Overlooked or Ignored – Missing Elements in the Entrepreneurial Finance Policies: A Case of Introducing MUDRA Bank in India

• Author: Gaurav Sinha
• Published date: 01 September 2016
• DOI: http://doi.org/10.1002/jsc.2081
• Date: 01 September 2016

RESEARCH ARTICLE

Strat. Change 25: 569–583 (2016)

Published online in Wiley Online Library

(wileyonlinelibrary.com) DOI: 10.1002/jsc.2081

Copyright © 2016 John Wiley & Sons, Ltd.

Strategic Change: Briengs in Entrepreneurial Finance

Strategic Change

DOI: 10.1002/jsc.2081

Overlooked or Ignored – Missing Elements

in the Entrepreneurial Finance Policies:

A Case of Introducing MUDRA Bank in India1

Gaurav Sinha

School of Social Work, University of Illinois, Urbana-Champaign

Sometimes the design of a policy is responsible for not achieving the desired

results, and not really the implementation, which usually receives the blame.

Micro, small, and medium enterprises (MSMEs) are considered as a catalyst to

the growth and development of an economy. is can be understood by the sheer

presence of MSMEs across all the countries of the world (Table 1). In a survey

of 132 economies, there are about 125 million formal MSMEs that include

89 million in emerging markets (Kushnir et al., 2010). Besides, these units employ

more than a third of the world population, contributing to the creation of a large

job market in dierent economies (Kushnir et al., 2010). Notably, the dataset does

not take into account the number of informal MSMEs. In developing countries

like India, the number of informal units is too large compared with the formal

sector. e All India Census of MSMEs shows that the informal units are 22 times

the formal units (MMSME, 2014). It is also interesting to note that every country

has its own denition of MSME (Dalberg, 2011).2

e Indian MSME sector is large and diverse. e ocial data from the Indian

Ministry of MSME (MMSME) shows that MSMEs contribute about 8 percent

of India’s GDP. e sector produces over 8000 valueadded products and employs

an estimated 60 million people, in addition to its contribution of around 45

percent to manufacturing output and about 40 percent to exports in India (e

World Bank, 2015). It is growing at a rate of approximately 15 percent per year

in terms of number of enterprises, as well as number of people employed (MMSME,

2014). However, the MSMEs have to face a lot of constraints – like access to

credit, followed by marketing and infrastructural constraints (IFC, 2013; NCUES,

2007; e World Bank, 2015). Recently, the government of India has announced

that it is launching a specialized banking agency, called the MultiUnit Develop-

ment and Renance Agency (MUDRA or Pradhan Mantri Mudra Yojana, PMMY)

1 JEL classication codes: G21, G28, M13, N85, O2.

2 See Appendix 1 for denition of MSMEs in India.

Policies for enhancing the access

of micro, small, and medium

enterprises (MSMEs) to nance

should focus on bringing change

in the underlying or systemic

factors. They should recognize the

interdependencies that exist

among various other components

of the system.

They should be able to arouse

commitment of the stakeholders.

There should not be any

incompatible (ambiguous or

counterproductive) goals.

The policies for MSMEs should

draw learning from the past.