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MUDRA AND INFORMAL SECTOR
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- What is NCSBS: Micro enterprises constitute a major economic segment in our country and provides large employment after agriculture. This segment include micro units engaged in manufacturing, processing, trading and services sector.
- It provides employment to nearly 10 crore people. Many of these units are proprietary/ single ownership or Own Account enterprise
- It is often referred to as Non Corporate Small Business sector (NCSBS)
- Scale of NCSBS: The Non-Corporate Small Business Sector (NCSBS) is the economic foundation of India. It is perhaps one of the largest disaggregated business ecosystems in the world sustaining around 50 crore lives. Quite remarkable that even after seven decades of economic independence, it has continued to thrive in this format.
- Components of NCSBS: The sector comprises of myriad of small manufacturing units, shopkeepers, fruits / vegetable vendors, truck & taxi operators, food-service units, repair shops, machine operators, small industries, artisans, food processors, street vendors and many others.
- Only informal: The formal or institutional finance systems have not been able to reach out to this sector, to meet its financial needs. These firms are largely self-financed or rely on personal networks or moneylenders. Through MUDRA, addressing this need will give a big boost to the economy otherwise this segment would remain unfunded and a portion of the productive labour force would remain unemployed.
- Small business is big business: According to NSSO Survey (2013), there were 5.77 crore small business units in India, mostly individual proprietorships. Most of these 'own account enterprises' (OAE) are owned by people belonging to Scheduled Caste, Scheduled Tribe or Other Backward Classes. They get little credit, mostly from non-formal lenders, or friends and relatives. Providing access to institutional finance to such micro/small business units would turn them into strong instruments of GDP growth and also employment.
- Manufacturing: The NCSBS accounts for a large share of industrial units. They feed large local and international value chains as well as domestic consumer markets as suppliers, manufacturers, contractors, distributors, retailers and service providers. The gross value addition of this sector is 6.28 lakh crore annually.
- Mainstreaming these enterprises: It will not only help in improving the quality of life of these entrepreneurs but will also contribute substantially to job creation in the economy thereby achieving higher GDP growth.
- Demonetisation 2016 and GST 2017: These steps too were purportedly taken to formalize the Indian economy, however they may not have delivered the intended results as the closure of many units showed.
- What MUDRA scheme is: The scheme was part of Jan Dhan se Jan Suraksha, as part of ‘funding the unfunded’.
- What it offers: It was launched in 2015 to give collateral-free access to cheap credit (upto Rs.10 lakhs) to poor and small fledgling business persons with the objective to provide self-employment. These are non-corporate, non-farm small/micro enterprises, and MUDRA loans are classified under PMMY. It is run by DFS, MoF, GoI.
- From ‘Jan Dhan to Jan Suraksha’: The PM launched three Social Security Schemes in the Insurance and Pension sectors on 9th of May, 2015 – Atal Pension Yojana (APY), PM Jeevan Jyoti Bima Yojana (PMJJBY) and PM Suraksha Bima Yojana (PMSBY). In addition, this concept of Jan Dhan to Jan Suraksha includes PMJDY (banking the unbanked) and MUDRA (funding the unfunded) also. (So, Banking + [Insurance + Pension] + Funding)
- Vision: To be an integrated financial and support services provider benchmarked with global best practices and standards for the bottom of the pyramid universe for their comprehensive economic and social development.5. Logic of MUDRA: Entrepreneurship in the Non-Corporate Small Business Sector (NCSBS) faces lack of financial support via formal finance. The
- MUDRA Bank will try to support NCSBS segment and mainstream it. There are 5.7 crore enterprises in NCSBS, of which 54% are rural, and roughly one-third each are in mfg., trading and services.
- Basic details:
- Collateral free loans are extended by Commercial Banks, RRBs, Small Finance Banks, NBFCs and MFIs to Small/Micro business enterprises and individuals in the non-agricultural sector to enable them.
- Mudra loan is extended for a variety of purposes which provides income generation and employment creation in Manufacturing, Services, Retail and Agri. Allied Activities.
- For implementing MUDRA, a new institution named Micro Units Development & Refinance Agency Ltd. (MUDRA) was set up by government. It does two things – (1) Acts as regulator for the micro finance sector, and (2) Does refinancing activities relating to micro units for Banks and last mile financiers.
- Categories of loans : There are three – (1) loan of upto Rs.50,000 under sub-scheme ‘Shishu’; (2) between Rs.50,000 to 5.0 lakhs under sub-scheme ‘Kishore’; and (3) between Rs.5.0 lakhs to 10.0 lakhs under sub-scheme ‘Tarun’. Interest rates depend on the specific bank one takes the loan from.
- Who is eligible : Any individual including women, proprietary concern, partnership firm, private limited company etc. are eligible.
- Scale : In FY 2018-19, a total of Rs.3,21,722 crores had been sanctioned (Rs.1,42,345 cr. In Shishu, Rs.1,04,386 cr. In Kishore and Rs.74,991 cr. in Tarun category). Total 5.99 crores accounts.
- Under MUDRA Yojana, 15.56 crore loans have been disbursed amounting to Rs.7,23,000 crores.
- Loans available for Transport Vehicles, Community, Social & Personal Service Activities, Food Products Sector, Textile Products Sector / Activity, Business loans for Traders and Shopkeepers, Agri activities, etc.
- Refinance concept:
- Various Commercial Banks, RRBs, Small Finance Banks and NBFCs are eligible to avail of refinance support from MUDRA (Micro Units Development and Refinance Agency) for financing micro enterprise activities.
- Refinance is available for term loan and working capital loan up to an amount of Rs.10 lakh per unit.
- Eligible banks/NBFC avail of refinance from MUDRA for loans given under Shishu, Kishore and Tarun categories. MUDRA extends a reduction of 25 bps in interest rates for loans to women entrepreneurs.
- Expand MUDRA loan limit : An RBI Committee recommended in 2019 to increase the collateral free lending limit from Rs.10 lakh to Rs.20 lakh for MSMEs and self-help groups.
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