To address the need for funding for micro, small, and medium-sized enterprises, the Micro Units Development and Refinance Agency (MUDRA) Bank, a public sector financial institution, was launched with funding of Rs 200 billion for on-lending and Rs 30 billion for provision of credit guarantees. MUDRA Bank is a subsidiary of the Small Industries Development Bank of India (SIDBI), the apex bank for the development of small industries in the country. MUDRA Bank provides refinance to last mile providers of finance for micro and small enterprise loans. Commercial banks, regional rural banks, cooperative banks, nonbanking financial companies, and microfinance institutions are eligible to obtain refinance for loans under three categories: up to Rs 50,000, Rs 50,000 to Rs 0.5 million, and Rs 0.5 million to Rs 1 million. The three categories cater to microenterprises at different stages of development, though 60% of MUDRA Bank’s funding is earmarked to cater to the first category. The loans are meant to be for nonfarm income-generating activities availability of funding through MUDRA Bank will bring down the average cost of funds for the lending institution and consequently the interest rate charged to borrowers.
