The implementation of the MUDRA Loan scheme could go haywire if done incorrectly, say some experts. Originally, the MUDRA scheme was not intended to be under the purview of the RBI, and was to function as an independent lending unit.
As per the original recommendation, the MUDRA Loan scheme was to be the entity to lend to SBFCs (Small Business Finance Corporations), who would then lend directly to the person or entity applying for the loan.
According to reports, MUDRA will lend to NBFCs, who will then lend to LMFs (Last Mile Financiers), who will then lend it to the person or entity applying for the loan.
One of the primary reasons that MUDRA was envisaged was that regular people in rural or low-income areas that did not have access to banks and other financial institutions could get the funding they required to build / repair homes, maintain a stable standard of living, and pursue entrepreneurial ventures to establish a sustainable source of income.
Although, as is the case with any lending institution, MUDRA Loan will also have to bear the accumulated loss of defaults and dishonoured repayments. It is for this reason that the RBI has established a credit guarantee fund of Rs.3,000 crore that acts as a security against defaulted loans.
Under the MUDRA scheme, loans are disbursed in phases of increasing value depending on the performance of the borrower (the primary demographic for which has been identified as unorganised businessmen). The first loan product is for amounts up to Rs.50,000, the second is for amounts up to Rs.2,00,000, and the third is for amounts up to Rs.10,00,000.
The success or failure of the MUDRA Loan plan could be entirely dependent on the way in which it’s implemented.
As per the original recommendation, the MUDRA Loan scheme was to be the entity to lend to SBFCs (Small Business Finance Corporations), who would then lend directly to the person or entity applying for the loan.
According to reports, MUDRA will lend to NBFCs, who will then lend to LMFs (Last Mile Financiers), who will then lend it to the person or entity applying for the loan.
One of the primary reasons that MUDRA was envisaged was that regular people in rural or low-income areas that did not have access to banks and other financial institutions could get the funding they required to build / repair homes, maintain a stable standard of living, and pursue entrepreneurial ventures to establish a sustainable source of income.
Although, as is the case with any lending institution, MUDRA Loan will also have to bear the accumulated loss of defaults and dishonoured repayments. It is for this reason that the RBI has established a credit guarantee fund of Rs.3,000 crore that acts as a security against defaulted loans.
Under the MUDRA scheme, loans are disbursed in phases of increasing value depending on the performance of the borrower (the primary demographic for which has been identified as unorganised businessmen). The first loan product is for amounts up to Rs.50,000, the second is for amounts up to Rs.2,00,000, and the third is for amounts up to Rs.10,00,000.
The success or failure of the MUDRA Loan plan could be entirely dependent on the way in which it’s implemented.