New bank to fund micro units, more relief for farmers
Prime Minister Narendra Modi on Wednesday launched a bank with a corpus of Rs.20,000 crore to extend credit of up to Rs.10 lakh to small businesses and regulate micro-finance institutions, to promote their growth, add to the country's output and create jobs.
The move is aimed at benefiting some 58 million small businesses in the country, who account for a mere four percent of institutional funding, despite employing over 120 million people, many from unprivileged strata of society, the officials said.
The prime minister also used the forum to announce relief for farmers after the recent rains that are feared to have damaged some standing crops. The input subsidy has not only been enhanced by 50 percent, but it will also be extended even if 33 percent crops are destroyed against 50 percent now.
On the new banking scheme, Modi said he was delivering on a promise made. "After 'banking the un-banked' with the Jan Dhan Yojana, it's time to 'fund the unfunded'," he told the event to launch what is formally called the Micro Units Development and Refinance Agency - Mudra.
"Mudra is our innovation of funding the unfunded," the prime minister said.
"Millions of common men and women in this country, who run small businesses, have almost remained outside the net of formal institutional finance in spite of their large contributions to the economy," he said at the event, attended among others by Finance Minister Arun Jaitley.
"Providing access to institutional finance to such micro and small business units and enterprises will not only help in improving the quality of life of these entrepreneurs, but also turn them into strong instruments of growth and employment generation," the finance ministry said.
The initiative will also lay down the norms for responsible financing practices for micro-finance institutions so that the small businesses do not face hardship over indebtedness, while getting a fair environment for repayment.
"The perception is: Big business creates more wealth. But a closer look presents a different kind of picture," Modi said "Big business provides work to only 1.25 crore people but the micro sector towards which one hardly ever glances, fill the stomachs of 12 crore people."
Mudra bank, he said, was directed at street vendors, tailors and roadside mechanics, who make up the 5.77 crore micro entreprenaurs, and that this new measure had the potential to bring about a major transformation. "In one year our established banks will also adopt the Mudra model."
The primary product of Mudra bank will be refinance for lending to micro businesses where initial products and schemes have been divided into three categories -- "Shishu", "Kishor" and "Tarun".
Accordingly, loans up to Rs.50,000 will be given under the "Shishu" for units in their formative years, between Rs.50,000 to Rs.5,00,000 under "Kishor" scheme for enterpises in operation for a few years and up to Rs.10,00,000 under "Tarun" for established firms.
In his budget speech delivered on February 28, the finance minister had said that while are were 5.77 crore small businesses in India, mostly individual proprietorships, these bottom-of-the-pyramid entrepreneurs found it difficult, if not impossible, to access formal systems of credit.
"I, therefore, propose to create a Micro Units Development Refinance Agency (Mudra) Bank, with a corpus of Rs.20,000 crore and a credit guarantee corpus of Rs.3,000 crore. Mudra Bank will refinance micro-finance institutions through a Pradhan Mantri Mudra Yojana," he added.
"These measures will greatly increase the confidence of young, educated or skilled workers who would now be able to aspire to become first generation entrepreneurs; existing small businesses, too, will be able to expand their activities." - IANS