India: Union Budget 2015/16 - Mudra for Microfinance and Financial Inclusion Growth

Feb 2015
India, February, 28 2015 - The announcement to create a Micro Units Development Refinance Agency (Mudra) Bank is a major positive step that the Finance Minister Arun Jaitley has taken on the microfinance and financial inclusion space.

"Since this is a move aimed at providing refinancing for small business enterprises, it addresses a huge gap in the current refinancing structure," says to S. Viswanatha Prasad, Managing Director, Caspian Impact Investment Adviser, which has invested in some leading microfinance institutions (MFIs). He says that many MFIs don't finance small businesses and where they do, they do not get any refinancing. Mudra, incidentally, is also a Sanskrit word for a symbolic hand gesture used in Hindu ceremonies and dance.

Jaitley said he was proposing to create a Mudra Bank, with a corpus of Rs 20,000 crore, and credit guarantee corpus of Rs 3,000 crore. Mudra Bank, he said, "will refinance microfinance institutions through a Pradhan Mantri Mudra Yojana". In this, he said, priority will be given to SC/ST enterprises. "Just as we are banking the unbanked, we are also funding the unfunded," he said.

The other positive in the Budget relates to alternate investment fund vehicle. India being one of the few countries where social impact funds also tend to come under the category of alternate investment fund vehicles and get regulated by the SEBI (Securities and Exchange Board of India). The provisions announced by Jaitley will help in not only setting up funds in India but also attracting foreign funds into start-up impact financing and early stage impact business.


*Not broadening the priority sector definition and looking beyond livelihood needs of the poor, a clear miss.

*No direct benefit for MFIs.

*Despite women being the bulk of the borrowers for microcredit, there was nothing specific to encourage women entrepreneurs. For instance, there could have been some share from Mudra for women.

Source : Business Today

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