What is Mudra?
Pradhan Mantri Mudra Yojana is an initiative introduced by the Government of India to fund non-corporate, non-agricultural small businesses in the country. Under this scheme, government launched Mudra Bank, a non-banking finance institution with RBI in the year 2015. Micro business units contribute to the overall economic growth of a country and provide large employment after agriculture. To fund the non-corporate small business sectors, government set up the Micro Units Development and Refinance Agency LTD (Mudra Bank). Many leading private and non-private banks joined hands with the government and generated Mudra Loan to fund the unfunded. One of the main objective of this initiative is to introduce the non-banking population in India to mainstream banking.
What is SIDBI?
Founded in the year 1990, Small Industries and Development Bank of India (SIDBI) was launched with an objective to fund micro, small and medium enterprises in the country. The functions of SIDBI include financing small scale industrial units, provide seed capital and technical assistance to the startups and to promote the spirit of entrepreneurship among the citizens. With a mission to facilitate and strengthen credit flow to MSMEs, SIDBI has come a long way in its journey. SIDBI also addresses the financial and non-financial gaps in MSME system and provides support accordingly.
Difference between Mudra and SIDBI
Loan amount: While Mudra bank can sanction loan amount of up to Rs.10 lakh, SIDBI has the authority to sanction loan of higher amounts. If a micro unit requires funds more than Rs.10 lakh, SIDBI is the right choice.
Hierarchy: SIDBI is the principal financial institution created to promote, finance, and develop small, and medium enterprises in the nation, whereas, Mudra is set up as a subsidiary of SIDBI to fund the population that is not covered by SIDBI.
Functions: SIDBI offers non-financial support to MSMEs in India and bridges any technical, marketing and other gaps identified, On the other hand, Mudra offers mere financial assistance.
Target group: SIDBI focuses on financing MSMEs in India and wasn’t doing great with the most vulnerable and the landless section of the society. Hence, Mudra was set up to “Fund the unfunded” without any collateral.
How is Mudra different from other schemes?
- Mudra focuses on the most vulnerable, neglected section of the society for whom government funding will significantly help.
- Mudra doesn’t require any collateral unlike other schemes which requires collateral and a guarantor.
- Mudra aims at improving the micro financing sector in India by offering three different types of loans, namely Shishu, Kishore, and Tarun. Loan up to Rs.50, 000 falls in the Shishu category and loan amount ranging from Rs.50, 000 to Rs.5 lakh falls under Kishore and loan amount ranging from Rs.5 lakh to Rs.10 lakh falls under Tarun.
- Unlike many other leading micro financing institutions, Mudra charges interest on a daily basis and thus avoids over burdening the borrower with hefty interest rates. For example: If a vegetable vendor borrows money to buy his supplies, he can repay the amount borrowed as soon as he/she sells the vegetables and doesn’t have to wait for 3, 6 or 9 months to repay it. The interest will be charged for the days he/she has kept the money borrowed.
- Mudra also takes micro financing to the next level by introducing Mudra Card which is a debit card issued to the borrowers to withdraw and deposit cash without visiting a bank. This gives a borrower the flexibility to withdraw as much as they want and to repay when they have surplus.
- Apart from financing micro units, Mudra also aims to promote banking and introduce people who have never banked before to mainstream banking.
Though, there are many similar initiatives like Mudra in India already, Mudra creates awareness and provokes mass interest which is very vital to the economy. It re brands all existing schemes and presents it to the citizens in an attractive and simple manner.
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