In an effort to support micro and small industries, the Union government is planning to setup the Micro Units Development and Refinance Agency (Mudra) Bank. Do you think there is necessity to set-up such bank? Substantiate. (200 Words)
The recent budget announced for creation of MUDRA Bank with an aim to reach out to the small and micro business that run short of financial resources.
The following necessitates the formation of MUDRA Bank:
- Small and Micro enterprises which contribute nearly 40% of GDP also employee’s majority of workforce. Financing them properly is an urgent necessity.
- These small enterprises are dominated by OBC, SC, ST communities. Reaching out to them through MUDRA is a social engineering endeavour as a part of inclusive growth.
- The Micro-Finance Institutions presently in this sphere are charging higher interest rates and have lesser regulation. MUDRA Bank aims to refinance at lesser interest rates and have strong regulation mechanism.
- MUDRA Bank is not just about providing finance but also regulates all MFI’s in the business.
NEGATIVE ASPECTS OF CREATING MUDRA BANK:
- India already has a huge financial mechanism aimed at financing micro units like NHB, NABARD, and SIDBI etc. Instead of reforming and restructuring these institutions for better focus, creating MUDRA is an extra burden.
- MUDRA Bank is poised to be both promoter and regulator of MFI’s. This can lead to conflict of interest issues.
- The global trend is to cater to Micro businesses through main stream banks rather than shadow institutions like MFI’s, NBFC’s and now MUDRA as it provides better regulation.
All other financial institutions which have similar and overlapping mandate like that of MUDRA Bank have to be merged into MUDRA or reformed to provide a focused and well-regulated system to better provide resources to micro units and also to make use of taxpayers money efficiently.