2 min read
25 May 2021

In 2018, India had about 51 million MSME units that contributed to around 37% of the country's GDP and 43% to the nation's exports, according to a report by The Economic Times. Nevertheless, despite the significant role played by small businesses in economic development, MSMEs face various challenges like shortage in raw material and working capital, outdated technology, and low labour, all of which stem from a lack of finance.

To help small businesses address financial challenges, the government launched the Pradhan Mantri Mudra Yojana on 8 April 2015. Mudra offers business loans tailored to three different stages of a business's growth, with repayment terms ranging from 1 to 5 years. Funding is made available according to the type of loan available and charged at the applicable Pradhan Mantri Mudra Yojana interest rate.

Read on to know more about the mudra loan interest rate and the sanction offered at various stages.

Pradhan Mantri Mudra Yojana loan interest rates and limits

Shishu Mudra Yojana

You can avail of a mudra loan under this phase if you are yet to establish your business or are in a nascent stage. The scheme offers a sanction of up to Rs. 50,000 for a tenor of 5 years. The following businesses are eligible for a Shishu Mudra loan-

  • Self-proprietors and partnership firms
  • Firms in the service sector
  • Micro enterprises and manufacturing firms
  • Vendors, truck owners, and repairing shops
  • Businesses providing food service

The Mudra Shishu loan interest rate ranges from 1% to 12% per annum. The RBI has directed 'commercial financial institutions' providing Mudra refinance to keep the interest rate at MCLR/base rate.

Interest rates for RRBs and SCBs extending the loan are also capped at 3.5% over the Mudra refinance rate. For NBFCs, the cap stands at 6% for Mudra refinancing. In addition, the government has also announced an interest rate subsidy of 2% for prompt payees of the Shishu Mudra loan. The subsidy extends for a period of 12 months ending the 3-month moratorium on 31 May 2020.

Kishore Mudra Yojana

This loan is tailor-made to help you sustain your business. The scheme offers a sanction that ranges from Rs. 50,000 to Rs. 5 lakh at the Mudra interest rate decided by the lending institution in question. In Kishore Mudra Yojana, the interest rate may range from 8.60% to 11.15% or more and is based on the scheme's guidelines and your credit history. You have to repay the loan along with the Mudra loan interest within the tenor offered by the lender.

Tarun Mudra Yojana

You can avail of this loan variant when you wish to expand your business. Under this phase, you can access a sanction from Rs. 5 lakh to Rs. 10 lakh at the PM Mudra loan interest rate decided by the lending institution. The lender determines the PMMY interest rate based on the guidelines and your credit history. The interest rates range from 11.15% to 20%, and the lender decides the repayment tenor.

Additional Read: MSME registration procedure

Mudra Yojana schemes

MUDRA Yojana offers a range of schemes customized to specific needs. These include the following.

  • Credit for micro-enterprise: This scheme focuses on increasing the inclusion of the general population into the business sector and offers loans to industries like food production, textiles, and land transport. Here, you can access a loan of up to Rs.1 lakh with microfinance institutions.
  • Women enterprise programme: Also known as Mahila Udyami Yojana, this scheme offers loans at affordable Mudra interest rates with a concession of up to 0.25%.
  • Refinance scheme for banks: This scheme refinances loans of up to Rs.10 lakh extended by banks to MSMEs in the manufacturing and service sector. Refinance is only available if the scheduled commercial banks lend loans at their base rate. Also, rural, regional, and cooperative banks are required to limit their Mudra Yojana loan interest rate margin at 3.5% over their refinance rate.
  • Mudra Card: This debit card is related to the Mudra loan and helps beneficiaries access working capital, serving as a means to create a credit history for the user. It can be used to make cash withdrawals from ATMs and payments via POS devices.
  • Equipment finance scheme: This scheme aims to offer the financial impetus required by microenterprises to expand operations and acquire quality equipment. This way, micro-businesses can increase their production and make their ventures more sustainable as well.

Mudra loan eligibility

The eligibility criteria of Mudra loans are extremely simple. You can apply for a loan under the scheme if you are an Indian citizen and belong to the:

  • Non-farm small/microenterprise segment
  • Non-Corporate Small Business Segment (NCSBS)

You can also apply if you are a part of a business or as an individual operating as a:

  • Shopkeeper
  • Food-service unit
  • Small manufacturing unit
  • Trade/manufacturing sector unit
  • Fruit and vegetable vendor
  • Service sector unit
  • Truck operator
  • Repair shop
  • Machine operator
  • Artisan and more

In addition to the above, you should:

  • Have a good credit history
  • Have not defaulted on a loan
  • Have the required skills or experience to start, continue, or expand a business

Additional Read: PMEGP loan process & eligibility

Alternatively, you can apply for a Business Loan with Bajaj Finserv to access a high-value sanction of up to Rs.20 lakh in under 24 hours. Since this is a collateral-free loan, you don't have to pledge any security and you need to submit only two documents to apply. Be sure to check your pre-approved offer from Bajaj Finserv to get instant approval via a tailor-made deal.

Mudra Loan Yojana FAQ

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Q. How long does it take to get a Mudra loan?

Ans. The processing time for a Mudra loan varies from one financer to another. Your choice of financial institution will determine the time necessary for you to enjoy the loan disbursal. Businesses can apply for a collateral-free advance of up to Rs.10 lakh and keep all necessary documents ready for easy approval.

Q. Is Mudra loan available for a general category?

Ans. Mudra loan is available as business finance for all individuals. It aims to support entrepreneurial activities irrespective of the category respective to an entrepreneur. However, individuals must not have availed financial support under any other scheme introduced by the central or state government to avail such a loan successfully.

Q. Is ITR required for a Mudra loan?

Ans.  ITR or Income Tax Return is one of the essential documents required to avail of a Mudra loan when the advance amount exceeds Rs.2 lakh. An applicant will also need other financial documentation like Balance Sheets for the last three years audited by a CA and a projected balance sheet for the following two years.

Q. Can I get a Mudra loan for a new business?

Ans. Yes, a Mudra loan is available for new businesses and start-ups. The business ventures only need to be associated with trading, manufacturing, or non-agricultural industries. To successfully apply for the loan, a prospective applicant needs to provide the business plan along with the application form. It thus helps budding entrepreneurs fulfill their business dreams.

Q. Does CIBIL score affect Mudra loan?

Ans. As the Mudra loan scheme is government-funded, CIBIL score is not a mandatory requirement. Therefore, individuals and non-individuals can apply for this loan if they meet the required eligibility criteria of the scheme, which does not mandate a minimum CIBIL score for applicants. However, it is beneficial to hold a healthy CIBIL score to get better loan terms from financers.

Q. What are the benefits of the Mudra loan?

Ans. Benefits of the Mudra loan include:

  • Advances under the Mudra loan scheme are collateral-free for up to Rs. 10 lakh
  • There are no processing fees
  • Entrepreneurs do not need a healthy CIBIL score mandatorily to successfully apply for a loan
  • The loan is available for all non-agricultural businesses
  • Unorganized businesses can also avail of loans covered by the credit guarantee scheme

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