NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, April 10, 2015

The Budget speech announcing the Mudra Bank took everyone by surprise. It was cryptically mentioned that the Mudra Bank would fund the MFIs through a Pradhan Mantri Mudra Yojana and accord priority to SC/ST enterprises. This seemed intriguing as MFIs in India have a well-established channel for debt funds from commercial banks.

However, one could still reason that this follows in the long tradition of establishing separate all-India banks for specific sectors on the lines of Nabard and Sidbi.

In March, a government press release expanded the scope of the Mudra Bank. The release said the bank will cover SHG-Bank Linkage Programme (SBLP) as well as MFIs organised as NBFCs and NGOs.

Significantly, it added other critical aspects to its work area — regulation, accreditation/rating, laying down responsible finance practices, technology solutions and credit guarantee scheme.

Various reports as well as the subsequent press release of March 31, have reiterated these points with the addition that it will get its refinancing corpus of ?20,000 crore from the priority sector shortfall and credit guarantee corpus of ?3,000 crore through budgetary support.

Recent press reports suggest that the government is considering clubbing the MFI Bill and the Mudra Bank Bill. Mudra Bank will undertake regulation and refinancing of all types of microfinance and have other related functions such as promoting responsible finance.