Mudra Loan : Small loan big dreams

MUDRA Loan scheme

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Pradhan Mantri MUDRA Yojana (PMMY) is a MUDRA Loan scheme launched by the Honorable Prime Minister on April 8, 2015, for providing loans of up to 10 lahks to non-corporate, non-farm small/micro enterprises. These loans are classified as MUDRA loan under PMMY. These MUDRA loans are given by Commercial Banks, RRBs, Small Finance Banks, MFIs, and NBFCs. The borrower can approach any of the lending institutions mentioned above or can apply online through this portal . Under the aegis of PMMY, MUDRA Loan has created three products namely ‘Shishu’, ‘Kishore’ and ‘Tarun’ to signify the stage of growth/development and funding needs of the beneficiary micro unit/entrepreneur and also provide a reference point for the next phase of graduation/growth. 

The MUDRA Loan Processes

Under the aegis of Pradhan Mantri Mudra Yojana (PMMY), MUDRA Loan has created products/ schemes. The interventions have been named ‘Shishu’, ‘Kishore’, and ‘Tarun’ to signify the stage of growth/development and funding needs of the beneficiary micro unit/entrepreneur and also provide a reference point for the next phase of graduation/growth to look forward to :

  • Shishu : covering loans upto 50,000/-
  • Kishor : covering loans above 50,000/- and upto 5 lakh
  • Tarun : covering loans above 5 lacks and upto 10 lakh

MUDRA Loan promote to entrepreneurship among the new generation of aspiring youth, it is ensured that more focus is given to Shishu Category Units and then Kishore and Tarun categories of MUDRA Loan

Within the framework and overall objective of development and growth of the micro-enterprises sector under Shishu, Kishore, and Tarun, the products being offered by MUDRA are so designed, to meet the requirements of different sectors/business activities as well as business/ entrepreneur segments.

The funding support from MUDRA is of two types:

  • Micro Credit Scheme (MCS) for loans up to 1 lakh financed through MFIs.
  • Refinance Scheme for Commercial Banks / Regional Rural Banks (RRBs) / Small Finance Banks / Non-Banking Financial Companies (NBFCs).

MUDRA Loan Strategic Focus

Product – Innovative

Pricing – Lower than Prevailing

Processes – Efficient

Specialisation – Micro

Scale – India Unincorporated

Sustainability – of Stakeholders

Technology – The Game Changer

Looking Forward

The establishment of MUDRA would not only help in increasing access to finance for the unbanked but also bring down the cost of finance from the Last Mile Financiers to the micro/small enterprises, most of which are in the informal sector.

Further, the approach goes beyond credit-only approach and offers a credit–plus solution for these myriad micro enterprises spread across the country. In sum, the key characteristics of MUDRA are depicted in the figure given below.

Purpose of MUDRA loan

Mudra loan is extended for a variety of purposes which result in income generation and employment creation. The loans are extended mainly for:

  • Business loans for Vendors, Traders, Shopkeepers, and other Service Sector activities
  • Working capital loan through MUDRA Cards
  • Equipment Finance for Micro Units
  • Transport Vehicle loans – for commercial use only
  • Loans for agri-allied non-farm income-generating activities, e.g. pisciculture. beekeeping, poultry farming, etc.
  • Tractors, tillers as well as two-wheelers used for commercial purposes only.

Following is an illustrative list of the activities that can be covered under MUDRA loans:

  1. Transport Vehicle

Purchase of transport vehicles for transportation of goods and passengers such as auto-rickshaws and small goods transport vehicles, 3-wheelers, e-rickshaws and taxis, etc. Tractors/Tractor Trolleys/Power Tillers used only for commercial purposes are also eligible for assistance under PMMY. Two Wheelers used for commercial purposes are also eligible for coverage under PMMY .

2. Community, Social & Personal Service Activities

Salons, beauty parlors, gymnasiums, boutiques, tailoring shops, dry cleaning, cycle and motorcycle repair shops, DTP and Photocopying Facilities, Medicine Shops, Courier Agents, etc.

3. Food Products Sector

Activities such as papad making, achaar making, jam/jelly making, agricultural produce preservation at the rural level, sweet shops, small service food stalls and day-to-day catering/canteen services, cold chain vehicles, cold storage, ice making units, ice cream making units, biscuit, bread, and bun making, etc.

MUDRA Loan  National rural /Urban Livelihood Mission

The National Rural Livelihoods Mission [NRLM] is set up “To reduce poverty by enabling the poor households to access gainful self-employment and skilled wage employment opportunities, resulting in appreciable improvement in their livelihoods on a sustainable basis, through building strong grassroots institutions of the poor.” To achieve the above, NRLM Mission inter alia follows a demand driven strategy for continuous capacity building, imparting requisite skills and creating linkages with livelihood opportunities for the poor, including those emerging in the organized sector.

Similarly, the Deendayal Antodaya Yojana [DAY] National Urban Livelihood Mission is another programme which is aimed at reducing Urban poverty through creation of micro enterprises, individually and group mode.

MUDRA, being an initiative for promoting micro enterprises, would make all efforts to draw synergies between NRLM, NULL and MUDRA interventions for supporting micro enterprises and creating sustainable livelihood opportunities for the poor.

Salient Features of the Mudra Loan :

The following mentioned features of the mudra loan distinguish this scheme from several others offered by the government;

  1. The amount availed by this loan can be used to fulfill the working capital requirements of the availing company
  2. Mainly, is it aimed at serving industries that are engaged in manufacturing, trading, and services
  3. Both, existing companies as well as new ones can apply for the pm mudra loan
  4. The tenure of the mudra loan ranges from 3 years to 5 years, depending on what is agreed upon at the time of processing
  5. The Mudra website and Mudra app are well-equipped enough for anyone to be able to directly apply online
  6. Enterprises have complete liberty to utilize the funds obtained via this loan for the purchase of equipment, buying machinery, expansion of business, restructuring of the business, hiring competent staff, additional working capital, and many more about MUDRA Loan
  7. No collateral or additional security via a third party is required
  8. There are three products under the Mudra loan scheme, offering versatility to borrowers

What are the Mudra Loan Products?

The Mudra loan is offered in three different variants, namely, ‘Shishu, Kishor, and Tarun’. These are categorized based on the level of development and monetary requirements of the micro company.

1. Sishu Yojana

In this category, micro or small business owners have the utmost advantage as they can apply for an amount of up to Rs. 50,000. For those companies that require small capital to be able to commence their business, the Shishu yojana works the best. For being able to successfully apply to this category, the business owners will need to give clear details of their business ideas in addition to quoting the type and quantity of machinery needed for purchase. 

2. Kishor Yojana

Kishor under the Mudra scheme is a category which is ideal for business owners who have an established business and are in pursuit of expanding it further. Applicants can seek loan amount that ranges from Rs. 50,000 – Rs. 5 lakhs. To be able to successfully apply for Kishor, applicants must submit a completed application form along with required documents which will establish a clarity and status of their company. 

3. Tarun Yojana

This, just like Kishor is a Mudra loan scheme that offers financial aid in the form of loan to any small business owners that are looking to expand their business. Borrowers can seek an amount up to Rs. 10 lakhs, provided he or she meets the stipulated eligibility criteria. The Mudra loan documents needed to be submitted under this loan include;

  1. Balance sheet dating from the last two years
  2. A report that will demonstrate the technical as well as economic sustainability of the business
  3. Memorandum of Association (MOA) (if any)

MUDRA loan Interest Rate:

The interest rate applied on MUDRA loans is based on RBI-defined MCLR (Marginal Cost of Lending Rate) with the following breakup.

Up to Rs.50000:

  • Micro Enterprises: MCLR + SP
  • Small Enterprises: (MCLR + SP) + Bank Load

Above Rs.50000 up to Rs.2 lakhs:

  • Micro Enterprises: (MCLR + SP) + Bank Load
  • Small Enterprises: (MCLR + SP) + Bank Load

Above Rs.2 lakhs up to Rs.10 lakhs:

  • Micro Enterprises: (MCLR + SP) + Bank Load
  • Small Enterprises: (MCLR + SP) + Bank Load
  • Micro Enterprises: (MCLR + SP) + Bank Load
  • Small Enterprises: (MCLR + SP) + Bank Load

MUDRA Loan Eligibility

Indian citizens who have their own business plans for service sector activities, or trading or manufacturing activities and require amounts of up to Rs.10 lakh can apply for Mudra loans. It can be availed from public sector banks, private sector banks, regional rural banks (RRBs), small finance banks (SFBs), and microfinance institutions (MFIs).

As per the eligibility criteria for MUDRA Loan, an applicant should be:

Minimum age of eligibility 18 years

Maximum age of eligibility 65 years

Who can avail Mudra Loan can be availed by new and existing units

Security or collateral No collateral or third-party security is required

Institutions eligible to offer Mudra Loans Public Sector Banks, Private Sector Banks, Micro Finance Institutions, and Regional Rural Banks

Benefits of Taking MUDRA Loan

Here are the key features and benefits of a Mudra loan:

  • Banking and financial services can be availed in both rural and urban areas.
  • Financial backing can be obtained by micro-small businesses and start-ups.
  • Business loans can be taken for small amounts at affordable interest rates.
  • The borrower’s credit guarantee is taken by the government, so if a borrower is unable to repay the amount borrowed, the responsibility for the loss will be borne by the government.
  • Food vendors, shopkeepers, and other small business owners can make the most of this scheme.
  • Financial aid is available through this scheme in areas where people have no access to basic banking facilities.
  • The repayment period of the scheme can extend up to seven years.
  • Women borrowers can avail of the loan at discounted interest rates.
  • Refinance schemes can also be availed with designated lenders.
  • Individuals who wish to generate income through micro-enterprise activities can avail the Micro Credit Scheme.


FAQs on MUDRA Loan

  1. What type of loan is Mudra Loan?

Mudra Loan can be considered a type of term loan where a group or an individual can avail of a loan for the expansion of business, purchasing of inventory, et2.

2. What is the Mudra Loan limit from banks?

The maximum loan amount that can be availed from banks is up to Rs.10 lakh

3. Is ITR Compulsory for Mudra Loan?

Yes, you will have to produce your income tax returns (ITR) for the past two years if you are looking to apply for a Mudra Loan.

4.Does Cibil score affect Mudra Loan?

No, your Cibil Score will not be taken into consideration if you are looking to apply for a Mudra Loan.

  1. What kind of clients does MUDRA loan target?

MUDRA loans are targeted at the Non-Corporate Small Business Segment which consists of millions of partnership firms and proprietorships that operate as service sector units, small industries, small manufacturing units, vegetable or fruit vendors, repair shops, etc. In urban as well as rural regions.

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