MUDRA Scheme: Credit Guarantee Funds

To boost employment and entrepreneurship, the government has approved funds of Rs 8,000 crore that will stand guarantee for loans to new ventures.

MUDRA scheme: 

Indian government has started Pradhan mantri Mudra Yojana which envisages the establishment of MUDRA banks to meet the financial requirements of non farming income generating enterprises and non corporate small business enterprises engages in trade, services and manufacturing activities.


•   Mudra banks established by statutory enactment as non banking financial institutions is a wholly owned subsidiary of SIDBI, coordinating with state/regional level financial intermediaries, with aim of refinancing micro finance institutions, regional, rural, urban cooperative banks, trust, societies, SHG-banks, scheduled commercial banks, last mile financiers (LMF) such as NBFCs.

•   Under the scheme the Mudra banks will provide three different financial products depending upon financial requirements such as shishu/kishore/tarun for requirements within 50,000/between 50,000 and 5 lakh/ between 5 lakh and 10 lakh

•    The bank will have corpus of 20,000 crore to be made available from PSL with another 3,000crore as credit guarantee corpus

•   Mudra banks would be entrusted with the responsibility of registration, regulation, accreditation of MFIs, setting up policy guidelines for them, ensuring credit guarantee for loans forwarded to micro businesses, promoting right technology solutions and good architecture for credit delivery to last mile financiers and ensuring best financial practices to ward off indebtedness, ensuring recovery of loans and client protection.

Out of Rs 8,000 crore, Rs 3,000 crore has been given to MUDRA Credit Guarantee Fund (CGF) that will safeguard against the default of Rs 50,000 to Rs 10 lakh loan extended to small entrepreneurs.

Performance till now: Launched in April 2015, the MUDRA scheme has already extended loans worth Rs 72,000 crore to 1.73 lakh beneficiaries.

How will it be beneficial?

•   It will reduce  the  credit  risk  to  Banks  /  NBFCs  /  MFIs  /  other  financial  intermediaries,  who  are  Member Lending Institutions (MLIs).It would incentivize these institution to give loan to small entrepreneurs without much hassle, and this would increase employment creation in India.