1. Micro Units Development and Refinance Agency (MUDRA) Bank
The government proposes to set up a Micro Units Development and Refinance Agency (MUDRA) Bank through a statutory enactment. This Bank would be responsible for regulating and refinancing all Micro-finance Institutions (MFI) which are in the business of lending to micro/small business entities engaged in manufacturing, trading and services activities. The Bank would partner with state level/regional level co-ordinators to provide finance to Last Mile Financer of small/micro business enterprises. The MUDRA Bank would primarily be responsible for –
§ Laying down policy guidelines for micro/small enterprise financing business
§ Registration of MFI entities
§ Regulation of MFI entities
§ Accreditation /rating of MFI entities
§ Laying down responsible financing practices to ward off indebtedness and ensure proper client protection principles and methods of recovery
§ Development of standardised set of covenants governing last mile lending to micro/small enterprises
§ Promoting right technology solutions for the last mile
§ Formulating and running a Credit Guarantee scheme for providing guarantees to the loans which are being extended to micro enterprises
§ Creating a good architecture of Last Mile Credit Delivery to micro businesses under the scheme of Pradhan Mantri Mudra Yojana
A sum of Rs 20,000 crores would be allocated to the MUDRA Bank from the money available from shortfalls of Priority Sector Lending for creating a Refinance Fund to provide refinance to the Last Mile Financers. Another Rs 3,000 crore would be provided to the MUDRA Bank from the budget to create a Credit Guarantee corpus for guaranteeing loans being provided to the micro enterprises. The above measures would not only help in increasing access of finance to the unbanked but also bring down the cost of finance from the last Mile Financers to the micro/small enterprises, most of which are in the informal sector.
2. Changes proposed in Priority Sector Lending (PSL)
Since the vision of Priority Sector Lending (PSL) first took shape, the structure of the Indian economy, the contribution by various sectors to GDP and the demographic profile has changed significantly. These emerging realities have also shaped the perception of national priorities. Total credit extended by Banks in Priority sector Lending is Rs.2154356.29 Crore. There is a need to increase employment, create basic infrastructure and improve competitiveness of the economy, thus creating more jobs. It is, therefore, time to re-orient the Priority Sector Lending Guidelines towards today’s growth and inclusion agenda. The following changes are being proposed in the Priority Sector lending:-
§ To enhance credit to Small and marginal farmers, a separate sub limit of upto 8% (for 1st year - 7% and 2nd year - 8%) is being introduced for the first time.
§ Loans for agri-processing & agri-infrastructure would be included in PSL without any limit on the size of loans.
§ Loans to Medium Enterprises being included in PSL.
§ For the first time a separate sub limit of 7.5% of ANBC is being created for the Micro Enterprises.
§ Loans upto Rs.5 crore for Social infrastructure, like schools and health care facilities, drinking water facilities, sanitation facilities etc. are being included under PSL, for towns of less than 1 lac population.
§ Renewable Energy sector is being added to the PSL, upto Rs.10 crore loans.
§ Introduction of Priority Sector Lending Certificate (PSLCs), which will provide a market-driven incentive for efficiency, will enable banks to sell their surplus lending and thus earning a premium for their efficiency/geographical spread.
§ Progress to be monitored quarterly and not at the end of the year.
3. Steps being taken for Increasing Financing to Micro, Small and Medium Enterprises (MSMEs)
§ Debt Financing: Loans to Medium Enterprises are being brought under Priority Sector Lending. 2) A separate sub-limit of 7.5% in Priority Sector Lending is being created for the Micro Enterprises. 3) RBI has received 72 application for setting up Small Banks. As per license conditions, the small finance banks are required to extend 75% of Adjusted Net Bank Credit to Priority Sector and 50% of loan portfolio to be upto Rs. 25 lakhs. Therefore, once set up, the Small Finance Banks would augment supply of credit to small business units, micro and small industries etc. through high technology & low cost operations.
§ Equity Financing: “Tax pass-through” status for equity funds has been rationalized for supporting the venture capital eco-system. 2) A Fund of Funds has been set up in SIDBI to act as a catalyst to attract Private Capital by way of providing equity, quasi equity and other risk capital for start up companies.
§ Receivable Financing: A significant part of working capital requirement of an MSME arises due to long receivables realization cycles. To implement corrective and supportive policies for the sector, Trade Receivables Discounting System (TReDs), an electronic platform for facilitating financing of trade receivables from corporate and other buyers through multiple financiers, is being set up. This platform will deal with both receivables factoring and reverse factoring so that higher transaction volumes come into the system and facilitate better pricing.
Please see full details at: http://financialservices.gov.in/BriefOnBUDGETITEMS.pdf
Microfinance Institutions Network (MFIN)
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