Parliamentary panel seeks bigger roles for MFI as MUDRA yojna seems sluggish

Concerned over sluggish refinancing under the MUDRA Yojna for tiny enterprises, a parliamentary panel has suggested a bigger role for micro-finance 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 recently, out of the first tranche of Rs 5,000 crore to MUDRA, only Rs 2,184 crore were sanctioned till the first week of February 2016 and only Rs 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 Yojna 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 Yojna was around 19 per cent, 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 per cent, 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 Rs 1,100 crore, another is Rs 10,000 crore of RIDF money.

Also read : Microfinance institutions have witnessed a gross loan growth of 69% in the previous quarter

SIDBI has got Rs 2,500 crore and started soft loan fund for MSME (SMILE) and has already disbursed loan of approximately Rs 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. (ET)