Everything you need to know about Pradhan Mantri MUDRA Yojana

For the increasing number of small and micro enterprises in India that engage a workforce of more than 12 crore, getting formal finance is often a challenge. Whether for working capital, buying assets or marketing-related expenses, borrowing from informal sources is costly and causes a hindrance to business success. To lend a helping hand to these enterprises, the government has launched the Pradhan Mantri MUDRA Yojana (PMMY) Scheme.

The MUDRA Loan Scheme provides financial impetus to small businesses, entrepreneurs, micro-units and other trade, manufacturing and service-sector units, helping them meet working capital needs in the early phases of their growth. Read further to gain a better understanding of MUDRA Yojana loans and how they can benefit you.

What is MUDRA Yojana?

Announced by Narendra Modi in 2015 to ‘fund the unfunded’, the Pradhan Mantri MUDRA Yojana (PMMY) offers non-corporate, non-farm small/ micro enterprises funding up to Rs. 10 lakh.

MUDRA loan is a collateral-free term loan offered to deserving individuals under the PM MUDRA Yojana. Sole proprietorships, partnership firms, private limited companies and public companies and other legal forms of establishments and entrepreneurs can avail of this loan.

MUDRA Yojana has three financial products for small business owners of existing micro-units and those who plan to set up new businesses, and these are:

• Shishu: Loans up to Rs. 50,000
• Kishore: Loans between Rs. 50,001 and Rs. 5 lakh
• Tarun: Loans from Rs. 5,00,001 to Rs. 10 lakh

Since being rolled out, the Pradhan Mantri MUDRA Yojana (PMMY) Scheme has benefited many businesses. For instance, in financial year 2018 – 19, about 5,98,70,318 loans worth Rs. 3,21,722.79 crore were sanctioned. Similarly, provisional data for FY 19-20 shows that 65,62,325 loans worth Rs. 35,002.15 crore have been sanctioned.

From whom can you get a MUDRA Yojana loan?

You can avail of a MUDRA loan from selected banks like public sector banks, private sector banks, regional rural banks and state cooperative banks. The announcement of the PMMY came alongside the establishment of the Micro Units Development and Refinance Agency Limited (MUDRA Ltd). The government created this agency to monitor and oversee the PMMY. MUDRA has given the right to extend this loan to bank branches and certain NBFCs and NFIs that finance micro-enterprises. So, you can avail of the MUDRA loan from any of these financial institutions.

What are the important PM MUDRA Yojana loan details to keep in mind?

• The loan amount is capped at Rs. 50,000, Rs. 5 lakh and Rs. 10 lakh for the Shishu, Kishore and Tarun schemes respectively
• Interest rates are affordable and reasonable, approximately 8.40 – 12.45%
• There may be a processing fee as per the MUDRA Yojana details specified in your lender’s loan fine print. Most lenders generally waive off the fee for the ‘Shishu’ category
• You will be allowed to repay this loan based on your generated cash flow and assets in terms of the tenor. However, some lenders place a cap of 5 years on the loan tenor. You can also avail of refinancing from MUDRA for a maximum of 36 months

What are some of the Pradhan Mantri MUDRA Yojana (PMMY) benefits?

The MUDRA Yojana offers the following advantages:

• This loan doesn’t require collateral, so you can borrow without risking any personal or business asset
• The government assumes the responsibility to pay the loan in case of default
• You can use this loan to set up your micro-enterprise
• You can use this loan to fuel, grow and expand your enterprise with funds up to Rs. 10 lakh
• The MUDRA Yojana available for small businesses in both urban and rural areas
• Women profit from lesser interest rates
• The loan tenor may be stretched to even 7 years, or you may choose to repay within a shorter duration as per your finances
• Meet your business’s working capital needs with this loan scheme
• This loan also allows you to take advantage of the overdraft facility amount of up to Rs. 5,000 as part of the Pradhan Mantri Jan-Dhan Yojana
• You can also apply for a MUDRA Debit card that gives you instant access to funds in a hassle-free manner

Which sectors can benefit from the PM MUDRA Yojana loan?

Here are some of the sectors and activities that can benefit from a MUDRA Yojana loan.

• Transportation: For the purchase of vehicles such as rickshaws, 3 wheelers, small goods vehicles, taxis, etc.
• Community/ Social/ Personal service: Salons, gymnasiums, boutiques, dry cleaning, medicine shops, tailoring shops, etc.
• Food products: Papad making, jam making, sweet shops, ice-cream making, canteen services, etc.
• Agriculture: Pisciculture, poultry, livestock, agro-processing, beekeeping, rearing, etc.
• Textile: Handloom, khadi activity or traditional embroidery, etc
• Business: Traders, shopkeepers, service enterprises, non-farm income activities, etc.

What are the MUDRA Yojana loan eligibility terms?

Indian citizens part of the non-farm small/ micro enterprises or Non-Corporate Small Business Segment (NCSBS) are eligible for the loan. Also, if you are part of a firm or are an individual operating as one of the following, in that case, you are eligible for this loan: a small manufacturing unit, service sector unit, trade/ manufacturing-sector unit, shopkeeper, fruit and vegetable vendor, truck operator, food-service unit, repair shop, machine operator, artisan, etc.

How can you get a loan under the Pradhan Mantri MUDRA Yojana

You must ensure that you have an adequate credit track record and have not defaulted with any financial institution to get the loan. Additionally, you need to prove that you have the required skill set or experience to start or continue your chosen work. You will also require a specific set of documents depending on the loan you are applying for. The MUDRA application form, photo identity proof, address proof, and bank statement are the common documents required.

What are the important credit schemes under the Pradhan Mantri MUDRA Yojana?

There are a few categories under the MUDRA Yojana to keep in mind. They are:

1. Micro credit scheme: For those working in micro enterprises, self-help groups, and joint-liability groups can get up to Rs. 1 lakh via -micro-finance institutions.
    
2. Women enterprise programme: To provide credit at affordable rates to women business owners, this programme, also called the Mahila Uddyami Yojana, offers interest rate concession up to 0.25% on loans.
    
3. Refinance scheme for banks: This scheme helps lenders such as commercial banks, regional rural banks, and scheduled cooperative banks to refinance loans up to Rs. 10 lakh if they have offered credit to micro-enterprises based on certain specifications.
    
4. Mudra card overdraft: Apart from allowing debit transactions and withdrawals from ATMs, this card provides beneficiaries to make the most of overdraft facilities. It also allows for a cash-credit arrangement for accessing working capital finance.
    
5. Credit guarantee fund: This fund has been created to ensure finances to lend to micro-units to increase accessibility and ease.
    
6. Equipment finance scheme: With a focus on encouraging entrepreneurs to buy and upgrade their machinery, this scheme offers specific equipment financing.

With the help of the MUDRA Yojana, women entrepreneurs, those belonging to Scheduled Castes, Scheduled Tribes, or Other Backward Classes can get the finance required to earn a dignified livelihood via micro-enterprises. On May 29, 2018, PM Modi revealed that financial institutions have extended loans up to Rs. 6 lakh crore to over 12 crore beneficiaries, 28% of first-time entrepreneurs, 74% are women, and 55% belong to SC/ ST and OBC category. You, too, can now avail of the required capital to realize your entrepreneurial dream.

Additional read: How to apply for a MUDRA loan