TATA INSTITUTE OF SOCIAL SCIENCES, MUMBAI

LABOUR AND TECHNOLOGY IN A GLOBALISED WORLD

ASSIGNMENT

MUDRA – Micro Units Development and Refinancing Agency

SUBMITTED TO

DR JOHNSON A MINZ

SUBMITTED BY

DISHA PANDE

M2017SE003
CONTEXT

As on January 23rd 2019, 50 percent of total Indian population is under the age of 27. With this
percentage of youth, India can become a major power player in World economy, given that it
channelizes its human and labor strength in the right direction.

On the other hand, there is immense responsibility on the government and society to ensure the
right opportunities to be created for this youth in order to help them in reaching their full
potential. They should have access to education, skill development and other training facilities to
equip them to compete in the labor market. Even when it is done, there needs to be employment
opportunities for them.

Off late, government had realized that there are not enough employment opportunities being
created in the current scenario. There was a need to generate more jobs and the quickest way to
do that was to look at self-employment and entrepreneurship through MSME.

The millions of MSMEs in the country are India’s mainstay in providing employment outside
agriculture. The pyramidal distribution of MSMEs by number of enterprises with the large ones
towards the top also consists of micro units engaged in manufacturing, processing, trading and
services making up its broad base. Rural areas account for half of all MSMEs in the country. At
least 80 per cent MSMEs are micro enterprises. As one of the largest disaggregated business
ecosystems in the world, these micro enterprises engage nearly 10 crore people in the country,
offering livelihood to five times that number. During the launch, government talked about giving
small business loans to a target population of 13 Crore youths.

In April 8 2015, Finance Ministry said measures to be taken up by MUDRA are targeted towards
mainstreaming young, educated or skilled workers and entrepreneurs including women
entrepreneurs.

It is aimed at using micro finance as an economic development tool that helps to provide income-
generating opportunities to the people at the bottom of the pyramid, targeting small
manufacturing units, shopkeepers, fruits and vegetable vendors, truck and taxi operators, food-
service units, repair shops, machine operators, artisans and food processors.

OBJECTIVE
Mudra Yojana is a scheme launched by Prime Minister Narendra Modi on April 8, 2015, to
provide loans up to Rs 10 lakh to non-corporate, non-farm small or micro-enterprises. The loans
under Mudra Yojana or say Pradhan Mantri MUDRA Yojana (PMMY) are given by commercial
banks, RRBs, small finance banks, cooperative banks, MFIs and NBFCs.

The objectives of MUDRA can be broadly stated as:

1. MUDRA loans are available for non-agricultural activities and activities allied to
agriculture such as dairy and poultry. It aims to fund those who have a business plan to
generate income from a non-farm activity, like manufacturing, processing, or trading, but
don't have enough capital to invest.
2. PMMY scheme also puts in place MUDRA Bank which monitors the network of
microfinance institutions and also helps to register new institutions as well.
3. MUDRA scheme aims to reduce the unemployment by providing micro enterprises with
credit facility which will not only increase the country's GDP but also create jobs.
4. The scheme also aims to boost the financial inclusion by taking the last mile credit
delivery to micro businesses. It also works on the entry of the informal economy into the
formal sector as most of the time income from the informal sector is not taxed.

PARAMETERS

1. The scheme provides loan in three categories

a. up to Rs 50,000 is given under sub-scheme 'Shishu'
b. between Rs 50,000 and 5 lakh under the sub-scheme 'Kishore'
c. between 5 lakh and Rs 10 lakh under sub-scheme 'Tarun'.
2. Loans taken under the Mudra scheme do not require collaterals as they are aimed at
boosting the confidence of small businesses, and young, educated and skilled workers to
enable them to become first generation entrepreneurs.

IDENTIFICATION OF RESOURCES

MUDRA do not lend directly to the micro entrepreneurs / individuals. Mudra loans under
Pradhan Mantri Mudra Yojana (PMMY) can be availed of from nearby branch office of a bank,
NBFC, MFIs etc. Borrowers can also now file online application for MUDRA loans on
Mudramitra portal (www.mudramitra.in). There are no agents or middleman engaged by
MUDRA for availing of Mudra Loans.

INCENTIVES

1. The utmost important objective is to create a system so that the micro business can get
the maximum benefits with minimum risks.
2. Also sets up a good process of the last-mile credit agent scheme, which is entirely for the
small business setups.
3. It also makes a credit guarantee to the one who has taken the loan. It means that the
person will not only go into debts. The government will also have to bear the
responsibility of the loan.
4. There are certain agents hired under the committee who will guide on how to organize
and process a business so that there are minimum risks of getting a negative result.
5. All the small business units and sectors will be placed under the surveillance, and a
regular evaluation will be made based on their performance.

INTENDED OUTCOMES

There are some 5.77 crore small business units, mostly individual proprietorship, which run
small manufacturing, trading or service businesses. 62 per cent of these are owned by
SC/ST/OBC. These, bottom of the pyramid, hard-working entrepreneurs find it difficult, if not
impossible, to access formal systems of credit. The idea is to create a Micro Units Development
Refinance Agency (MUDRA) Bank, with a corpus of 20,000 crore, and credit guarantee corpus
of 3,000 crore.

MUDRA Bank will:

1. Refinance Micro-Finance Institutions through a Pradhan Mantri Mudra Yojana.

2. In lending, priority will be given to SC/ST enterprises.
3. 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
4. Existing small businesses, too, will be able to expand their activities.
 5. The idea which runs behind Jan Dhan for banking the unbanked, government was
thinking about funding the unfunded.

MUDRA Vision is to be an integrated financial and support services provider par excellence
benchmarked with global best practices and standards for the bottom of the pyramid universe for
their comprehensive economic and social development.

MUDRA Mission is to create an inclusive, sustainable and value based entrepreneurial culture,
in collaboration with our partner institutions in achieving economic success and financial
security.

MUDRA Purpose is to attain development in an inclusive and sustainable manner by supporting

and promoting partner institutions and creating an ecosystem of growth for micro enterprises
sector.

DISADVANTAGES

1. An RTI query has revealed that under this much-touted scheme, over 90 per cent of the
loans are small loans (up to Rs 50,000), which, as experts believe, are not enough to
create substantial jobs. Nearly 13.5 crore loans have been disbursed so far, of which
around 93 per cent (12.2 crore) are 'Shishu', which is up to Rs 50,000.
2. Also, over 1.4 crore loans disbursed under the Mudra scheme were between Rs 50,000
and Rs 5 lakh (Kishore category) and over 19.6 lakh loans were over the size of Rs 5
lakh. This means that the 'sizable loans' only formed 1.45 per cent of the total loans given
under the scheme.
3. The department of finance, however, chose not reveal the number of individuals who
received the maximum Rs 10-lakh loans under the scheme. Also, no data was revealed
regarding total money disbursed and loans repaid, which indicates lack of transparency.
4. There is a possibility of developing a culture of meeting targets by rushing through due
process and then offering populist sops such as mass waiver of loans. Credit targets could
sometimes be achieved by abandoning appropriate due diligence, creating the
environment for future NPAs.
5. Cases of many best practices in loan origination have been neglected while authorizing
and disbursing loans have been noted. Earlier in 2018, the CBI registered a case against a
 former official of Punjab National Bank for alleged abuse of official position in
sanctioning and disbursing 26 Mudra loans amounting to ₹65 lakh.
6. The scheme is meant for those who need small amounts, but do not have access to such
funds, but the very nature of the business of such borrowers is susceptible to volatility
and annual cycles, not to mention the itinerant ways of some business owners, such as
vegetable vendors. They may choose one location for their place of business on a day,
and another elsewhere in their city the next day. Further, the public banking system may
not be staffed for work this may entail. When it comes to collection, bank staff may
choose to go after one loan with outstanding of ₹10 lakh, for example, rather than 10
loans of ₹1,00,000 each.