Refinancing from Mudra expected to remain muted in FY16

While banks get loans from Mudra at 6.72%, they are required to lend it at base rate, which was why banks did not find the refinance scheme attractive

While banks and microfinance institutions together are expected to help the government meet its Pradhan Mantri Mudra Yojana disbursement target of Rs 1.22 lakh crore for the financial year 2015-16, the disbursements through government-backed non-banking finance company, Mudra (Micro Units Development Refinance Agency) could remain muted.

The government had set up Mudra with a corpus of about Rs 20,000 crore to refinance banks and MFIs with giving Mudra loans. However, till the end of December 2015, Mudra could disburse only Rs 1,500 crore from the corpus, according to Jiji Mammen, chief executive officer, Mudra.

One of the reasons why the disbursements by Mudra are low on account of the fact that banks did not get good margins in giving Mudra loans refinanced through the government agency. Thus, while banks get loans from Mudra at 6.72 per cent, they are required to lend it at base rate, which was one of the reasons that why banks did not find the refinance scheme attractive, according to Mammen.

Mudra loans are meant for funding to the non-corporate, non-farm sector income generating activities of micro and small enterprises whose credit needs are below Rs 10 Lakh.

So far, the total disbursements under the Pradhan Mantri Mudra Yojana had been close to Rs 75,000 crore, against the target of Rs 1.22 lakh crore by the end of March 2016, said Mammen on the sidelines of Eastern India Microfinance Summit, 2016.

In order to make Mudra a viable business model, recently the Cabinet approved conversion of MUDRA, a non banking finance company (NBFC), into a bank. This apart, it also approved setting up of a Credit Guarantee Fund for loans disbursed under the Pradhan Mantri Micro Mudra Yojana.

Mudra loans encompass three categories-- 'Shishu', 'Kishor' and Tarun' to signify the stage of growth and development and funding needs of the beneficiary micro unit entrepreneur.