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Credit Guarantee Fund for MUDRA loans

Cabinet approves creation of a Credit Guarantee Fund for MUDRA loans :

The Union Cabinet has given its approval for the creation of a credit guarantee fund for Micro Units Development Refinance Agency (MUDRA) loans.

It has also decided to convert MUDRA Ltd. into MUDRA Small Industries Development Bank of India (SIDBI) Bank as a wholly owned subsidiary of SIDBI.

The fund is expected to guarantee more than Rs 1 lakh crore worth of loans to micro and small units.

MUDRA scheme has 1.73 crore beneficiaries.

Highlights :

Scheme envisages:

  • Establishment of Credit Guarantee Fund for MUDRA Units(CGFMU) for guaranteeing loans sanctioned under Pradhan Mantri Mudra Yojana with effect from 8th April, 2015 with the objective to reduce the credit risk to Banks / NBFCs / MFIs / other financial intermediaries, who are Member Lending Institutions (MLIs).

  •  The National Credit Guarantee Trustee Company Ltd. (NCGTC Ltd.), a wholly-owned company of Government of India, constituted under the Companies Act, 1956 (2013) to manage and operate various credit guarantee funds, shall be the Trustee of the Fund.

  • The guarantee would be provided on portfolio basis to a maximum extent of 50% of Amount in Default in the portfolio.

  • The MUDRA (SIDBI) Bank will undertake refinance operations and provide support services with focus on portal management; data analysis etc. apart from any other activity entrusted/ advised by Government of India.

Background:

MUDRA Bank and a Credit Guarantee Fund was proposed to be set up with a refinance corpus of Rs. 20,000 crore and a corpus of Rs.3,000 crore respectively as per the Budget Speech for 2015-16.

As a precursor to the launch of the Pradhan Mantri MUDRA Yojana (PMMY) in April, 2015, MUDRA Ltd. was set up as a corporate subsidiary of SIDBI in March, 2015.

The RBI has allocated Rs 20,000 crore and the first tranche’ of Rs 5000 crore has been received by MUDRA as refinance.

What is Pradhan Mantri MUDRA Yojana (PMMY)?

Micro Units Development and Refinance Agency Bank (or MUDRA Bank) is a public sector financial institution in India.

It provides loans at low rates to microfinance institutions and non-banking financial institutions which then provide credit to MSME’s..

It was launched by Prime Minister Narendra Modi on 8 April 2015

The MUDRA banks will be set up under the Pradhan Mantri MUDRA Yojana scheme.

It will provide its services to small entrepreneurs outside the service area of regular banks, by using last mile agents.

About 5.77 crore (57.7 million) small business have been identified as target clients using the NSSO survey of 2013.

Only 4% of these businesses get finance from regular banks.

The bank will also ensure that its clients do not fall into indebtness and will lend responsibly.

The bank will initially function as a non-banking financial company and a subsidiary of the Small Industries Development Bank of India (SIDBI). Later, it will be made into a separate company.

It will also serve as a regulator for other micro-finance institutions (MFIs) and provide them refinancing services. It will provide guidelines for MFIs and give them ratings.

The bank will classify its clients into three categories and the maximum allowed loan sums will be based on the category:
Shishu : Allowed loans up to ₹50,000.
Kishore : Allowed loans up to ₹5,00,000
Tarun : Allowed loans up to ₹10,00,000

Recently Govt. Has decided to provide an additional fund of ₹ 100000 crore to the market and will be allocated as:
40% to shishu
35% to kishor
25% to tarun

Who are Eligible to borrow from MUDRA bank?

Small manufacturing unit
Shopkeepers
Fruits / Vegetable vendors
Artisans

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