 million people are self employed​. MUDRA will enable flow of funds to this sector at affordable rates of interest. The Government has shown remarkable foresight in announcing this new entity. This is the first time that any government has paid attention to the non-corporate sector. This huge sector lacks any formal access to credit for its business purposes which is a major impediment in the structured growth of this sector. Only about 4% of non corporate sector could able to obtain loans from core banking sector whereas rest of 96% sector is managing finances through either moneylenders, family, friends or other informal sources at exhorbitantly higher rate of interest. Even after such a backdrop, the non corporate sector has outperformed corporate sector in terms of GDP contribution, employment, domestic manufacturing and exports.

The MUDRA announcement is remarkable, because it recognises the role played by thousands of last-mile financiers in the country. These financiers have been taking risks and helping meet the financial requirements of small businesses. Now they can receive refinance at affordable rates, and this benefit will flow down to the borrowers. With reduced cost of funds, small businesses will perform better and improve the potential to earn more. This will automatically make them more vibrant and competitive.

MUDRA is a unique creation for many reasons. As stated in the Press Note put out by the Department of Financial Services, Ministry of Finance, MUDRA will be the regulatory body and will bring under its fold Self Help Groups, non-banking finance companies, Trusts, Societies, etc which are engaged in business of lending to micro/ small business sector.The way MUDRA is created, and the manner in which they go about executing their mandate will be crucial

Since the non corporate sector is less educated and being self employed in nature, the MUDRA architecture needs to be crafted in a manner which may facilitate easy lending to small business in the Country. The lending norms and its formalities should be made simple so that even an ordinary person can easily comply with the stipulations.The paper requirements from borrowers should be minimum and without asking for financial data. There should be only KYC compliance i.e. either Aadhar Card or Jan Dhan Yojna Bank Account Pass Book etc.Either the Last mile Financiers should also work as Help Desk to borrowers or a Help Desk Window should be created in the architecture to assist the borrowers to comely with KYC forms.

The definition of MUDRA should not be linked with MSME or any other Act. For the purpose of MUDRA, Micro units may be termed as proprietorship/partnership firms running as small manufacturing units, shopkeepers, fruits/vegetable sellers, hair cutting saloon, beauty parlours, transporters, truck-operators, hawkers, co-operatives or any body of individuals, food service units, repair shops, machine operators, small industries, artisans, food processors, self help groups, professionals and service providers etc, in rural & urban areas.

It is noteworthy to mention that large portion of non corporate sector is conducting economic activities in informal sector which remains unaccounted and therefore the economy and GDP of the Country remains underestimated. The availability of formal finance to this sector will convert them from informal to formal umbrella leading to growth in economy and GDP as well.

We are sure that MUDRA will emerge as one of the key Institution in the Country to take forward all possible steps to ensure financial and social inclusion of non corporate sector as envisaged by Hon’ble Prime Minister Shri Narendra Modi during a Conference of traders and non corporate sector on 27th Februrary, 2014 and that of expressed by Hon’ble Finance Minister Shri Arun Jaitley in his Budget speech on 28th February, 2015 in Parliament.

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