– Dr. H.R. Keshavamurthy –
India is one of the youngest nations in the world with more than 54% of the total population below 25 years of age. Our young people have to be both educated and employable for the jobs of the 21st Century. Yet less than 5% of our potential workforce gets formal skill training to be employable and stay employable. With rural population still forming close to 70% of India’s population, enhancing the employability of rural youth is the key to unlocking India’s demographic dividend.
The year 2022 will be the Amrut Mahotsav, the 75th year, of India’s independence. The vision of what the Prime Minister has called ‘Team India’, led by the States and guided by the Central Government, includes among other objectives, educating and skilling our youth to enable them to get employment; The Skill India and the Make in India programmes are aimed at doing this and we also have to encourage and grow the spirit of entrepreneurship in India and support new start-ups. Thus only can our youth turn from being job-seekers, to job-creators.
Though corporate and business entities have a role to play; this has to be complemented by informal sector enterprises which generate maximum employment. There are some 5.77 crore small business units, mostly individual proprietorship, which run small manufacturing, trading or service businesses. 62% of these are owned by SC/ST/OBC. This bottom-of-the-pyramid, hard-working entrepreneurs find it difficult, if not impossible, to access formal systems of credit. Towards this direction a major initiative has been announced in the recent budget in the name MUDRA Bank.
Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of Rs.20,000 crore and credit guarantee corpus of Rs 3,000 crore has been announced in the Budget 2015. MUDRA Bank will refinance Micro-Finance Institutions through a Pradhan Mantri Mudra Yojana. In lending, priority will be given to SC/ST enterprises. These measures will greatly increase the confidence of young, educated or skilled workers who would now be able to aspire to become first generation entrepreneurs; existing small businesses, too, will be able to expand their activities.
The Union Finance Minister, Shri Arun Jaitley in his Budget Speech for 2015-16 said “Our government firmly believes that development has to generate inclusive growth. While large corporate and business entities have a role to play, this has to be complemented by informal sector enterprises which generate maximum employment. There are some 5.77 crore small business units, mostly individual proprietorship, which run small manufacturing, trading or service businesses. 62% of these are owned by SC/ST/OBC. These bottom-of-the-pyramid, hard-working entrepreneurs find it difficult, if not impossible, to access formal systems of credit. I, therefore, propose to create a Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of Rs. 20,000 crore, and credit guarantee corpus of Rs. 3,000 crore. MUDRA Bank will refinance Micro-Finance Institutions through a Pradhan Mantri Mudra Yojana. In lending, priority will be given to SC/ST enterprises. These measures will greatly increase the confidence of young, educated or skilled workers who would now be able to aspire to become first generation entrepreneurs; existing small businesses, too, will be able to expand their activities. Just as we are banking the un-banked, we are also funding the un-funded.”
The government proposes to set up a Micro Units Development and Refinance Agency (MUDRA) Bank through a statutory enactment. This Bank would be responsible for regulating and refinancing all Micro-finance Institutions (MFI) which are in the business of lending to micro/small business entities engaged in manufacturing, trading and services activities. The Bank would partner with state level/regional level co-ordinators to provide finance to Last Mile Financer of small/micro business enterprises.
The MUDRA Bank would primarily be responsible for –
1) Laying down policy guidelines for micro/small enterprise financing business
2) Registration of MFI entities
3) Regulation of MFI entities
4) Accreditation /rating of MFI entities
5) Laying down responsible financing practices to ward off indebtedness and ensure proper client protection principles and methods of recovery.
6) Development of standardized set of covenants governing last mile lending to micro/small enterprises
7) Promoting right technology solutions for the last mile
8) Formulating and running a Credit Guarantee scheme for providing guarantees to the loans which are being extended to micro enterprises
9) Creating a good architecture of Last Mile Credit Delivery to micro businesses under the scheme of Pradhan Mantri Mudra Yojana.
The above measures would not only help in increasing access of finance to the unbanked but also bring down the cost of finance from the last Mile Financers to the micro/small enterprises, most of which are in the informal sector.
Just as PMDJY is banking the un-banked, we are also funding the un-funded, the creation of a bank to refinance micro-finance institutions, with priority to dalits and tribal enterprises, leads the way in the budget’s leg-up for “social justice”. Most of the skilled labourers in the industry are from dalit communities. They have the potential to start their own micro units, in case they can get easy loans. Though most of them are highly skilled in their jobs and understand technical nuances of their work, with very little or no property they don’t have access to financing facilities. When education is already increasing among SC students, the refinance facility of micro units can be encouraging for them to turn entrepreneurs.
The Governments’ proposal to create a Micro Units Development Refinance Agency (MUDRA) Bank as a single regulator for all types of entities in the microfinance space is a positive for the sector. It is likely to bring in uniform regulation and a code of conduct for these entities. This would facilitate the adoption of responsible finance principles by all lenders and in-turn help prevent issues of overleveraging of borrowers. It could become a prominent source of funding and liquidity to Non Banking Finance Companies- Microfinance Institutions (NBFC-MFIs) and other players in the sector. NBFC-MFIs cost of funds could come down significantly. The Rs. 3000 crore credit guarantee corpus could give a boost to the Micro, Small and Medium Enterprise sector that many a time struggles to provide collateral while availing of loans.The MSME sector has hailed the establishment of Micro Units Development Refinance Agency (MUDRA) Bank. Representatives of the MSME sector feel that if implemented properly, the initiatives of the NDA Government will help achieve double- digit GDP growth, surpassing China.
Financial Inclusion through Jan Dhan to Jan Suraksha
The Financial Inclusion is one of the top most priorities of the government as exclusion of a large number of people from any access to financial services inhibits the growth of our country. The Pradhan Mantri Jan Dhan Yojana (PMJDY), the biggest financial inclusion initiative in the world, has surpassed original target of opening bank accounts for 7.5 crore uncovered households in the country by 26th January, 2015, with banks already opening 11.50 Crore accounts by 17th January 2015. Out of the accounts opened, 60% are in rural areas and 40% are in urban areas. Share of female account holders is about 51%.The Rupay cards have been issued to more than 10 crore beneficiaries who will get a benefit of personal accidental insurance of Rs. 1.00 Lac under the Yojana. In addition there is a life insurance cover of Rs.30, 000 for eligible beneficiaries.
Further, taking into account that large proportion of India’s population is without insurance of any kind – health, accidental or life, encouraged by the success of the Pradhan Mantri Jan Dhan Yojana, Government is creating a universal social security system for all Indians, specially the poor and the under-privileged. The soon-to-be-launched Pradhan Mantri Suraksha Bima Yojna will cover accidental death risk of Rs.2 lakh for a premium of just Rs.12 per year. Similarly, the Atal Pension Yojana, will provide a defined pension, depending on the contribution, and its period. To encourage people to join this scheme, the Government will contribute 50% of the beneficiaries’ premium limited to Rs 1,000 each year, for five years, in the new accounts opened before 31st December, 2015. The third Social Security Scheme is the Pradhan Mantri Jeevan Jyoti Bima Yojana which covers both natural and accidental death risk of Rs.2 lakhs. The premium will be Rs.330 per year, or less than one rupee per day, for the age group 18-50.
Also it has been proposed in the Budget 2015, creation of a Senior Citizen Welfare Fundby appropriation of unclaimed deposits of about Rs.3,000 crore in the PPF and approximately Rs. 6,000 crore in the EPF corpus, which will be used to subsidize the premiums of vulnerable groups such as old age pensioners, BPL card-holders, small and marginal farmers and others.
To address the needs of senior citizens in the country which is now approximately 10.5 crore, out of which over one crore are above the age of 80 years with 70% from rural areas and a large number in the BPL category, a new scheme for providing Physical Aids and Assisted Living Devices for senior citizens, living below the poverty line is in the pipeline.
To summarise, these social security schemes reflect Governments’ commitment to utilize the Jan Dhan platform, to ensure that no Indian citizen will have to worry about illness, accidents, or penury in old age. Being sensitive to the needs of the poor, under-privileged and the disadvantaged, Government also remains committed to the ongoing welfare schemes for the SCs, STs and Women. The Sukanya Samruddhi Yojana will provide support for marriage and education of young women. Despite serious constraints on Union finances, allocations made this year are as follows:
SC ` 30,851 crore
ST ` 19,980 crore
Women ` 79,258 crore
An integrated education and livelihood scheme called ‘Nai Manzil’ will be launched this year to enable Minority Youth who do not have a formal school-leaving certificate to obtain one and find better employment. Further, to show-case civilization and culture of the Parsis, the Government will support, in 2015-16, an exhibition, ‘The Everlasting Flame’.
To conclude, as the Prime Minister referred to the ancient Sanskrit verse: Sukhasya Moolam Dharma, Dharmasya Moolam Artha, Arthasya Moolam Rajyam – which puts the onus on the state to involve people in economic activity.
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*Dr. H. R. Keshavamurthy is the Director M & C Kolkata, With inputs from ministry of Finance
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