Home/ Politics / Policy/  Parliamentary committee seeks bigger role for MFIs in Mudra Yojana

New Delhi: Concerned over sluggish refinancing under the Mudra Yojana for tiny enterprises, a parliamentary panel has suggested a bigger role for microfinance institutions (MFIs) while capping their interest rates at “reasonable rates".

As per the report by the parliamentary standing committee pertaining to the ministry of micro, small and medium enterprises (MSME) presented in the Rajya Sabha on Tuesday, out of the first tranche of 5,000 crore to Mudra, only 2,184 crore were sanctioned till the first week of February 2016 and only 1,364 crore were disbursed.

“The committee found that refinancing of MFIs and NBFCs has been rather sluggish as compared to scheduled banks," the report said, adding that lending banks were not coming forward to avail of refinance from Mudra Bank.

MFIs have scarce fund and need cheap and prompt refinance and should be the “natural partners in Mudra Yojana instead of cash-rich banks whose RIDF (rural infrastructure development fund) forms the corpus of the scheme", it added.

The report, however, stressed on the need to reduce the high interest rates charged by MFIs.

“While MFIs have the advantage of outreach and minimal paperwork, the actual interest rates permissible to MFIs under the Mudra Yojana was around 19%, which is too high," the report said.

Seeking reasons from the ministry for the sluggish refinancing, the committee said it “apprehends that perhaps banks find the interest cap prescribed under the refinancing conditions too restrictive".

Interest rates permissible for the scheduled banks under the Mudra scheme are at around 8-9%, which was lower than the prevailing interest rate charged by banks, it said.

“The committee, therefore, recommends that interest rates for MFIs should be capped at a reasonable rate," it said while recommending the MSME ministry to explore the possibility to finance bank loan component of a PMEGP (Prime Minister’s Employment Generation Programme) project under Mudra.

Such a step, the committee said “will reduce the aggregate interest incident, substantially".

On the issue of funding for start-ups, the panel lamented that SIDBI is implementing one of the two funds instead of the MSME Ministry. While one fund is managed by the department of industrial policy and promotion, which has been allocated 1,100 crore, another is 10,000 crore of RIDF money.

SIDBI has got 2,500 crore and started soft loan fund for MSME (SMILE) and has already disbursed loan of approximately 650 crore, the report said.

“The committee wonders that a scheme for MSME start-ups is not assigned to the ministry of MSME and is being implemented through SIDBI," it said, adding that the panel was not provided information when it asked for details of the SMILE scheme.

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Updated: 04 May 2016, 02:52 AM IST
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