Union Cabinet sanctions creation of a credit guarantee fund for MUDRA loans

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi has on 6th January 2016 given its approval for the creation of a Credit Guarantee Fund for Micro  Units  Development  Refinance  Agency  (“MUDRA”)  loans and to convert MUDRA Ltd. into MUDRA Small  Industries  Development  Bank  of  India (“MUDRA SIDBI”)  Bank as a wholly owned subsidiary of the Small  Industries  Development  Bank  of  India (“SIDBI”).

The key features of the MUDRA scheme are detailed below:

  1. Establishment of Credit Guarantee Fund for MUDRA Units for guaranteeing loans sanctioned under Pradhan Mantri Mudra Yojana with effect from 8th April, 2015 with the objective to reduce the credit risk to Banks/NBFCs/MFIs/other finance intermediaries who are member lending institutions.
  2. The National Credit Guarantee Trustee Company Ltd.,  a  wholly-owned  company  of  the Government  of  India,  would  manage  and  operate  various  credit  guarantee  funds.
  3. The  guarantee  would  be  provided  on  portfolio  basis  to  a  maximum  extent of  50%  of  amount  in  default  in  the  portfolio.
  4. 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.

The Fund is expected to guarantee more than Rs 1,00,00,000/- (Rupees One crore Only) worth of loans to micro and small units in the first instance.

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