To ensure more money for micro and small enterprises, the Union Cabinet on Wednesday approved conversion of Mudra Ltd (Pradhan Mantri Micro Units Development Refinance Agency), into a bank, besides the setting up of two credit guarantee funds.

The two funds will cater to loans disbursed under the Mudra Yojana and the Stand-Up India scheme, to support women entrepreneurs and those from backward classes. The renamed Mudra agency (to be called the Small Industries Development Bank of India Bank), will be a wholly owned subsidiary of the Small Industries Development Bank of India. It will undertake refinancing operations.

“The department of financial services sought approval to set up two credit guarantee funds. The first one is being established for the Mudra loans and another for Stand Up India. With each passing day, banks have been further activating the loans under Mudra,” said finance minister Arun Jaitley after the meeting.

The said funds are expected to guarantee Rs 1 lakh crore worth of loans to micro and small units in the first instance, and help in reducing risk taken by banks and financial institutions in the case of defaults under the scheme.

The number of beneficiaries under Mudra had reached 17.3 million. “We were keeping track of all direct beneficiaries. Since we are in early January, there is significant headspace, for public and private sector banks to issue loans under the scheme. So I hope more and more people take the financing,” Jaitley added.

For the Mudra credit guarantee fund, the government is looking at a corpus of Rs 3,000 crore. It is going to be settled by the National Credit Guarantee Trustee Company, in existence on a portfolio basis, to a maximum extent of 50 per cent of the amount in default.

It also approved a new financing scheme — Stand Up India — under which an estimated 2.5 lakh SC/ST and women entrepreneurs could get bank loans of Rs 10 lakh to Rs 1 crore for greenfield enterprises in the non-farm sector in three years.

“The credit guarantee fund should definitely lead to increase in disbursements to SMEs and improved credit availability. This is a great step to boost growth of micro and small businesses,” said Sanjay Aggarwal, partner and head of enterprise practice, KPMG in India.

Since the launch of the Mudra scheme in April 2015, about 1.73 crore people/units have got loans, finance minister Arun Jaitley said after a Cabinet meeting. Any citizen who has a business plan for non-farm sector income-generating activity whose credit need is less than Rs 10 lakh can approach either a bank, microfinance institution or non-banking financial company for availing of Mudra loans, he said. Banks and other financial intermediaries have been given a target of Rs 1.22 lakh crore loan disbursement in 2015-16. They had disbursed Rs 45,948 crore as on November 25, 2015. The Mudra credit guarantee fund will have an initial corpus of Rs 3,000 crore.

Source: Business Standard & The Financial Express