08/04/2015 3:14 PM IST | Updated 15/07/2016 8:25 AM IST

MUDRA Bank Launch To Help Small Businesses, Create Jobs

PUNIT PARANJPE via Getty Images
Indian Prime Minister Narendra Modi gestures as he speaks during the inauguration of a conference on Financial Inclusion in Mumbai on April 2, 2015. The conference was organised on the occasion of completion of 80 years of the Reserve Bank of India (RBI). AFP PHOTO/PUNIT PARANJPE (Photo credit should read PUNIT PARANJPE/AFP/Getty Images)

NEW DELHI — Prime Minister Narendra Modi on Wednesday launched a bank with a corpus of Rs 20,000 crore to extend credit of up to Rs.10 lakh to small businesses and regulate micro-finance institutions, to promote their growth, add to the country's output and create jobs.

The move is aimed at benefiting some 58 million small businesses in the country, who account for a mere four percent of institutional funding, despite employing over 120 million people, many from unprivileged strata of society, the officials said.

"After 'banking the un-banked' with the Jan Dhan Yojana, it's time to 'fund the unfunded'," the prime minister said at an event to launch what is called Micro Units Development and Refinance Agency - Mudra.

"Mudra is our innovation of funding the unfunded," the prime minister said.

"Millions of common men and women in this country, who run small businesses, have almost remained outside the net of formal institutional finance, in spite of their large contributions to the economy," he said at the event, attended, among others by Finance Minister Arun Jaitley.

"Providing access to institutional finance to such micro and small business units and enterprises will not only help in improving the quality of life of these entrepreneurs, but also turn them into strong instruments of growth and employment generation," the finance minister said.

The initiative will also lay down the norms for responsible financing practices for micro-finance institutions so that the small businesses do not face hardship over indebtedness, while getting a fair environment for repayment.

In his budget speech delivered on February 28, the finance minister had said that while are were 5.77 crore small businesses in India, mostly individual proprietorships, these bottom-of-the-pyramid entrepreneurs found it difficult, if not impossible, to access formal systems of credit.

"I, therefore, propose to create a Micro Units Development Refinance Agency (Mudra) Bank, with a corpus of Rs.20,000 crore and a credit guarantee corpus of Rs.3,000 crore. Mudra Bank will refinance micro-finance institutions through a Pradhan Mantri Mudra Yojana," he added.

"These measures will greatly increase the confidence of young, educated or skilled workers who would now be able to aspire to become first generation entrepreneurs; existing small businesses, too, will be able to expand their activities."

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