MUDRA’s listed role and functions carry with them a lot of ambiguity and confusion. Is even the Reserve Bank of India clear as to what role MUDRA would play?
The launch of Micro Units Development and Refinance Agency (MUDRA) Bank by Prime Minister Narendra Modi before he left for Canada, Germany and France on a nine-day tour is being seen as a landmark akin to ‘Garibi Hatao’ and Integrated Rural Development Programme (IRDP) of the forgotten decades. People say that name has a lot to do with institutions. The name and style of MUDRA has built into it an agency and a bank. It has in it, development and refinance as functions.
What will be the rules of refinance? Same as that of National Bank for Agriculture and Rural Development (NABARD)? The failure of both NABARD and Small Industries Development Bank of India (SIDBI), which were opened with much more fanfare, have disappointed because the persons occupying key positions after the initial progressive Chairmen, were all from their parent institutions and their mindset did not change.
Even today, a decision from NABARD moves like the wheels of the chariot of Lord Jagannatha of Puri. For example, the fund announced for promoting processing companies in 2014-15 languished till 31 March 2015 for want of putting in place the needed architecture. Same is the case with SIDBI, where the fund announced for micro and small enterprise (MSE) promotion and development hardly took off till the end of March 2015.
NABARD has significant achievements on its report card like watershed management, self-help group (SHG)-bank linkage and dairy finance. It failed to strengthen the cooperatives and regional rural banks (RRBs), both as a refinance agency and supervisor. Similarly, SIDBI jumped into micro finance. It still has many unfulfilled expectations from the micro and small enterprises (MSEs), its principal mandate. Its IDBI culture made it move in favour of collateralised large volumes and prime lending institutions hardly saw it as leader in lending to the micro, small and medium enterprises (MSME) sector. Its Credit Guarantee Fund Trust Scheme for Micro & Small Enterprises (CGTMSE) has little to claim. Now MUDRA Bank joins as one of its arms!
Both NABARD and SIDBI are fully owned institutions of government of India. Bharatiya Mahila Bank (BMB) that joined the league a year ago, is yet to report its strength in fulfilling the objectives for which it is set up. Is it failure of management or governance or policy or regulation? Is there a guarantee in waiting for the MUDRA Bank to behave better? How?
Both NABARD and SIDBI have grown under the culture of ‘suspect and respect’ instead of ‘respect and suspect’ borrowers who belong to the neediest sections of the society. MUDRA Bank for the time being at least is an appendage to SIDBI. Mudra’s role as has been announced includes:
• Policy formulation for financing micro enterprises, small business firms and registration of microfinance institutions (MFIs);
• Rating and accreditation of MFIs;
• Setting benchmarks for best practices of lending , client protection and customer service;
• Providing technology support to cover the last mile entity;
• Formulating and running a credit guarantee scheme for micro enterprises;
• Setting up a good architecture for micro finance; and
• Acting as a development and refinance institution.
The above listed role and functions carry with them a lot of ambiguity and confusion to say the least. Is it going to be an institution engaged in policy for funding the poor or be a regulatory institution for the MFIs? It will secure a capital of Rs20,000 crore from the union government as part of budgetary grant. It will also gets Rs3,000 crore to provide credit guarantee to the primary borrowers as a risk cover fund.
The Finance Secretary, while responding to some queries on the set up and functions mentions that the Bill, a year hence, would define the umbilical cord between the MFIs (even the MFIs would be defined then) and MUDRA. I am not sure whether even the Reserve Bank of India (RBI) is clear as to what role MUDRA would play and what type of clientele it would embrace? Will it be a refinancing institution as the name indicates?
Any financial institution should have built-in capabilities for cross-holding risks among various client groups. MUDRA does not exude confidence in this direction, as there would appear to be a concentration risk in operations and sovereign risk in funding and governance. These risks need resolution up front instead of later.
The loan products announced, Shishu, Kishore, Tarun are highly innovative and one would like to see the conditions and timelines attached for the sanction of loans. Will MUDRA sanction them? Or will it refinance them? If it is refinance, when the banks do not fall short of resources, why would they borrow from MUDRA and do on-lending to the retail borrowers? Glitter of products should not be allowed to fade away in acts of inefficiency.
The political desire to provide access to the informal sector is one thing and putting in place the right policies, processes and right persons to execute it is another. Hope that the government would carefully ponder over the organisational structure, nature, role and functions and have informed discussions and wide stakeholder consultations sans the west-bound institutions like the Accenture or PWC.
MUDRA should be an institution embedded in the culture of promoting equity and discipline the cardinal principles of lending for the poor. Like many, I also have lot of hope and a hope that should see its fulfilment.
(Dr Yerram Raju Behara is a former senior executive of SBI and an economist and risk management specialist. The views expressed in the article are his personal.