Money & Banking
MUDRA Bank: Confusions galore
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.)
 

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COMMENTS

Matyamad

1 year ago

The article doesn't specifies how NABARF and SIDBI failed and disappointed in development of MSMEs.

Satish Kalra

2 years ago

Dr Yerram Raju Behara has raised the right concerns at the right time. I think we should learn the lessons from the way NABARD & SIDBI has performed or not performed. NABARD has virtually become a Research Agency. SIDBI also is far from the desired objective of promoting the entrepreneur in the informal sector in Micro and Small Category. It is also difficult to break the inertia of Commercial Banks and generate in them the love for the informal sector.

REPLY

Bal krishna Gupta

In Reply to Satish Kalra 2 years ago

i AGREE.

Satish Kalra

2 years ago

I think the author has raised the right concerns at the right time. RBI and the GOI may like to examine. NABARD has become a University of Research Reports instead of making real contribution to being a Bank for Agricultural and Rural Development. SIDBI too has not contributed significantly to the Micro & Small Segment in the formal sector. If some readers need any data a casual perusal of the websites and reports of these institutions can make it clear.

Satish Kalra

2 years ago

I think the author has raised the right concerns at the right time. RBI and the GOI may like to examine. NABARD has become a University of Research Reports instead of making real contribution to being a Bank for Agricultural and Rural Development. SIDBI too has not contributed significantly to the Micro & Small Segment in the formal sector. If some readers need any data a casual perusal of the websites and reports of these institutions can make it clear.

Bal krishna Gupta

2 years ago

There is no point in designing new bottles for existing wines.
There are enough seekers : only the vendors, the usual suspects, the commercial banks,are missing in action.

The refinancing body, MUDRA, cannot by itself disburse the Micro loans.

As soon as it condescend to allow MFIs to lend to the Micro enterprises and refinance the MFIs in turn, the vicious circle would have started. The middlemen and in many cases the promotes of MFIs themselves would create Muster rolls of Farzi Borrowers and gulp the proceeds.

Bal krishna Gupta

2 years ago

There is no point in designing new bottles for existing wines.
There are enough seekers : only the vendors, the usual suspects, the commercial banks,are missing in action.

The refinancing body, MUDRA, cannot by itself disburse the Micro loans.

As soon as it condescend to allow MFIs to lend to the Micro enterprises and refinance the MFIs in turn, the vicious circle would have started. The middlemen and in many cases the promotes of MFIs themselves would create Muster rolls of Farzi Borrowers and gulp the proceeds.

Ramesh Ramaswamy

2 years ago

Very well articulated....

MG Warrier

2 years ago

One cannot deny that there remains enough ‘space’ for some more new institutions in the Indian Financial System. Problem arises, and that problem should not be seen lightly, when new institutions are floated when existing ones stray away from their responsibilities or government finds it expedient to entrust funds and responsibilities to a new organisation because the one which exists follows prudent norms, which, if applied to the clientele now targeted, will delay things. In addition to Mahila Bank of 2014 and MUDRA (Bank?) of 2015, RBI Governor is optimistic about a variety of small, medium and large banks opening shops during the next couple of years.
When SBI, UTI, IDBI, SIDBI, NABARD, RRBs and EXIM Bank were formed or structural or ownership changes were made in commercial banks and banks cooperative sector, there was close consultation between GOI and RBI which ensured smooth launching of institutions and introduction of changes. Mahila Bank and MUDRA are concepts which had fast=track launching. Regulatory and supervisory concerns and concerns of overlap of responsibilities should be addressed by GOI and RBI.

V. Jaganmohan

2 years ago

To convert MUDRA Bank into a potential game changer, Government should consider the following:
1) The Headquarters of the proposed MUDRA Bank should be located in any city which has less than one million population. Being in small city, it would be able to appreciate the requirements of small and micro businesses which are spread over thousands of villages and small towns. 2)It should recruit all young staff below age of 25 who have graduated in Commerce, Economics, Social Sciences or Rural Management. There should not be any deputation of staff from Commercial Banks, NABARD and SIDBI 3) 75% of staff recruited should have origins in small towns and villages of India. There should be minimum representation from Metro cities. 4) The Bank should adopt technology from the day one. 5) The Bank should also provide some refinance, apart from MFIs, to RRBs, Small Finance Banks and State Cooperative Banks for reaching last mile connectivity to small borrowers in non-formal sector. 6) The shortfall of targets in Commercial Banks with regard to lending to MSMES should be invested in MUDRA Bank on the lines of RIDF window of NABARD so that MUDRA would get cheap resources. 7) Govt. of India should place annual progress report on the performance of MUDRA Bank to Parliament to assess the impact being made by the Bank in reaching the unfunded.

Ajeesh Balu

2 years ago

How can one blatantly say that NABARD and SIDBI were failures? Compare various statistics- Incremental Food grain production during decades after independence and till now- Credit flow in rural areas- Self Help Groups that flourishes in the country- people who have come out of poverty. They might not have lived up to every expectations, but surely they have made a difference.

Further, the food processing fund was allocated to NABARD in October 2014 only and it could come up with the guidelines, get proposals and sanction projects worth 215 Cr. One should not forget that NABARD has consistently achieved the targets set to it by union government.

The job of an academician or a stray commenter is easy. The statements must be accompanied with real facts. As far as MUDRA bank is concerned, it will act as a refinancing agency. The author has pointed out that 'when the banks do not fall short of resources, why would they borrow from MUDRA'. The simple reason is if the banks were really into micro credit there would not be any need for MUDRA. But as we know the banks are hesitant towards micro finance sector. Refinance from MURDRA would provide them more funds(@low interest rates) to play around with even if they are flushed with funds. Hope MUDRA would realign the MFI sector with the much deserved focus and attention it deserves.

REPLY

B. Yerram Raju

In Reply to Ajeesh Balu 2 years ago

No public sector bank ever failed to achieve a target and NABARD too!! The speed of execution and reach are important. Look at the annual reports of NABARD that vindicate my point: Cooperatives that had share of 62% in agriculture credit when NABARD was established has come down to 14% in 2014 and still down now. Remember I gave credit where it deserved - watershed management, dairy, shg-bank linkage. it has more earnings from the armchair lending of RIDF and treasury management.
My comments are not from an academic economist comments - they are borne of the concern for the emergence of organisations with proper policies and culture up front. Anxiety to jump into bandwagon should not obfuscate the purpose and raison de etre for emergence for new institutions.

Charu Dutt Sharma

2 years ago

Very well written point Dr. Y. Raju. Headline should be Mudra Bank : Way Forward. In my view its right step in right direction. Only concern which you have pointed very well, is execution with right intent.

S K Agarwal

2 years ago

Most commercial banks in all practical approach at the small branch level shun financing upcoming entrepreneurs without proper security. Even they ask some security for financing under Govt schemes as they fear loss of money despite the fact that subsidy is received from Govt.

MUDRA will wipe out this fear and every small and very small entrepreneur willing to work, will get financial assistance.

Vasant Godse

2 years ago

Writers in Money life know everything about everything. Do we not give some time for an evolving concept? Theoretically time is needed for a system even to fail!Shall we that generous?

Vasant

Vasant Godse

2 years ago

Writers in Money life know everything about everything. Do we not give some time for an evolving concept? Theoretically time is needed for a system even to fail!Shall we that generous?

Vasant

Gopalakrishnan T V

2 years ago

No doubt good Institutions are real strengths for any economy to grow fast, but they cannot remain parasites and turn out to be white elephants in the long run. NABARD and SIDBI were set up with lot of fanfare but a seriuos introspection would reveal that they have not played their role effectively and both agriculture and small Industries have suffered over a period cannot be ignored. NABARD could have done wonders by playing the role of a coordinating agency bringing in the necessary infrastructure to give a boost to agricuture and rural development.Agricultural sector suffers for want of adequate and timely finance, lack of adequate infrastructure like roads, stoarge, transportation , marketuing and exploitation my politicians and middlemen in all possible ways one can imagine. If NABARD had been proactive, agricultural greowth and its share in GDP would not have registered such a steep fall and shamed the nation which is predominantly an agricultural one.The farmers even today suffer for want of irrigation, insurance, timely finance, infrastructure etc which NABARD could have easily taken care of with proper coordination with states agricultural departments, Insurance Companies, marketing and distribution agencies with proper storage facilities and cheap transportation facilities. Instead they concentrated on refinancing ignoring the presnce of Cooperatives, RRBs and other agencies involved in rural development. The fact remains that after creation of NABARD, agriculture and Rural segment has suffered cannot be challneged.Similar is the case with SIDBI. Small Scale sector which is the provider of maximum employment opportunities and which can give a boost to our exports have not been given the required support to grow with all potential it had. Institutions are there to identify the gaps in infrastruture, the potential for growth and provide the required support in terms of finance, professional management for enhanced, productivity with quality and export etc.Hope MUDRA Bank will learn its lessons from the failures of NABARD and SIDBI and will emerge as a unique set up to set up and support new and old micro units. The author has expressed his concern from past experience and seeing perhaps the poor performance of agriculture, Small scale units and micro units with all institutional presence exclusively set up for giving a phillip to the rural segemnt.

Rajasthan Royals player approached for fixing
A Rajasthan Royals cricketer was approached a month ago for fixing 2015 Indian Premier League (IPL) matches, the team said on Friday.
 
The Royals reaction comes in after the Indian Express reported on Friday that the Mumbai-based Royals player was approached by his Ranji Trophy teammate "with an offer of money if he followed a pre-decided pattern of play".
 
The player refused the offer and informed his team management, who in turn reported the matter to the Board of Control for Cricket in India's (BCCI) Anti-Corruption and Security Unit (ACSU).
 
"Over a month ago, a player from Rajasthan Royals was approached inappropriately by a player (who was not part of the IPL) in connection with the IPL 2015 matches. Maintaining high standards of integrity, the player informed the team management of this inappropriate approach," said Royals chief executive officer (CEO) Raghu Iyer.
 
"In keeping with applicable IPL regulations, Rajasthan Royals management immediately reported the incident to the ACSU of the BCCI."
 
Iyer praised the unnamed player for reporting the incident: "Rajasthan Royals commends the player for having reported this incident immediately and for his honesty and uprightness. His dedication to maintain the highest standards of integrity needs to be lauded."
 
The CEO added that the team will totally cooperate with the ACSU in further investigations.
 
"Rajasthan Royals in keeping with its zero tolerance approach immediately reported the incident further to the ACSU/BCCI for further process. Rajasthan Royals will continue to provide full support and assistance to the BCCI to ensure that the game of cricket is played in the right spirit," said Iyer.
 
"This incident does highlight that if players and other officials cooperate and disclose information or approaches immediately, the game can be kept clean and free from undesirable elements and activities."
 
The incident is reminiscent of the IPL spot-fixing and betting scandal which involved the Royals. In the 2013 edition of the Twenty20 tournament, Delhi Police arrested three cricketers -- S. Sreesanth, Ajit Chandila and Ankeet Chavan -- on charges of spot-fixing.
 
Sreesanth and Chavan were banned for life by the BCCI following investigations while Chandila's case is still pending.
 
Later in a separate case, Mumbai police arrested former Chennai Super Kings team official Gurunath Meiyappan, who is the son-in-law of the then BCCI president and current ICC chairman N. Srinivasan, for betting.
 
Meiyappan and Royals co-owner Raj Kundra were found guilty of betting by the Supreme Court.
 
The Royals play their first IPL match of the 2015 season against Kings XI Punjab on Friday in Pune.

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'Game of Thrones' piracy soars on internet
Fantasy drama TV series "Game of Thrones" piracy has spiked ahead of the April 12 premiere of the fifth season.
 
According to rights management and piracy protection firm Irdeto, episodes of “Game of Thrones” were downloaded more than seven million times during a three-month period this year, reports hollywoodreporter.com.
 
That's a 45 percent jump from the 4.9 million illegal downloads that the firm reported for the same period in 2014. 
 
The numbers make “Game of Thrones” the most pirated show from February 5 to April 6 this year, ahead of “The Walking Dead” (5.7 million downloads), “Breaking Bad” (3.8 million), “Vikings” (3.4 million) and “House of Cards” (2.7 million), according to Irdeto's research. 
 
Brazil ranks as the top country for illegal “Game of Thrones” downloads. France comes in second and US rounds out the top three. 

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