Mudra Loan

Micro-Units Development and Refinance Agency (MUDRA) loan is one of the key measures that the Government of India has initiated to promote Micro, Small and Medium Enterprises (MSMEs) nationwide. Also known as Mudra Loan Yojana, Mudra Bank Scheme or Pradhan Mantri Mudra Yojana (PMMY), the loan has gained more attention after the initiatives of the ‘Make in India’ campaign. Under the scheme, loans of minimum Rs. 50,000 and maximum up to Rs. 10 lakh are provided to start-ups and small business units. The credit products offered by MUDRA, popularly known as Mudra loans, help micro units or small businesses grow their business or manage operational needs through easy finance schemes.

MUDRA has partnered with a myriad of regional and state level banks, and micro finance institutions (MFIs) in addition to other lending institutions. Through the Mudra Loan Yojana, the government wants to ensure that proper credit facility is provided to budding entrepreneurs. This revolutionary step, introduced by the slogan “Fund the Unfunded”, focuses on helping the government realise its vision of making a neglected section of the population self-reliant and self-dependent.

Tapping into micro and small businesses and bringing some order to this part of the industry will also help improve this Non-corporate Small Business Sector (NCSBS) and generate more employment opportunities. This will be a substantial step in strengthening the Indian economy, as the MSME sector has historically been one of the major employment generators for people after agriculture.

The introduction of the Mudra Bank Loan Yojana will also ensure that business owners do not have to rely on personal networks or private moneylenders who charge exorbitant interest rates and extend credit on unreasonable terms and conditions.

Also Read: Documents Required for Mudra Loan

Mudra card is a debit card that is issued to the loan applicants who wish to apply for Mudra loan. When a loan applicant applied for Mudra loan and if it gets approved, the bank or the financial lender opens a Mudra loan account and issues the card along with it. The amount is disbursed into the Mudra account so the loan applicant can debit the amount from their Mudra account. This process also helps in keeping a credit history for the borrower who has applied for the Mudra loan scheme.

The following are the eligibility criteria for Mudra Loan:

• Business vendors and Shopkeepers
• Small Industrialists and Manufacturers
• Individuals who are involved with Agriculture
• Entrepreneurs wanting to begin a start-up

Besides this, the lending institutions that are eligible to provide Mudra Loan are:

• Public Sector Banks
• Private Sector Banks
• Regional Rural Banks (RRBs)
• Small Finance Banks (SFBs)
• Micro Finance Institutions (MFIs)

Mudra loans have been classified into three different categories based on the funding requirements and the amount of loan for which business owners are eligible. The three main categories of Mudra loans are briefly discussed here:

• Shishu Category: This is the child category of the Mudra loan and is suited for micro units or small business owners. The owners can apply for a loan of Rs. 50,000 under this classification. This category of Mudra loans is targeted at small start-ups where the owners need a small capital to get started in the industry. Borrowers must present their business idea when they are applying for this Mudra loan to get approval on their loan application

• Kishore Category: Mudra loan’s Kishore category is targeted at small businesses that have already started their business and want to establish it as a viable enterprise. A loan cover of Rs. 50,000 to Rs. 5 lakh is offered under this scheme. Many businesses can use this to strengthen their foundation. There is a slight variation in the application procedure among different banks. The borrower must fill the application form and present the relevant documents to showcase the current position of their enterprise

• Tarun Category: All small businesses that have been set up and established but need capital for expansion can apply for a Mudra loan under the Tarun category. The business owners are eligible for a loan of up to Rs. 10 lakh. This type of Mudra loan offers the maximum loan amount that a sole proprietor or a micro enterprise can apply

The interest rates for all of these Mudra loan categories may vary slightly from one bank to another. The interest rate for the three categories are as follows: Shishu (10% to 12%), Kishore (14% to 17%) and Tarun (16% onwards). More focus is given to the Shishu loans as compared to the Kishore and Tarun loans.

If you apply for a Mudra loan, there is no need for a collateral security or third-party guarantee. The application criteria for a Mudra loan vary from one bank to another, albeit slightly. You need to check with the bank of your choice about the interest rates they offer in addition to clarifying any query on the application form to apply for a Mudra loan.

Not all banks and financial institutions can offer Mudra loans to their customers. There is an eligibility criteria set by the government that the banks have to meet to offer the Pradhan Mantri Mudra Yojana (PMMY). Nonetheless, there are several commercial public and private-sector banks, regional rural banks, scheduled urban co-operative banks, state cooperative banks in addition to micro financial institutions that are eligible to offer these loans. You can ask your bank about whether they offer loans under the Mudra scheme.

Currently, 27 Public Sector Banks, 27 Regional Rural Banks, 17 Private Sector Banks, 2 Foreign Banks and 25 Micro Finance Institutions (MFI) have been enrolled by MUDRA as partner institutions to provide loan assistance to the borrower.

Must Read: Is there any subsidy for a Mudra loan?

To ensure a balance in the employment creation, Mudra Loan is directed to vendors, shopkeepers, provide working capital loan through the Mudra Cards, provide equipment financing for micro units along with transport vehicle loans.

Mudra for Business vendors and Shopkeepers

Mudra loan scheme can be of a big help for vendors and shopkeepers by availing loan amount up to Rs.50,000 up to Rs.10 lakh for different business and entrepreneurial activities, trading and non-farming activities.

Food Production Sector

Entrepreneurs dealing in Tiffin services, food stalls, cold storages, small food practices can avail Mudra Loan scheme and scale up their business with the help of mudra funding.

Textile Industry

Textile industry can avail great monetary benefits like the Handloom sector, fashion designing, apparel designing, khadi work or any traditional or modern textile work with the help of Mudra loan scheme.

Agricultural Activities

Some agricultural activities like poultry farming, dairy farming, fishing, livestock rearing, improvement of long and small canals and wells come under the loan scheme of Pradhan Mantri Mudra Yojana and can avail a good funding under this loan scheme.

MUDRA will be a key player in making the government’s vision of “Fund the Unfunded” come true. Here are a few of the main responsibilities of the agency:

• Lay down policies for micro, small and medium financing businesses
• Regulation and Registration of MFI entities
• Accreditation of MFI entities
• Provide small business units (SBUs) access to institutional finance
• Lay down practices to prevent indebtedness, ensuring client protection principles and methods of recovery
• Assist new entrepreneurs in getting financial assistance through Mudra loans
• Regulate the banks and MFIs in the business of lending Mudra loans to MSMEs

Most small business units and entrepreneurs have to depend on private moneylenders and financers who charge high interest rates. MUDRA can now help small business units get a loan from government recognised financial institutions easily and at lower interest rates. This will help in promoting the Non-Corporate Small Business Sector (NCSBS) immensely.

Easy access to institutional finance will be able to turn micro enterprise units into strong contributors to the GDP growth and employment opportunities. Some of the other well-performing initiatives under the financial inclusion services include Pradhan Mantri Jivan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Jan Suraksha Bima Yojana (PMJSBY), Atal Pension Yojana (APY), and Pradhan Mantri Fasal Bima Yojana (PMFBY).

Right from its inception, MUDRA and PMMY have already helped millions of micro-entrepreneurs access credit from the standard financial system. This has made a lasting impact to the development of the MSME sector and helped fuel the economic growth of the nation.

The micro enterprise sector in India comprises a large number of micro, small and medium units catering to processing, manufacturing, trading, and services sectors. These include fruit and vegetable vendors, small fleet operators, food-service joints, repair and maintenance shops, artisans, etc. The standard banking measures and products have not been effective to meet the financial requirements of this sector since these micro units are predominantly sole proprietorship or own account enterprises, a segment that usually fails to meet the stringent checks of banks for loans.

• There is no minimum amount of loan for mudra loans.
• No security or collateral is required of the applicant, for availing the scheme.
• MUDRA loans do not have any processing charges.
• All non-farm enterprises, i.e. small or micro firms engaged in the generation of income can avail of this loan.
• The MUDRA loan acquired by an applicant can be used for different purposes since the loan facility is extended under the Pradhan Mantri Mudra Yojana (PMMY) for any type of fund or non-fund based needs.

The application process for a Mudra loan is similar to any other business loan. Typically, the documents that borrowers need to submit along with the application form of a Mudra loan are listed here.

• Proof of Identity (Aadhar card / Voter’s ID card / Passport / Driving License, etc.)
• Proof of Residence (Aadhar Card / Voter’s ID card / Passport / Telephone Bill / Bank Statement, etc.)
• Proof of belonging to a special category such as SC, ST, OBC, Minority, etc. (if applicable)
• Proof of Identity, Address, Licenses of the enterprise (if any)
• Quotation of items to be purchased for business use (if any)
• Recent 2 passport sized photographs of the applicant

You must ensure that you fill the application form properly before submitting it to the bank for consideration. If you are a start-up, you will have to submit your business idea as well to get the approval for the loan.

You may still have a few queries and doubts about Mudra loans. Here are a few common questions that people have about these Mudra Loans and detailed answers to them to help you.

How to Apply for a Mudra Loan?

The application procedure for a Mudra loan is fairly simple. However, different banks may have slightly different application procedures for their Mudra loans. You must visit the nearest branch of the bank from where you want to get the loan and ask for the application form, eligibility criteria and application procedure.

If you are a start-up, you are eligible to apply for a Shishu Loan. For a business that has been running for a while and needs some capital for growth and expansion, you can apply for a Kishore Loan. A well-established micro unit that wants to upgrade its equipment, or wants to further its reach, can apply for a Tarun Loan.

It is advisable to start with the bank where you already have an account to get the Mudra loan approved easily.

Which banks offer a Mudra Loan?

Commercial banks in both private and public sectors are eligible to offer Mudra loans if they have a continuous profit track record of over 3 years, minimum net worth of Rs. 100 crore and not less than 9% Capital to Risk Assets Ratio (CRAR). There are a few Regional Rural Banks (RRBs) that are also eligible to grant Mudra loans. Since the interest rates and eligibility criteria vary slightly from one bank to another, you ought to gather the information you need from a few different banks first before you apply for the loan.

Do banks offer different interest rates for Mudra Loans?

Yes. There is a slight variation in the interest rates, eligibility criteria and application procedure of different banks. However, the interest rates stay within the range specified for Shishu, Kishore and Tarun Mudra loans by MUDRA. As of now, they are 10 to 12%, 14 to 17% and 16% onwards respectively for Shishu, Kishore and Tarun loans.

MUDRA will regulate the Public-sector, Private-sector and Regional Rural banks in addition to the Micro Finance Institutions (MFIs) offering Mudra loans to ensure that all guidelines are followed and end-objectives are met.

Can people from metropolitan cities apply for a Mudra Loan?

Absolutely! All sole proprietors and the owners of Micro, Small and Medium Enterprises (MSMEs) engaged in non-agricultural services and activities across the country including metro, urban, semi-urban and rural areas can apply for a Mudra loan.

Is there any special Mudra loan scheme for women?

Yes there is. United Mahila Udhyami Yojana is a part of the Mudra scheme. Under this, women engaged in production, manufacturing or service-related economic activities can apply for a loan. This scheme is specially formulated to empower women entrepreneurs and encourage them further. Women with more than 50% financial holdings in a company can also apply for a Mudra loan under this category.

I want to start my own business. Can MUDRA help me?

Definitely! MUDRA offers loans to start-ups in the manufacturing, trading and other non-agricultural sectors. To get a Mudra loan for your start up, you need to present your business idea along with the application form. Thousands of budding entrepreneurs have already availed Mudra loans to realise their dreams.

I own a pottery business and want to expand it. Can I get a Mudra Loan?

Yes, you can avail assistance under the “Shishu” or “Kishore” category of Micro Credit Scheme of MUDRA to expand your business. Contact your nearest Micro Finance Institution (MFI) to know the application procedure and eligibility criteria.

Is there any reservation system in place for Mudra loans?

No. Any micro enterprise or sole proprietor can apply for a Mudra loan. Anyone who is eligible for a Mudra loan and completes the application formalities properly can get the loan. However, since this scheme was introduced for financial inclusion of the people at the bottom of the pyramid, preference will be given to the SC, ST, OBC or other economically backward classes. There is no reservation system in place for a Mudra loan.

What is a Mudra Loan Card?

The Mudra Loan Card, or simply a Mudra Card, is a card that offers cash credit services and can also be used overdraft by small business owners. It can also act as a Debit-cum-ATM card that owners can swipe at Points of Sale (PoS) with merchants or use to withdraw cash from an ATM. The Mudra card works on the RuPay platform, as well.

June 13, 2019: Govt. scores a hat-trick; achieves Mudra loan target of Rs 3-lakh crore in Financial year 2019

March 11, 2019: Government informed Parliament that Mudra loans worth Rs 7,277.31 crore of public sector banks under Pradhan Mantri Mudra Yojana (PMMY) have turned bad at the end of March 2018.

March 05, 2019: As per Finance Ministry, 3.89 crore MUDRA loans have been sanctioned this fiscal so far and as per the Budget 2018-19, the government intends to disburse loans of up to Rs 3 lakh crore in the current financial year ending March 31.

Feb 25, 2019: The Labour Bureau has completed its survey on employment generated by the MUDRA loan scheme and giving the Centre a potential data tool to combat other reports showing a dismal scenario on jobs. 

Feb 22, 2019: Finance ministry data shows 5% of Mudra borrowers from general & OBC categories cornered over 40% of total loan amounts sanctioned and remaining 60 per cent was sanctioned to 95 per cent of the borrowers — women and SCs/STs.

Feb 15, 2019: Union Textile Minister Smriti Zubin Irani said that Government has sanctioned Rs 6500 crore Mudra loan to the MSMEs textile sector.

Feb 12, 2019: The finance ministry has asked the banks to review all loans sanctioned under the Pradhan Mantri Mudra Yojana (PMMY), as NPA have crossed Rs 11,000 crore within three years of the launch of the scheme.

Feb 01, 2019: Government proposed a fiscal support of Rs 500 crore for the micro, small and medium enterprises via Mudra loan scheme during the interim budget of 2019-20

Jan 27, 2019: Start-ups demand expansion of MUDRA loan in Budget 2019

Jan 24, 2019: The Reserve Bank of India (RBI) has raised a red-flag over NPA (non-performing assets) spike Mudra Loans

Jan 02, 2019: PSB’s Mudra loan NPAs nearly doubled to Rs 7,277.31 in 2017-18 from Rs 3,790.35 in 2016-17