What is the difference between SIDBI bank and MUDRA bank?

What is SIDBI?

SIDBI or the Small Industries and Development Bank of India was established under the special Act of the Parliament 1988 and became operative in the year 1990. SIDBI was established with a mission to facilitate and strengthen credit flow to micro, small and medium enterprises. It is a wholly-owned subsidiary of IDBI (Industrial Development Bank of India).

Amongst many other things, the functions of SIDBI include financing small scale industrial units, providing seed capital to startups, providing technical assistance, promoting cleaner production and energy efficiency. It also addresses the financial gaps in the micro, small and medium enterprises (MSME) sector. With a view to promoting the spirit of entrepreneurship among the citizens, SIDBI has come a long way since its induction.

Offerings by SIDBI

SIDBI helps MSMEs in acquiring the funds they require to grow, market, develop and commercialize their products. It offers several schemes and financial services for meeting the requirements of various businesses. SIDBI offers the following facilities to its customers:

Direct Finance: SIDBI offers short term loan assistance, foreign currency loan, support against receivables, working capital assistance, equity support, energy-saving scheme for the MSME sector, etc.

Indirect Finance: SIDBI offers indirect financial assistance by the way of providing refinance to banks and NBFCs. In order to meet this purpose, SIDBI has an extensive branch network across the country. As of the year 2020, the bank has 73 branches.

The primary objective of the refinancing scheme is to raise the position of Primary Lending Institutions as a dedicated lender in order to enable the flow of credit to the MSME sector.

Micro Finance: SIDBI offers small loans and microloans to small businessmen and entrepreneurs for establishing their business.

Additional Reading: Advantages Of MUDRA Yojana Loan

What is MUDRA Bank?

MUDRA or Micro Units Development and Refinance Agency Ltd is a development and finance agency formed by the government of India. Its aim is to provide refinancing and development functions to funding to the Non-Corporate Small Business Sector (NCSB) units, also called micro-unit enterprises. This is done through various financial institutions like Banks, NBFCs and MFIs. The micro-enterprises sector is considered to be disadvantaged entities that nevertheless influences the lives of (according to government estimates) around fifty crore people. MUDRA was launched with an aim to help these micro-unit enterprises, as their growth performances influence the growth of the country.

More than 90% of the NCSB sector does not have access to finance, particularly formal sources like banks and NBFCs. It is to provide finance to this segment that the government launched MUDRA, which is a subsidiary of SIDBI.

Offerings by MUDRA

The main function of MUDRA to provide finance to "Last Mile Financiers" such as Non-Banking Finance Companies, Trusts, Co-operative Societies, Small Banks, Scheduled Commercial Banks, Regional Rural Banks and Section 8 Companies which gives loans to small and micro-entities involved in manufacturing, trading, and services activities. Since small business owners and micro-unit enterprises are often cut off from the formal banking system (primarily because of limited branch presence) MUDRA Bank partners with local coordinators to provide finance to "Last Mile Financiers" of small/micro businesses.

MUDRA targets young, educated or skilled workers and entrepreneurs including women entrepreneurs.

MUDRA and Pradhan Mantri MUDRA Yojana (PMMY)

MUDRA nurtures small businesses through Pradhan Mantri MUDRA Yojana (PMMY), which is a scheme launched by the Government of India and implemented through MUDRA. The scheme consists of three loan products denoting the stage of growth the micro-enterprise is in. This is categorized into three stages: Shishu, Kishor, and Tarun.

Shishu: As the name suggests, this stage of the business is when it is still taking its baby steps. The loan cover in this stage is up to Rs 50,000. `

Kishor: The entrepreneur is eligible for a loan ranging from Rs 50,000 to Rs 5 lakh.

Tarun: The final category will provide loans for up to Rs 10 lakh.

As per regulations, at least 60% of the loan amount should be given for Shishu categories. The MUDRA is also supposed to extend several development functions to the microfinance sector.