Cabinet approves Rs1,00,000-cr credit guarantee fund for MUDRA loans

The union cabinet has approved the creation of a fund that would guarantee more than Rs1,00,000 crore worth of loans to micro and small units in the first instance.

The cabinet, chaired by Prime Minister Narendra Modi on Wednesday gave its approval for the creation of the Credit Guarantee Fund for Micro Units  Development  Refinance  Agency  (MUDRA) loans.

The cabinet also approved the conversion of MUDRA Ltd into MUDRA Small Industries Development Bank of India (SIDBI) Bank, as a wholly-owned subsidiary of SIDBI.

The Credit Guarantee Fund for MUDRA Units (CGFMU) will guarantee loans sanctioned under the Pradhan Mantri Mudra Yojana with effect from 8 April 2015 so as to reduce  the  credit  risk  to  banks/NBFCs/MFIs/other  financial  intermediaries that  are  member lending institutions (MLIs).

The National Credit Guarantee Trustee Company Ltd (NCGTC Ltd), a  wholly-owned  company  of the Government  of  India, constituted under  the  Companies  Act, 1956 (2013), which will manage and operate various credit  guarantee funds, will be the trustee of the fund.

The guarantee would be provided on portfolio basis to a maximum extent of  50 per cent of the amount in default in the portfolio.

The MUDRA (SIDBI) Bank will undertake refinance operations and provide support services with focus on portal management, data analysis etc apart from any other activity entrusted/ advised by Government of India.

Finance minister Arun Jaitley had, in his budget for 2015-16, proposed the setting up of MUDRA Bank and a credit  guarantee fund with a refinance corpus of Rs20,000  crore and a corpus of Rs3,000  crore, respectively.  As a precursor to the launch of the Pradhan Mantri MUDRA Yojana (PMMY) in April 2015, MUDRA Ltd was set up as a corporate subsidiary of SIDBI in March 2015. The RBI has allocated Rs20,000 crore for the refinance corpus and MUDRA has received the first tranche of Rs5,000 crore as refinance.