“The Micro Units Development Refinance Agency, or MUDRA Bank, will have a corpus of Rs20,000 crore and a credit guarantee corpus of Rs3,000 crore”, Finance Minister Arun Jaitley in Parliament said while presenting the Union Budget for the financial year 2015-16. The Narendra Modi-led Bharatiya Janata Party government proposed to create a refinance agency to provide much-needed credit facilities to micro, small and medium enterprises. (Economic Times, February 28, 2015) What is it, and why is it essential for economic development? Refinancing may refer to replacing an existing debt obligation with another debt obligation under different terms. Growth and development occur in an economy when all the resources, including Human Resources, will develop. It is essential and still tricky in the Indian context as most people are not created. We called it BPL (Below Poverty Line) in economic language. It is straightforward for any commercial nationalized bank to give to big corporates. They have the knowledge, mortgage, and know-how to negotiate. But giving these corporations unattended doesn’t make sense in the context of economic development. MSMEs are not that much centralized as Corporate conglomerates. Neither do they have a property for a mortgage? Hardly there is a credit history. But still, whatever they are doing is very important. Conglomerates can’t do new jobs remotely located areas and invest for their growth. So it is hardly possible to grow.
Most of India is not urbanized to date. MSMEs are that force that tapped into this infinite potential of growth. But for some reason, even Public sector banks are not interested in giving a loan to this sector. The reasons are many—fewer branches, low human resources, Less Availability of Road transport and so on. The picture is changing now. After RBI and Govt decision, some banks are ready to give a loan. But sometimes, it isn’t easy to repay the loan. Due to all this, this type of loan needs Refinancing. It is riskier to make Refinancing, but if successful, it has the potential to drive growth. Banks and Financial Institutions don’t find restructuring loans difficult for any big business group. But with this small business, the situation is different. It isn’t easy. So naturally, the government must do so. I want to finish this with the information. Recently RBI has given a Full banking license. At that time, the minimum capital requirement RBI gave was 5000 Cr. Govt is going to start MUDRA bank with 20000 Cr
