Cabinet approves creation of a Credit Guarantee Fund for MUDRA loans

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The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi has approved 'Stand Up India' scheme and creation of a credit guarantee fund for Micro Units Development Refinance Agency (MUDRA) loans. The Fund is expected to guarantee more than Rs 1,00,000 crore worth of loans to micro and small units in the first instance.

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

Key features of the scheme :

  • Credit Guarantee Fund for MUDRA Units(CGFMU) will guarantee loans sanctioned under Pradhan Mantri Mudra Yojana (PMMY) to minimise the credit risk of Banks and other financial intermediaries who are Member Lending Institutions (MLIs).
  • The National Credit Guarantee Trustee Company Ltd. (NCGTC Ltd.) will manage  and  operate  various  credit  guarantee  funds and shall  be  the  Trustee  of  the the Fund.
  • The National Credit Guarantee Trustee Company Ltd. (NCGTC Ltd.), will be a wholly-owned company of Government of India, constituted under the Companies Act, 1956 (2013).
  • The guarantee would be provided on portfolio basis to a maximum extent of 50% of Amount in Default in the portfolio.

Micro Units Development and Refinance Agency (Mudra) :  

Mudra scheme  was set up last year by the Union govt. to fund the unfunded section which gets loans by paying interest rates as high as 35% per annum. Mudra scheme was created to ease funding problems faced by more than 57 million small businesses across India, granting loans of up to Rs.10 lakh without any collateral. It has objective of reducing borrowing costs by providing refinancing at a relatively low rate of interest. The RBI has allocated Rs 20,000 crore and the first tranche’ of Rs 5000 crore has been received by MUDRA as refinance.

Start up India and Stand up India 

Stand up India initiatives was announced by Narendra Modi in his Independence Day speech last year to support SC/ST and women entrepreneurs in the country. Under Stand up India scheme, Rs 10 lakh to Rs 1 crore will be provided as loan to them to start new ventures . The government aims to achieve the target of at least 2.5 lakh approvals in three years from the launch of the scheme. 

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