Social and economic development is only possible when there are more employment options available to the citizens of a country. In order to ensure that more businesses flourish and there are more opportunities for employment across sectors of the society, the Indian Government launched Mudra Loans in April 2015 under the leadership of Hon'ble Prime Minister, Narendra Modi.
MUDRA or Micro Units Development and Refinance Agency was introduced under the Prime Minister Mudra Yojana to facilitate the establishment and sustenance of entrepreneurial ventures. It is through these ventures that a value-based and inclusive entrepreneurial culture can be introduced in the country.
About Mudra Loans
MUDRA is not a lending institution by itself. It is a scheme that is provided to the people of India through partner banks and non-banking financial companies (NBFCs). The loan is designed to provide financial support using the best possible standards and global practices. The goal of these loans is to aid social and economic development by providing an easy option to obtain financing for various sectors, including manufacturing, retail, service, and allied agricultural activities. These loans are provided to small and micro enterprises that are non-agricultural and non-corporate in nature.
There are different provisions under this scheme, depending upon the requirement of the business and the loan amount. These units can be partnership firms or even single ownership firms. To make sure that financial security is ensured for anyone who wants to set up a new business venture, they do not require any collateral either.
Features and Benefits of Mudra Loans
The features of these loans are specially designed to make sure that they are easily available through banks and institutions that have collaborated with MUDRA.
Here are the most important features of these loans:
- Flexible loan amount: These loans are designed to support faster development of the micro-enterprises in the country which are currently the largest providers of employment. The loan amount provided as per this scheme is extremely flexible. Any non-corporate or non-agricultural firm that is classified as a small or micro-industry can get financing up to 10 Lakhs based on the requirements for setting up and functioning of the business.
- They can be used for different business purposes: MUDRA finances various business sectors and can be applied for a variety of purposes to ensure that these businesses run smoothly. You can get finance for equipment purchase, transport vehicle purchase, trading, and even allied agricultural activities. The loans are extended to manufacturing, retail, and even service sectors. Some industries that are eligible for these loans are the food products sector, textile sector, personal services, community and social service ventures, traders, retail stores, and a lot more.
- Term loan and working capital available: Besides a term loan up to 10 Lakhs, these loans also provide working capital to finance day to day activities of businesses. The working capital is available in the form of a Mudra debit card. This card enables business owners to withdraw cash multiple times at ATMs across the country. It can also be used to make any purchase through POS machines in stores. The aim of this card is to digitalise all the solutions provided by the Mudra scheme. It also enables business owners to manage the working capital, which is provided more efficiently. They are able to avoid the burden of increasing repayments towards interest on the working capital as well.
- Developmental support: Besides credit challenges, lack of skilled employees is another major issue that most micro and small business faces. MUDRA helps entrepreneurs overcome this issue as well by providing support and development services. The goal is to build up an ecosystem that provides skilled workers and employees to enable businesses to grow and flourish. These programs include business literacy, finance counselling, skill development programs, and a lot more to help business development at the grass-root level.
- Collateral-free loans: Arranging for necessary collateral is certainly a big challenge for young entrepreneurs. In order to make sure that the lack of necessary collateral does not stand in the way of their entrepreneurial ventures, the loans provided are completely collateral-free. They are secured by a credit guarantee scheme that only requires them to pay an affordable annual fee.
- Affordable loans:The interest rates of various loan plans make repayment challenging for new businesses. Mudra Loans are available at the lowest possible interest rates and also have a reasonable cap on the interest that is chargeable based on the business profile and the industry.
- Flexible repayment period: These term loans come with a repayment tenure that is flexible. This allows the borrowers to choose a repayment period as per their convenience to make the monthly installment more affordable. This helps manage finances better and also leaves them with ample capital to run the business smoothly.
Types of Mudra Loans
Depending upon the loan amount that is required, there are three types of Mudra Loans that you can apply for.
The different kinds of Mudra Loans are:
|Name of the Loan
Up to 50,000
50,001 - 5 Lakhs
5,00,001 - 10 Lakhs
Terms and Conditions of Mudra Loans
The terms and conditions of Mudra Loans are as mentioned below:
- Mudra Loans are provided by banks, MFIs, NBFCs, and other intermediate financial organisations
- Overdraft facility of 5,000 provided by the PMJDY is also classified under the Mudra Loans
- All advances that are granted under the Shishu, Kishore, or Tarun scheme on or after April 2015 are classified as Mudra Loans under the PMMY.
- The applicant of the loan must not be a defaulter to any banking or financial institution and should have a good credit track record.
- All individual borrowers should have the skills, knowledge, and experience that are necessary in order to undertake the activity proposed.
- Education qualification, if required, is based on the nature of the activity proposed
- Mudra Loans are provided to any income-generating small business activity that falls under the trading, service, processing, or manufacturing sector.
- The project cost is determined on the basis of the investment and the business plan provided
- Mudra Loan cannot be used for any personal requirements
- The margin on the loans is as per the internal policy of the bank of financial institution. This is based on an overall guideline set by the RBI.
- There may not be any margin requirement on Shishu Loan
- The interest rate charged is as per the policy and the decision of the lending institution
- Upfront fees or processing fees may be charged as per the internal policy of the bank
- The first charge on any asset that is created out of the loan extended can be used as security
- CGTSME cover is provided as security wherever applicable
- As per the RBI guidelines issued through the Master Circular about MSME Loans, banks cannot accept any collateral security for loans up to 10 Lakhs that are extended to the MSME Sector.
- The tenure of the loan depends upon the discretion of the bank and also the cash flow and assets created. The maximum tenure of assistance for Mudra Loans is 36 months which may be aligned as per RBI guidelines from time to time.