Skip to main content

Scheme Details

Micro Units Development and Refinance Agency Ltd. [MUDRA] is an NBFC supporting development of the micro-enterprise sector in the country. MUDRA provides refinance support to Banks / MFIs for lending to micro units having loan requirements up to 10 lakh. MUDRA provides refinance to micro-business under the Scheme of Pradhan Mantri MUDRA Yojana. The other products are for development support to the sector. The bouquet of offerings of MUDRA is depicted below. The offerings are being targeted across the spectrum of beneficiary segments.

Under the aegis of Pradhan Mantri Mudra Yojana (PMMY), MUDRA has created products/schemes. The interventions have been named ‘Shishu’, ‘Kishor’, and ‘Tarun’ to signify the stage of growth/development and funding needs of the beneficiary micro unit/entrepreneur and also provide a reference point for the next phase of graduation/growth to look forward to:

  • Shishu: covering loans up to 50,000/-.
  • Kishor: covering loans above 50,000/- and up to 5 lakh.
  • Tarun: covering loans above 5 lakh and up to 10 lakh.

It would be ensured that more focus is given to Shishu Category Units and then Kishor and Tarun Categories. Within the framework and overall objective of development and growth of the micro-enterprises sector under Shishu, Kishor, and Tarun, the products being offered by MUDRA are so designed, to meet the requirements of different sectors/business activities as well as business/entrepreneur segments. The funding support from MUDRA is of four types :

  • Micro Credit Scheme (MCS) for loans up to 1 lakh finance through MFIs.
  • Refinance Scheme for Commercial Banks / Regional Rural Banks (RRBs) / Scheduled Co-operative BanksWomen Enterprise program.
  • Women Enterprise program.
  • Securitization of the loan portfolio.

Women Enterprise Programme:

In order to encourage women entrepreneurs, the financing banks / MFIs may consider extending additional facilities, including interest reduction on their loans. At present, MUDRA extends a reduction of 25bps in its interest rates to MFIs / NBFCs, who are providing loans to women entrepreneurs.

Securitization of loan portfolio:

MUDRA also supports Banks / NBFCs / MFIs for raising funds for financing micro-enterprises by participating in the securitization of their loan assets against micro-enterprise portfolio, by providing second loss default guarantee, for credit enhancement, and also participating in the investment of Pass-Through Certificate (PTCs) either as Senior or Junior investor.

Micro Credit Scheme:

Micro Credit Scheme is offered mainly through Micro Finance Institutions (MFIs), which deliver the credit up to Rs.1 lakh, for various micro-enterprise activities. Although the mode of delivery may be through groups like SHGs/JLGs, the loans are given to the individuals for specific income-generating micro-enterprise activities. The MFIs for availing financial support need to enroll with MUDRA by complying to some of the requirements as notified by MUDRA, from time to time.

Refinance Scheme for Banks:

Different banks like Commercial Banks, Regional Rural Banks, and Scheduled Cooperative Banks are eligible to avail of refinancing support from MUDRA for financing micro-enterprise activities. The refinance is available for term loans and working capital loans, up to an amount of 10 lakh per unit. The eligible banks, who have enrolled with MUDRA by complying with the requirements as notified, can avail of refinancing from MUDRA for the loan issued under Shishu, Kishor, and Tarun categories.

Purpose of MUDRA loan:

Mudra loan is extended for a variety of purposes which provide income generation and employment creation. The loans are extended mainly for:

  • Business loan for Vendors, Traders, Shopkeepers, and other Service Sector activities.
  • Working capital loan through MUDRA Cards.
  • Equipment Finance for Micro Units.
  • Transport Vehicle loans.

Following is an illustrative list of the activities that can be covered under MUDRA loans:

  • Transport Vehicle:
    Purchase of transport vehicles for goods and personal transport such as auto rickshaws, small goods transport vehicles, 3 wheelers, e-rickshaw, passenger cars, taxis, etc.
  • Community, Social & Personal Service Activities:
    Saloons, beauty parlors, gymnasium, boutiques, tailoring shops, dry cleaning, cycle and motorcycle repair shop, DTP and Photocopying Facilities, Medicine Shops, Courier Agents, etc.
  • Food Products Sector:
    Activities such as papad making, achaar making, jam/jelly making, agricultural produce preservation at the rural level, sweet shops, small service food stalls and day to day catering/canteen services, cold chain vehicles, cold storage, ice making units, ice cream making units, biscuit, bread and bun making, etc.
  • Textile Products Sector / Activity:
    Handloom, power loom, khadi activity, chikan work, zari and zardozi work, traditional embroidery and handwork, traditional dyeing and printing, apparel design, knitting, cotton ginning, computerized embroidery, stitching, and other textile nongarment products such as bags, vehicle accessories, furnishing accessories, etc.
  • Business loans for Traders and Shopkeepers:
    Financial support for lending to individuals for running their shops/trading & business activities/service enterprises and non-farm income-generating activities with a beneficiary loan size of up to 10 lakh per enterprise/borrower.
  • Equipment Finance Scheme for Micro Units:
    Setting up micro-enterprises by purchasing necessary machinery/equipment with a per beneficiary loan size of up to 10 lakh.
  • Activities allied to agriculture:
    ‘Activities allied to agriculture, e.g. pisciculture, beekeeping, poultry, livestock, rearing, grading, sorting, aggregation agro industries, diary, fishery, agriclinics and agribusiness centers, food & agro-processing, etc.(excluding crop loans, land improvements such as canal, irrigation, and wells) and services supporting these, which promote livelihood or are income-generating shall be eligible for coverage under PMMY in 2016-17.

MUDRA Card

  • MUDRA Card is an innovative product that provides working capital facilities as a cash credit arrangement. MUDRA Card is a debit card issued against the MUDRA loan account, for the working capital portion of the loan. The borrower can make use of MUDRA Card in multiple withdrawals and credit, so as to manage the working capital limit in a most efficient manner and keep the interest burden minimum. MUDRA Card will also help in the digitalization of MUDRA transactions and create a credit history for the borrower.
  • National Payment Corporation of India (NPCI) has given RuPay branding to MUDRA Card and also separate BIN / IIN for the same, by which credit history can be tracked.
  • MUDRA Card can be operated across the country for withdrawal of cash from any ATM/micro ATM and also make payment through any ‘Point of Sale’ machines.
  • The design of the MUDRA card as approved by DFS, GoI, and NPCI is given below. Banks can customize the same by incorporating their logo and name.

Portfolio Credit Guarantee:

  • Traditional financing in the Indian context adopts an Asset Based lending approach with emphasis on collaterals. Micro units, most of the time, are unable to provide the comfort of collaterals. Hence MUDRA loans i.e. loans up to Rs.10 lakh, have been made collateral-free, as per the RBI norms in this regard. To mitigate the issue of collaterals, MUDRA is offering a Credit Guarantee Product. MUDRA Credit Guarantee is extended by the creation of a Fund called “Credit Guarantee Fund for Micro Units” [CGFMU] and the scheme has been notified by GoI vide its notification dated April 18, 2016. Accordingly, all eligible microloans sanctioned since April 08, 2015, are covered under the Scheme. The Scheme is being managed by National Credit Guarantee Trustee Company Ltd. [NCGTC], an agency promoted by the GOI.
  • Further, given the context of the industry /segment, since the individual loan sizes would expectedly be small and a number of loans will be large, the Mudra Credit Guarantee scheme provides a Portfolio Guarantee. Under this, Credit Guarantee or Risk Sharing is provided for a portfolio of homogenous loans instead of a Scheme for individual loan–by–loan guarantee. This is expected to create administrative efficiencies and increase receptiveness for the Credit Guarantee product. The Guarantee product is one of the key interventions proposed with the objective of bringing down the cost of funds for the end beneficiary to improve its creditworthiness.

Creation of Resources for Credit Enhancement / Guarantee Facility:

  • The corpus proposed for the Credit Guarantee Scheme would be regularly augmented with a charge on the outstanding loans under refinance. The same would be utilized for providing a first-loss guarantee/credit enhancement for securitized portfolio loans.
  • Credit enhancement: Facilities offered to cover probable losses from a pool of securitized assets in the form of credit risk cover through a letter of credit, guarantee, or other assurance from the originator / co-originator or a third party to enhance investment grade in any securitization process. The first loss facility is the first level of credit enhancement offered as part of the process of bringing the securities to investment grade. The second loss facility provides the second/subsequent tier of protection against potential losses.

Development and Promotional Support

Besides the credit constraints, the NCSBs face many non-credit challenges, like,

  • Skill Development Gaps
  • Knowledge Gaps
  • Information Asymmetry
  • Financial / Business Literacy
  • Lack of growth orientation

To address these constraints, MUDRA will adopt a credit-plus approach and offer Developmental and Support services to the target audience. It will act as a market maker and build –up an ecosystem with capacities to deliver value in an efficient and sustainable manner.

Imparting Financial / Business Literacy:

  • Financial/business literacy or financial education can broadly be defined as ‘providing familiarity with and understanding of financial market products, especially rewards and risks, in order to make informed choices.’ Financial Inclusion and Financial/business Literacy are twin pillars. While Financial Inclusion acts from the supply side providing the financial market/services that people demand, Financial Literacy stimulates the demand side – making people aware of what they can demand. Supporting the financial literacy drive will contribute substantially from the demand side to the national agenda of financial inclusion.
  • This apart, the microenterprise segment also needs business literacy which will help them in acquiring knowledge on running / managing business, keeping accounts, working out ratios, etc. Promotion and Support of Grass Root Institutions One of the major focus areas will be to formalize and institutionalize the last mile financiers/grass-root institutions so that a new category of financial institutions viz. Small Business Finance Companies can be created and an ecosystem developed for their growth.
  • Rural innovations at the micro-enterprise / unit level would also be one of the key areas for intervention and support. Support to Micro units by way of the facility of incubators would be taken up. This would ensure that at the most grass root levels in the country, there is a climate for promotion of innovation as well as incubation of ideas from educated rural youths which would germinate into viable micro-enterprises.
  • Creation of Framework for “Small Business Finance Entities” An enabling framework for support to “Small Business Finance Entities” would be created leading to the formalization of the economy which is presently included in the informal sector. An enabling framework for support to “Small Business Finance Entities” would be created leading to the formalization of the economy which is presently included in the informal sector.
  • The government of India has initiated several steps for encouraging enterprise creation in our country. The major one is the “Make in India” movement. Make in India is a major national program designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property and build best-in-class manufacturing infrastructure. This coupled with Start-up India and Stand-up India campaign has created a conducive environment for enterprise creation on different scales. MUDRA, being an initiative for promoting micro-enterprises, fits well with the Make in India initiative for supporting these micro-enterprises.
  • Synergies with National Rural Livelihoods Mission / National Urban Livelihood Mission The National Rural Livelihoods Mission [NRLM] is set up “To reduce poverty by enabling the poor households to access gainful self-employment and skilled wage employment opportunities, resulting in appreciable improvement in their livelihoods on a sustainable basis, through building strong grassroots institutions of the poor.” To achieve the above, NRLM Mission inter alia follows a demand-driven strategy for continuous capacity building, imparting requisite skills, and creating linkages with livelihood opportunities for the poor, including those emerging in the organized sector.
  • Similarly, the Deendayal Antodaya Yojana [DAY] National Urban Livelihood Mission is another program that is aimed at reducing Urban poverty through the creation of micro-enterprises, individually and in groups mode.
  • MUDRA, being an initiative for promoting micro-enterprises, would make all efforts to draw synergies between NRLM, NULM, and MUDRA interventions for supporting micro-enterprises and creating sustainable livelihood opportunities for the poor. Synergies with National Skill Development Corporation
    NSDC is already engaged in the process of skill development on a national scale. Synergizing with NSDC will help MUDRA in augmenting the skill sets of the sectoral players.
  • Working with Credit Bureaus With the growth of responsible lending practices, Credit Bureaus (CB) have gained an increasing level of acceptability in the microfinance sector. The CB culture will help in creating credit history over a period of time which will facilitate faster credit dispensation as the system evolves.
  • Working with Rating Agencies Accreditation/rating of MFI entities is one of the roles earmarked for MUDRA. Further, a segment of financial intermediaries for the noncorporate small business sector is envisaged to emerge in the financing architecture. MUDRA would work in coordination with Rating Agencies so that appropriate rating framework (s) which take into account sector-specific features are devised for various sector participants. In the longer run, the availability of ratings for sector participants would facilitate formalization and further flow of capital to the sector.
  • The MUDRA Pricing Access to finance is critical and equally critical is the cost of finance to the NCSB/ultimate beneficiary. The funds mobilized by micro units from the informal sources are at a high cost. There is scope for cost rationalization. However, the rationalization is intricately linked with the cost of funds for the last mile MFIs. GOI while announcing the formation of MUDRA also announced a refinance corpus for MUDRA at 20000 crores, to be allocated by RBI from the Priority Sector lending shortfall. Accordingly, RBI has provided the allocation which helps in bringing down the cost of lending at the ultimate borrower level as MUDRA refinance will reduce the average borrowing cost of the lending institutions The NBFC-MFIs are presently regulated by the Reserve Bank of India and RBI has already prescribed detailed guidelines for margin cap in respect of MFIs.
  • The margin cap has been pegged at 10% for MFIs having loan portfolios of more than 100 crores and 12% for smaller MFIs having loan portfolios of less than 100 crores or 2.75 times the average base rate of five major commercial banks, whichever is less. In the backdrop of these guidelines and the fact that the MFI sector has been constantly trying to reduce its costs, MUDRA would also help MFIs reduce their cost to bring down the overall cost to the end beneficiaries. Further, at the time of appraisal, MUDRA would be studying/assessing individual MFIs on this as well as other related parameters and suitably price its assistance based on such assessment.
  • In the case of Banks, RBI has also put a cap on the interest rate at the Base rate/ MCLR for lending micro units by Commercial Banks by availing of MUDRA refinance. Similarly, the RRBs and Cooperatives have been given an interest cap of 3.50% over and above the MUDRA refinance rate, while lending to MUDRA loans by availing of MUDRA refinance. In the case of NBFCs, RBI has also stipulated an interest cap of 6% over and above MUDRA refinance while lending to the MUDRA segment.
  • All of these are expected to have a positive impact on the pricing of MUDRA loans in the country whereby the Microenterprises will be able to avail of credit at an affordable interest rate. But, the first and foremost objective is to ensure accessibility of credit.