New Delhi: A legislation on MUDRA Bank is expected to be introduced in Parliament within a year and it will incorporate provisions of the Micro Finance Institutions Bill that was prepared by the previous government, the Finance Ministry said.
The MUDRA Bill will seek to create a financial institution for providing funding to 5.77 crore micro and small business entities engaged in manufacturing, trading and services.
The roles envisaged for MUDRA Bank include laying down policy guidelines for micro enterprise financing business as well as registration of MFIs, their accreditation and rating.
Speaking on the launch of Pradhan Mantri MUDRA Yojana, Financial Services Secretary Hasmukh Adhia said there will not be a separate bill on MFIs as many components of that would be incorporated in the proposed MUDRA Bill.
Asked if there is a plan to merge old MFI Bill into MUDRA Bill, he said, "some components of MFI Bill will definitely come to MUDRA Bill".
So, there will not be a separate MFI Bill, Adhia said, adding that "it will be a part of MUDRA Bill... It will be tabled in Parliament in the next 6 months to one year".
On a question if MUDRA would regulate the NBFC (MFI), Adhia said, "That decision would be taken when the Bill will be framed."
On whether MUDRA, a subsidiary of SIDBI registered as NBFC, would be transformed into a universal bank, he said the government is yet to firm up idea on this.
"Government can decide to make it as policy bank like NHB or it can decide to make it universal bank," he said.
Speaking about the broad contours of the proposed Bill he said, "it will define what is going to be the MFI. What is our definition of MFI. It will try and put in some process of registering new MFIs with MUDRA Bank."
It will also define functioning and objective of MUDRA Bank, Adhia said, adding that "it will also put in place entire mechanism as to how much interest rate can be charged for micro sector etc".
Speaking of the initiative launched today by the Prime Minister Narendra Modi, Adhia said MUDRA has been registered as company and an NBFC under RBI. It will become a statutory body after the bill on this is passed by Parliament.
For now, he said, the government has "already appointed the CEO of this institution. One of the Chief General Managers of Narbard Jiji Memon has been appointed CEO of the institution. Even the board is in the place and
CEO is in place so the functioning would start from today".
The institution has started the refinancing activity at 7 per cent interest rate, he said.
Adhia said: "The lending rate (to the end borrower) would be decided on the risk margin that MFI will undertake. Right now RBI has only permitted them risk margin so the ultimate lending rate would be decided by MFIS and other lending agencies.
"We would put some restrictions on interest rate because you are using my fund, MUDRA fund then you cannot lend more than the prescribed rate. That rate would be decided by board of the MUDRA NBFC."
The idea behind the creation of such an institution is to provide funding to unfunded in the remotest areas of the country, he said.
"We would encourage more MFIs to be created. So the purpose of MUDRA is to create as many MFIs as possible who can actually provide same kind of eco-system and services which are available now to these poor people.
It will provide much needed fund at poor people doorsteps at a reasonable rate of interest," Adhia said.
"Same architecture, same eco-system we want to create this by creating more MFIs in the system. We rely too much only on commercial banks and unfortunately commercial banks are comfortable lending to people who want more than Rs 10 lakh. Their main forte has never been micro-finance and that's what we are targeting," he added.