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Home / Politics / Policy /  Credit guarantee fund for Mudra scheme gets cabinet approval

New Delhi: The Union cabinet on Wednesday gave its approval to a slew of proposals including one for the creation of a credit guarantee fund for the government’s flagship Mudra scheme.

Mudra or the Micro Units Development and Refinance Agency was set up last year to help ease funding problems faced by more than 57 million small businesses across India, granting loans of up to 10 lakh without any collateral. It also has the objective of reducing borrowing costs by providing refinancing at a relatively low rate of interest.

The credit guarantee fund, with a corpus of 3,000 crore, is aimed at protecting banks against possible defaults by borrowers and encouraging them to lend more to the segment without fearing a default.

In a post-cabinet briefing, finance minister Arun Jaitley said that the Mudra scheme has around 1.73 crore beneficiaries, with funds disbursed so far adding up to more than 73,000 crore.

The guarantee will be provided on portfolio basis for a default of up to 50% of the total Mudra portfolio of banks.

“The fund is expected to guarantee more than 1,00,000 crore worth of loans to micro and small units in the first instance," the government said in a statement.

The government also hinted that micro-finance institutions (MFIs) registered as non-banking financial companies (NBFCs) will continue to be regulated by the Reserve Bank of India, putting to rest concerns over Mudra becoming the overarching regulator for all MFIs, including NBFC-MFIs and non-governmental organization MFIs as proposed last year by the department of financial services, under the finance ministry.

“Reserve Bank of India is already the regulatory body for NBFC-MFIs," said Anjuly Chib Duggal, secretary, department of financial services (DFS).

In another decision, the cabinet gave its go-ahead to a pact signed between India and Singapore for cooperation in civil aviation, the statement said.

The pact between the Airports Authority of India and the Singapore Cooperation Enterprise was signed during Prime Minister Narendra Modi’s visit to Singapore in November.

Key elements of the pact include collaboration in the areas of master planning and design, traffic and commercial development, service quality improvement, training and development, cargo handling and management, maintenance, repair and overhaul besides operation and management and any other area of mutual consent, the statement said.

“Government of Singapore owns one of the best managed airports in the world, which has consistently maintained its ranking for many years. A need was felt that in order to ensure high standards of service at Ahmedabad and Jaipur airports, Airports Authority of India may enter into operation and maintenance contracts," the statement said.

The cabinet also gave its approval for a pact signed between India and Bangladesh in 2010 for setting up “haats" or local markets along the border to “promote the well-being" of people living in remote border areas.

“The border haats aim at promoting the well-being of the people dwelling in remote areas across the borders of the two countries, by establishing a traditional system of marketing local produce through local markets in local currency and/or barter basis," the statement said.

“Though not significant as a percentage of bilateral trade, these measures help to improve the economic well-being of marginalised sections of society," it said.

The pact allowed for a few haats to be set up as a pilot at select areas, including on the Meghalaya border, “to allow trade in specified products and in accordance with the regulations agreed and notified by both governments," the statement said.

There are four operational border haats at present—at Kalaichar and Balat along the Meghalaya border, and Kamlasagar and Srinagar along the Tripura border. In addition, both governments had agreed to set up two more haats in Tripura and four haats in Meghalaya.

The cabinet also approved the transfer of land from the Farakka barrage project to the Inland Waterways Authority of India for the construction of a new navigational lock for the movement of vessels on National Waterway 1.

The Cabinet Committee on Economic Affairs gave its approval for the four-laning of the Nagina-Kashipur section of National Highway 74 in Uttarakhand and Uttar Pradesh. The work will be carried out under the National Highways Development Project (NHDP) Phase-IV at an estimated cost of 2,535.54 crore. The 99-km road is expected to reduce the time and cost of travel on the Nagina-Kashipur sector.

The cabinet approved pacts signed earlier between the ministry of corporate affairs, the Competition Commission of India and the Indian Institute of Corporate Affairs with foreign organizations like the ministry of economic affairs of the Netherlands and the Federal Anti-monopoly Service of the Russian Federation.

“The signing of memoranda of understanding will facilitate the exchange of knowledge and information, technical cooperation, experience sharing, enforcement cooperation, etc., with the concerned organisations," the statement said.

To bring back momentum in the Ganga clean-up process, the cabinet approved a hybrid annuity-based public-private partnership model under the Namami Gange programme for wastewater treatment, fast-tracking projects and ensuring effective utilization of funds.

“In this model, a part of the capital investment (up to 40%) will be paid by the government through construction-linked milestones and the balance through an annuity over the contract duration, up to 20 years," said the statement.

Under the model, special purpose vehicles will be created to carry out cleaning of sewage treatment plants along the river. Payment will be made on an annuity basis to ensure that projects are not abandoned midway.

In another decision, the cabinet approved the proposal for placing the new instrument adopted by International Labour Organization (ILO) concerning ‘The Transition from the Informal to the Formal Economy’ before Parliament. It means the country will make efforts to help unorganized sector workers shift to the organized sector.

Separately, the Cabinet Committee of Economic Affairs also gave its approval for the closure of three loss-making subsidiaries of HMT Ltd, including HMT Watches Ltd, HMT Chinar Watches Ltd and HMT Bearings Ltd, after offering a thousand employees voluntary retirement. A cash assistance of 427.48 crore will be provided and the voluntary retirement package will be based on the 2007 payscale.

Pretika Khanna and Prashant K. Nanda contributed to this story.

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