Modi launches Mudra bank for small firms

Wednesday 15th April 2015 06:01 EDT

Indian Prime Minister Narendra Modi last week launched a bank with a corpus of Rs 200 billion to extend credit of up to Rs 1000,000 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 per cent of institutional funding, despite employing over 120 million people, many from unprivileged strata of society, the officials said.

"After 'banking the un-banked' with the Jan Dhan Yojana, it's time to 'fund the unfunded'," the Prime Minister said at an event to launch what is called Micro Units Development and Refinance Agency - Mudra.

"Mudra is our innovation of funding the unfunded," Modi 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.

"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.

In his budget speech delivered on February 28, the finance minister had said that while there were 57.7 million 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 200 billion and a credit guarantee corpus of Rs 30 billion. 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."

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