MUDRA: Full Form, Objectives, Functions, Advantages and Disadvantages

What is MUDRA?

MUDRA is a financial institution in India that was established by the Government of India to provide financial support and funding to micro and small enterprises, including small businesses, entrepreneurs, and individuals, who may not have access to traditional banking services. MUDRA aims to promote entrepreneurship and financial inclusion by offering various loan products and refinancing options to these smaller businesses and individuals. MUDRA aims at the advancement of the economy as a whole. MUDRA came into existence on 8^th April 2015, under Jan Dhan Yojana.

Full Form of MUDRA

MUDRA stands for “Micro Units Development and Refinance Agency.” MUDRA is a financial institution in India that was established by the Government of India to provide financial support and funding to micro and small enterprises.

Objectives of MUDRA

1. Financial Inclusion: To promote financial inclusion by extending financial services to those who are traditionally underserved by the formal banking sector, including small entrepreneurs, micro-enterprises, and self-employed individuals.

2. Funding Support: To provide funding and credit facilities to micro and small businesses to help them start, expand, or modernise their operations. MUDRA offers various loan products designed to meet the financial needs of different segments of micro and small enterprises.

3. Employment Generation: To facilitate the creation of job opportunities and promote entrepreneurship in India, particularly in rural and semi-urban areas, by supporting small businesses and self-employment ventures.

4. Economic Growth: To contribute to the overall economic growth of the country by boosting the productivity and profitability of micro and small enterprises, which play a crucial role in the Indian economy.

5. Skill Development: To encourage skill development and capacity building among small entrepreneurs and individuals engaged in various trades and businesses.

6. Women Empowerment: To empower women entrepreneurs and promote their participation in economic activities by offering financial assistance and support.

7. Financial Stability: To ensure the stability and sustainability of micro and small businesses by providing them with access to affordable and convenient credit options.

8. Refinancing Support: To refinance lending institutions, such as banks, non-banking financial companies, and microfinance institutions, that extend loans to micro and small businesses.

9. Prudent Lending: To encourage responsible and prudent lending practices among financial institutions and ensure that loans are extended to micro and small enterprises based on their creditworthiness and business potential.

10. Monitoring and Evaluation: To monitor and evaluate the progress and impact of MUDRA’s programs and initiatives to ensure they are effectively achieving their objectives.

Offerings of MUDRA

MUDRA (Micro Units Development and Refinance Agency) offers various financial products and services to support the growth and development of micro and small enterprises, as well as to promote entrepreneurship and financial inclusion in India. Some of the key offerings provided by MUDRA include:

1. Shishu, Kishor, and Tarun Schemes: MUDRA offers three categories of loan products to cater to the different stages and financial needs of micro and small businesses:

• Shishu: Loans up to ₹50,000 for micro-enterprises at an initial stage.
• Kishor: Loans from ₹50,000 to ₹5 lakhs for businesses looking to expand.
• Tarun: Loans from ₹5 lakhs to ₹10 lakhs for established enterprises seeking further growth.

2. MUDRA Card: The MUDRA Card is a credit card-like facility offered to eligible borrowers, allowing them to access funds as needed within their approved credit limit. It provides flexibility in managing working capital and business expenses.

3. Refinancing Support: MUDRA refinances various lending institutions, including banks, non-banking financial companies (NBFCs), and microfinance institutions, to encourage them to provide loans to micro and small businesses. MUDRA offers refinancing support for loans extended under the Pradhan Mantri Mudra Yojana (PMMY).

4. Financial Products for Women Entrepreneurs: MUDRA provides special financial products and schemes for women entrepreneurs to promote their participation in economic activities and self-employment.

5. Micro-Credit Products: MUDRA extends micro-credit to individuals who may not have access to traditional banking services, helping them start or expand small businesses and income-generating activities.

6. Interest Subvention: The Government of India has introduced interest subvention schemes for MUDRA borrowers, where eligible borrowers receive interest rate subsidies to reduce the cost of their loans.

7. Capacity Building and Skill Development: MUDRA supports skill development and training programs for micro and small business owners to enhance their entrepreneurial capabilities and management skills.

8. Online Application and Processing: MUDRA offers an online platform for borrowers to apply for loans and check their loan eligibility. This digital initiative simplifies the loan application and approval process.

Functions of MUDRA

1. Refinancing: MUDRA acts as a refinancing institution for banks, non-banking financial companies (NBFCs), and microfinance institutions that provide loans to micro and small enterprises. It provides funding support to these institutions, which in turn, extends loans to small businesses and individuals.

2. Loan Products: MUDRA designs and offers various loan products to cater to the diverse financial needs of micro and small enterprises. These loans are categorised under Shishu, Kishor, and Tarun schemes, targeting businesses at different stages of development.

3. Promotion and Development: MUDRA promotes the development and growth of micro and small enterprises by offering them affordable and accessible credit, which helps them start, expand, and modernise their operations.

4. Financial Inclusion: MUDRA’s primary goal is to promote financial inclusion by providing financial services to those who are underserved by traditional banking institutions, including small entrepreneurs, self-employed individuals, and those in rural and semi-urban areas.

5. Skill Development: MUDRA supports skill development and capacity-building programs for small business owners and entrepreneurs to enhance their skills, knowledge, and managerial capabilities, making them more competitive and successful.

6. Targeted Schemes: MUDRA provides specific financial products and schemes for women entrepreneurs to encourage their participation in economic activities and self-employment.

7. Interest Subvention: The agency facilitates interest subvention schemes where eligible borrowers receive subsidies on their loan interest rates, reducing the cost of borrowing for micro and small enterprises.

8. Monitoring and Evaluation: MUDRA continually monitors and evaluates the progress and impact of its programs and initiatives to ensure they are effectively achieving their objectives and making necessary adjustments as needed.

9. Digital Initiatives: MUDRA has introduced digital platforms and online application processes to streamline loan application and processing, making it more convenient for borrowers.

10. Women Empowerment: MUDRA places a strong focus on empowering women entrepreneurs by offering financial assistance and support tailored to their unique needs and circumstances.

Interest Rate of MUDRA Loan

The interest rates for MUDRA (Micro Units Development and Refinance Agency) loans in India can vary among different lending institutions, as they have the flexibility to determine their own interest rates. These institutions include banks, microfinance institutions (MFIs), non-banking financial companies (NBFCs), and regional rural banks. The interest rates are typically competitive and based on various factors, including the prevailing market rates and the risk assessment of the borrower.

It is important to note that the government of India has introduced interest subvention schemes for MUDRA borrowers to make loans more affordable. Under these schemes, eligible borrowers receive interest rate subsidies, reducing the effective interest cost on their loans. These schemes may provide an interest rate discount of 2-3% on MUDRA loans, depending on the specific subvention program in place.

Advantages of MUDRA

1. Financial Inclusion: MUDRA promotes financial inclusion by providing access to formal credit and financial services to those who are traditionally underserved by the banking sector, including small entrepreneurs, self-employed individuals, and those in rural and semi-urban areas.

2. Access to Credit: MUDRA loans make it easier for micro and small enterprises to access affordable credit, helping them start, expand, and modernise their operations.

3. Job Creation: By supporting the growth and development of small businesses, MUDRA indirectly contributes to job creation and employment generation, particularly in rural and semi-urban areas.

4. Entrepreneurship Promotion: MUDRA encourages entrepreneurship by providing financial support to individuals looking to start their own businesses or income-generating activities.

5. Women Empowerment: MUDRA offers special financial products and schemes for women entrepreneurs, empowering them to participate in economic activities and become financially independent.

6. Skill Development: MUDRA supports skill development and capacity-building programs for small business owners, enhancing their entrepreneurial skills and managerial capabilities.

7. Refinancing Support: MUDRA refinances lending institutions, including banks, microfinance institutions, and NBFCs, encouraging them to extend loans to micro and small enterprises.

Disadvantages of MUDRA

1. Risk of Over-Indebtedness: The availability of credit through MUDRA loans can sometimes lead to over-indebtedness among borrowers, especially if they are not adequately trained or financially literate. Borrowers may take on more debt than they can reasonably repay, which can lead to financial distress.

2. Lack of Formal Credit History: Many micro and small entrepreneurs may not have a well-documented credit history, making it challenging for them to access MUDRA loans. This can result in limited access to credit for those who need it most.

3. Limited Loan Amounts: While MUDRA offers loans in different categories (Shishu, Kishor, and Tarun), the maximum loan amount may not be sufficient for some businesses with larger capital requirements. This limitation may force such businesses to seek additional funding from other sources.

4. Interest Rates: While MUDRA loans offer competitive interest rates, some borrowers may find them relatively high, particularly in comparison to government-sponsored agricultural loans. Lower interest rates could make MUDRA loans even more accessible and affordable for micro and small enterprises.

5. Lack of Targeted Support: MUDRA loans do not always provide targeted support for specific industries or sectors. As a result, businesses in niche or specialised sectors may face challenges in accessing suitable financing options.

6. Operational Challenges: Some borrowers have reported operational challenges when dealing with lending institutions, including lengthy application processes, documentation requirements, and delays in loan disbursement.

7. Potential Misuse of Funds: In some cases, MUDRA loans may be misused for personal expenses rather than for productive business purposes. This misuse can undermine the program’s intended benefits.

Conclusion

MUDRA, with its focus on financial inclusion, entrepreneurial support, and skill development, has made a significant impact on micro and small enterprises in India. While it has several advantages, including access to credit and employment generation, there are challenges, such as over-indebtedness and the need for a more comprehensive support system. Addressing these challenges and expanding MUDRA’s reach can further contribute to economic growth and inclusive development in India.