Pradhan Mantri MUDRA Yojana (PMMY)

India is a country of entrepreneurs, where millions of micro and small enterprises (MSEs) contribute to the economic growth and social development. However, many of these MSEs face challenges in getting formal credit from banks and financial institutions due to lack of collateral, documentation, or credit history. To address this gap, the Government of India launched the Pradhan Mantri Mudra Yojana (PMMY) in 2015. It is a flagship scheme to extend affordable credit to MSEs engaged in the non-farm sector.

Latest update on PM Mudra Yojana according to Budget 2024

As one of the nine priorities outlined for the 2024 Union Budget, the Union Finance Minister announced on July 23 that the Mudra loan limit will be increased from Rs. 10 lakh to Rs. 20 lakh for individuals who have previously availed and successfully repaid loans under the Tarun category.

What is PMMY?

The Prime Minister started the Pradhan Mantri MUDRA Yojana (PMMY) on April 8, 2015. It offers loans up to 20 lakh rupees to small and micro businesses that are not corporate or farm-related. These loans, called MUDRA loans, are provided by various institutions like banks and microfinance institutions. Borrowers can apply through banks or online via the JanSamarth portal (www.Jansamarth.in). PMMY offers three types of loans named 'Shishu', 'Kishore', and 'Tarun', each representing different stages of business growth and funding needs for micro-entrepreneurs.

Types of Pradhan Mantri Mudra Yojana (PMMY) Loans

Mudra loans are offered by the Indian government to small business owners who require financial assistance. These loans are classified under three categories based on the stage of business and the loan amount required:

1. Shishu loans: These are loans up to Rs. 50,000, ideal for new businesses.
2. Kishor loans: These are loans between Rs. 50,000 to Rs. 5 lakhs, suitable for businesses that have been in operation for a while.
3. Tarun loans: These are loans between Rs. 5 lakhs to Rs. 10 lakhs, aimed at expanding and scaling up businesses.

Benefits of the enhanced loan limit for TARUN category

The increase in the loan limit under the TARUN category is expected to bring several benefits:

• Enhanced Financial Support: Raising the limit to Rs. 20 lakh will provide small businesses and entrepreneurs with greater financial resources. This boost can be vital for scaling operations, investing in new technology, expanding product lines, and increasing staff.
• Incentivising Successful Borrowers: By focusing on individuals who have successfully repaid previous loans, the new limit rewards responsible borrowing and repayment. This approach promotes financial discipline and strengthens the trust between lenders and borrowers.
• Support for MSMEs: Micro, Small, and Medium Enterprises (MSMEs) are crucial to the Indian economy. The increased financial support through MUDRA loans can aid these businesses in growing, innovating, and making a more substantial contribution to the economy.

Key highlights of the MUDRA Loan from the Budget announcement

Here are some key highlights from the Budget 2024 announcement:

• Increased Loan Limit: The TARUN category loan limit has been increased from Rs. 10 lakh to Rs. 20 lakh.
• Emphasis on Successful Borrowers: The higher limit is available to individuals who have previously accessed and repaid their loans under the TARUN category.
• Support for MSMEs: The government remains committed to supporting Micro, Small, and Medium Enterprises (MSMEs), offering measures to enhance their growth and stability.

What is Pradhan Mantri Mudra Yojana?

PMMY is a scheme that provides loans up to Rs. 10 lakh to MSEs involved in manufacturing, processing, trading, or service activities. The loans are given by banks and other lending institutions through micro units development and Refinance Agency Ltd. (Mudra), a subsidiary of Small Industries Development Bank of India (SIDBI). Mudra also provides refinance support, credit guarantee, and capacity building to the lenders and borrowers.

Categorisation of Mudra loans

Mudra loans are offered by the Indian government to small business owners who require financial assistance. These loans are classified under three categories based on the stage of business and the loan amount required:

1. Shishu loans: These are loans up to Rs. 50,000, ideal for new businesses.
2. Kishor loans: These are loans between Rs. 50,000 to Rs. 5 lakhs, suitable for businesses that have been in operation for a while.
3. Tarun loans: These are loans between Rs. 5 lakhs to Rs. 20 lakhs, aimed at expanding and scaling up businesses.

What are the benefits of Pradhan Mantri Mudra Yojana?

PMMY aims to bring MSEs into the formal financial system and helps them grow their businesses. Some of the benefits of PMMY are:

• The loans are collateral-free and do not require any processing fee or upfront charges.
• The loans are available at reasonable interest rates as per the policy of the lenders.
• The loans are classified into three categories based on the stage of growth and funding needs of the MSEs: Shishu (up to Rs. 50,000), Kishor (Rs. 50,001 to Rs. 5 lakh), and Tarun (Rs. 5 lakh to Rs. 20 lakh).
• The loans can be used for various purposes such as working capital, purchase of machinery, equipment, raw materials, etc.
• The loans can be availed through various channels such as public sector banks, private sector banks, regional rural banks, cooperative banks, microfinance institutions, Non-Banking Financial Companies, etc.
• The loans are monitored through a web-based portal called udyamitra, where borrowers can apply online and track their loan status.

Who is eligible for Pradhan Mantri Mudra Yojana?

Any individual or entity engaged in income-generating activities in the non-farm sector can apply for PMMY loans. Some of the business loan eligibility criteria are:

• The applicant should not be a defaulter to any bank or financial institution and should have a satisfactory credit track record.
• The applicant should have the necessary skills, experience, or knowledge to undertake the proposed activity.
• The applicant should have a valid proof of identity and address.
• The applicant should have a business plan or project report for the proposed activity.

Objectives of Pradhan Mantri Mudra Yojana

• Financial inclusion: Provide access to financial services for the underserved and unbanked sections of society, particularly small and micro-enterprises.
• Employment generation: Encourage self-employment and create job opportunities by funding small businesses and entrepreneurial ventures.
• Economic growth: Foster economic development at the grassroots level by supporting small businesses and improving income levels in rural and urban areas.
• Empowerment of women and marginalized groups: Promote financial empowerment of women, SC/ST communities, and other marginalized groups through targeted financial support.
• Reduce dependence on informal credit: Minimize reliance on informal credit sources by offering affordable and accessible formal credit options.

How to apply for Pradhan Mantri Mudra Yojana?

The application process for PMMY is simple and hassle-free. The steps are:

• Visit the official website of PMMY or Udyamitra and click on “Apply now”.
• Select the category of loan (Shishu, Kishor, or Tarun) and fill in the required details such as name, address, mobile number, email id, PAN card, Aadhaar number, etc.
• Upload the scanned copies of the documents such as proof of identity, proof of address, proof of business entity, business plan, or project report, etc.
• Submit the application and note down the reference number for future reference.
• The application will be forwarded to the nearest branch of the selected lender for verification and approval.
• The lender will contact the applicant and conduct due diligence such as site visit, credit appraisal, etc.
• If approved, the loan amount will be disbursed to the applicant’s bank account within a stipulated time.

Documents required for Pradhan Mantri Mudra Yojana

The Pradhan Mantri Mudra Yojana (PMMY) is a government initiative to provide financial assistance to small businesses. The following documents are required to apply for a Mudra loan:

1. Identity proof such as Aadhaar card, Voter ID, or Passport
2. Address proof such as Aadhaar card, Voter ID, or Driving license
3. Business registration documents such as MSME registration, GST registration, or shops and establishment registration
4. Income tax returns for the previous two years
5. A detailed business plan, including the product or services offered, marketing strategy, financial projections, and repayment plan
6. Passport-sized photographs

The documents required may vary based on the bank, loan amount, and other factors.

What are the challenges and opportunities of PMMY?

PMMY is a commendable initiative by the Government of India to support the micro and small enterprises (MSE) and promote financial inclusion. However, there are some challenges and opportunities that need to be addressed to make it more effective and efficient. Some of them are:

• There is a need to create more awareness and outreach among the potential borrowers about the benefits and features of PMMY.
• There is a need to simplify and standardise the documentation and procedures across different lenders and regions.
• There is a need to enhance the capacity and infrastructure of Mudra and its partner institutions to cater to the increasing demand for PMMY loans.
• There is a need to ensure timely and adequate availability of funds for refinance and guarantee support from Mudra.
• There is a need to monitor and evaluate the impact and outcomes of PMMY loans on the MSE performance and sustainability.
• There is an opportunity to use digital technologies such as mobile apps, biometric authentication, artificial intelligence, etc., to improve the delivery and management of PMMY loans.
• There is an opportunity to link PMMY loans with other schemes and initiatives of the Government of India such as Make in India, startup India, skill India, etc., to create a conducive ecosystem for the MSE.

PMMY is a scheme that has the potential to transform the lives of millions of MSE and contribute to the socio-economic development of the country. By addressing the challenges and tapping the opportunities, PMMY can become a blessing for the MSE sector and a catalyst for the growth of the Indian economy.