MUDRA in a short span of about 7 months has been showing impressive performance in terms of statistics revealed. However, the impact on the ground appears to be missing. There are some unanswered questions which this presentation lists out and some suggestions on how and what needs to be done.

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MUDRA – FUNDING THE UNFUNDED
• MUDRA is a new institution set up by GOI for
development and refinancing activities relating
to micro units.
• It was announced by the Hon’ble Finance
Minister while presenting the Union Budget for
FY 2016.
• MUDRA intends to reach out to these NCSBS,
either directly or through indirect channels of
last mile financiers such as commercial banks,
RRBs, Coop banks, NBFCs, MFIs, etc.
• The purpose of MUDRA is to provide funding to the Non Corporate Small Business Segment
(NCSBS). As per NSSO survey, there are 57.7 million entities in the NCSBS. 60% of the MUDRA
assistance is targeted towards the smallest segment of the NCSBS.
• First time entrepreneurs, youth entrepreneurs (i.e. entrepreneurs aged upto 30 years) and women
entrepreneurs are to be encouraged with emphasis on cash flow based lending and not security
based lending, keeping repayment obligations flexible based on business cash flows.
http://www.mudra.org.in/

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PRADHAN MANTRI MUDRA YOJANA (PMMY)
• PMMY Schemes –
Shishu (Infant): covering loans upto 50,000/-
Kishor (Adolescent): covering loans above 50,000/- and upto 500,000/-
Tarun (Youth): covering loans above 500,000/- and upto 1,000,000/-
• Coverage extended to:
Manufacturing unit
Shopkeepers
Fruit vegetables vendors
Truck operator
Food service unit
Repair shop
Machine operators
Small industries
Artisans
Food processors and others
• As per http://www.mudra.org.in/pmmy-report.php Rs. 354.12 billion (as on October 24,
2015) has already been disbursed in about 7 months of MUDRA’s existence.
Impressive statistics, amidst some scrutiny:
http://economictimes.indiatimes.com/industry/banking/finance/banking/mudra-bank-may-miss-
loans-target-amid-weak-demand/articleshow/49470551.cms !

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SOME UNANSWERED QUESTIONS:
• How can PMMY achieve lending of Rs. 354.12 billion in 7 months when banks
have found it difficult to achieve Y-o-Y priority sector lending (PSL) to the MSME
sector? In fact, the shortfall in PSL targets is presumably allocated to MUDRA as a
corpus (with maturity of one year, a maturity mismatch risk for MUDRA!).
http://www.livemint.com/Opinion/ZrYk3jP5eoCrhSfo3Pi1LP/The-fine-print-of-Mudra-Bank.html
• Is it that all existing loans under PMRY and other similar targeted schemes of
banks, reclassified as PMMY for statistical returns purpose?
• What are the specific tools being used by the last mile financiers to assess cash-
flows, viability and credit-worthiness of NCSBS especially when there are no
formal records maintained by the business entities? If the tools exists then why do
MSME segment face resistance in access collateral free credit from formal lending
channels including banks?
• Who bears the risk in case of default by the NCSBS – MUDRA or the last mile
financier?

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SUGGESTIONS FOR MUDRA
• Explore and implement a lending model similar to Chit Funds borrowings and
distribution model.
• Lending can be linked with Aadhar to create a track record or credit behaviour
record.
• Introduce mutual credit guarantee linked facilities for new and existing NCSBS.
• Assessing cash flows in Bank accounts with introduction of brief cooling period
before the loan assistance can be given, in the absence of comfort of mutual credit
guarantee from a group of entrepreneurs.
• Create a corpus in MUDRA to take first-hit in case of default for the last mile
financiers.
• Remove quantum targets on a standalone basis and provide target which would
include lending to first time borrowers since inception of MUDRA to assess
incremental benefits to the NCSBS.
• Free interest rate chargeable based on risk-reward equilibrium and link the
maximum rate that can be charged as the maximum rate charged by MFIs

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