MUDRA bank – Finding the Missing Middle
Informal sector in most of the countries are informal because it runs illegally. India’s informal sector is unique to its own because informality comes to it as government policies have not reached it. India’s SME segment is mostly informal in nature. This sector instead of being left to die of euthanasia in market economics has posted the fastest growth rate among all the segments of the Indian economy. Instead of having huge potential, large share in GDP as well as export, employability the sector remains unfunded. The sector employs two-thirds of ST/SC and other backward classes, yet it gets 4% of the total bank credit. It is neither funded by banks nor by microfinance institutions adequately. It is because of this reasons that the SME’s in India is called the missing middle.
Micro Units Development Refinance Agency
The recent proposal of floating Micro Units Development Refinance Agency (MUDRA) Bank with a corpus of 20000crore and credit corpus of 3000 crore would be a good move towards enabling the 58 million MSME’s that do not have access to bank finance. It would be India-centric innovative approach towards a much ignored sector. It would come in with a separate law. It would integrate the private financiers of small businesses with the last mile lenders. The MUDRA bank would refinance the micro-finance institution just like the NABARD funds the rural banks. It is proposed that while lending the priority would be given to SC/ST enterprises. It would increase the confidence among the young educated and skilled workers and enable them to establish small businesses to expand their activities.
However the sector may be marred by many challenges in its course. The identification of actual beneficiary, utilization of the resource in the right direction, credit default, lack of technological know-how and such other challenges would stay even after adequate funding. The solution to it lies on the skill development and indigenization of technology, assistance and streamlining the industry with the existing ones.
This indigenous, innovative solution for a job intensive and a credit starved missing middle would be economic booster to the social sector spending.