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Micro, Small and Medium Enterprises (MSMEs) are considered to be the backbone of the Indian economy. However, poor cash flow, low credit scores, etc. are some of the common challenges of the MSME sector. The government accordingly, have initiated several credit financing and loan scheme to empower the sector. The MUDRA scheme also known as the Mudra loan scheme or Pradhan Mantri Mudra Yojana (PMMY) scheme is one such scheme introduced for the growth of the MSME sector.
Banks and NBFCs have designed various loan schemes to help MSMEs overcome these problems. Apart from loan schemes, the Government of India (GoI) has also launched several MSME subsidy schemes to help MSMEs flourish and grow. Mudra loans – one such loan scheme that has turned out to be a boon for the MSME sector. This article explains what a Mudra loan is, eligibility for Mudra loan, documentation, and how to apply.
On 23rd July – Budget highlights on Mudra Loan
In a move to empower existing borrowers and potentially boost female entrepreneurship, the Budget has doubled the maximum loan amount under the Mudra program’s ‘Tarun’ category. This means eligible entrepreneurs can now access up to Rs 20 lakh, compared to the previous limit of Rs 10 lakh.
What is Mudra loan?
MUDRA loan is a loan scheme for MSMEs under the PMMY scheme introduced by the Government of India. MSMEs can get loans ranging from ₹50000 to ₹20 Lakhs under the scheme. It is a loan scheme set up by the GoI through MUDRA (Micro Units Development & Refinance Agency), which is a subsidiary of the Small Industries Development Bank of India (SIDBI).
The scheme offers loans of up to ₹20 lakh to micro and small businesses. The repayment tenure varies from 3 to 5 years depending on the category of the loan and loan amount. The PMMY loan scheme is divided into three categories namely Shishu, Kishor and Tarun. These categories denote the requirement of credit facility and the stage of growth development of the borrowing business unit. Here is how the categorisation works.
Shishu category: It covers loan funding of up to ₹50,000 and caters to business owners whose needs are limited. Also, it is an effective financing scheme for startups and entrepreneurs, who are just kick starting their businesses.
Kishor category: It covers loan needs of up to ₹5 lakh. It is ideal for business owners who are seeking additional working capital or need credit for other business needs.
Tarun category: It covers loan funding needs of up to ₹20 lakh and is an ideal way of seeking funding for established micro and small businesses.
The scheme offers loans of up to ₹20 lakh to micro and small businesses. The repayment tenure varies from 3 to 5 years depending on the category of the loan and loan amount. The PMMY loan scheme is divided into three categories namely Shishu, Kishor and Tarun. These categories denote the requirement of credit facility and the stage of growth development of the borrowing business unit. Here is how the categorisation works.
Shishu category: It covers loan funding of up to ₹50,000 and caters to business owners whose needs are limited. Also, it is an effective financing scheme for startups and entrepreneurs, who are just kick starting their businesses.
Kishor category: It covers loan needs of up to ₹5 lakh. It is ideal for business owners who are seeking additional working capital or need credit for other business needs.
Tarun category: It covers loan funding needs of up to ₹20 lakh and is an ideal way of seeking funding for established micro and small businesses.
| Performance of PMMY scheme or Mudra loan scheme in FY2021-22 | |
| Total number of accounts | 53795526 |
| Total loan sanctioned | ₹ 3,39,110.35 crore |
| Total sanctioned amount for Shihu | ₹1,24,747.37 crore |
| Total sanctioned amount for Kishor | ₹1,37,644.38 crore |
| Total sanctioned amount for Tarun | ₹76,718.61 crore |
Sourc: mudra.org.in
What are the benefits of Mudra loan scheme?
Following are some of the key benefits of seeking a Mudra loan or PMMY scheme.
- No collateral: It is a collateral free loan meaning no collateral or security is required to obtain a Mudra loan.
- Zero processing charges: There are no processing charges involved.
- Multipurpose loan: It is like a working capital loan that can be used for varied business needs.
- No minimum loan amount: There is no minimum amount to apply for. However, the maximum limit is ₹20 lakh.
- Low interest rate: Mudra loan is offered at the lowest possible interest rates as it is determined by the marginal cost of lending rate (MCLR), which is regulated by RBI.
Who is eligible for a Mudra loan?
Here is a list of business activities and types of businesses that are eligible for the Mudra loan (PMMY scheme).
- Agri -allied businesses: Micro and small enterprises engaged in non-farm activities are eligible. Businesses that are engaged in activities allied to agriculture such as beekeeping, dairy, fishery, livestock, food-processing centres, etc., are also eligible.
- Manufacturing: Micro and small enterprises engaged in manufacturing activities are also eligible to apply for a Mudra loan.
- Services: Micro and small businesses engaged in providing services such as consulting, marketing, etc., can apply for a Mudra loan.
- Trading: Micro and small sized business owners including shopkeepers/retailers, wholesalers and traders
- Artisans: Artisans of any kind are eligible.
- Loan requirement limit: Micro and small enterprises whose funding requirement is limited to ₹20 lakh.
Who is not eligible for the PMMY scheme/ Mudra loan (PMMY scheme)?
- The Mudra loan scheme is specially designed for micro and small businesses. Therefore, large-scale companies and corporates are not eligible for this scheme.
- Farm-related and land improvement business activities such as irrigation, canal, etc., are not eligible.
What are the documents required for Mudra loan/PMMY scheme?
Here is a list of commonly required documents for MSME loans. List of documents required for Mudra loan (PMMY scheme) are also similar.
However, it is best to get an exhaustive list of required documents from the lender.
- Duly filled application form
- Valid photo identity proof (Aadhaar card/Passport/Voter ID, etc.)
- Address proof (Utility bill/ Aadhaar card/Passport/Voter ID, bank statement, etc.)
- Business registration proof (Registration certificates/Deed copy, etc.)
- Latest photographs of the applicant/s
- Banks statement for last 6 months
How to apply for Mudra loan?
MUDRA (Micro Units Development & Refinance Agency) does not offer loans directly to entrepreneurs. Instead, you can apply get in touch with any of the following financial institutions to avail Mudra loan or PMMY.
- Public sector banks
- Private sector banks
- Regional rural banks
- Cooperative banks
- Small finance banks
- Micro finance institutions (MFIs)
- Non-banking financial companies (NBFCs)
Online process of application for Mudra loan: In order to fill in your application online for PMMY scheme, you can log on to Udyamimitra portal (udyamimitra.in). The benefit here is your application is viewed by multiple lenders.
Should you obtain a Mudra loan?
Here is how you can evaluate if you should obtain Mudra loan (PMMY scheme):
- Analyse your business needs. Mudra loan or PMMY scheme is a beneficial scheme for micro and small entrepreneurs having need of funding of up to ₹20 lakh. However, if you need a loan of more than ₹20 lakh, then the Mudra loan/PMMY scheme is not the right one for you.
- Verify if you fit the eligibility criteria. Check if your business activities are eligible to obtain a Mudra loan.
- In case you are not fitting in the eligibility criteria for any reason, you can look for an alternative such as Tata nexarc’s Business Loans. You can apply online and get unsecured business loans with minimum documentation.
- Verify if you have all the documents, or else your loan application will be rejected due to insufficient documentation.
- Beware of business loan scams. Many scammers make a cold call offering a business loan and government loans at lowest price. Do not fall prey to these scammers.
Also read:
Some frequently asked questions about PMMY scheme
Here are some answers to the questions which are generally asked about the Mudra or PMMY scheme.
What is the rate of interest on Mudra loan (PMMY scheme)?
Is Mudra loan/PMM scheme applicable in case of franchise model of business?
Can you raise a complaint in case of anu grievances?
Sohini is a seasoned content writer with 12 years’ experience in developing marketing and business content across multiple formats. At Tata nexarc, she leverages her skills in crafting curated content on the Indian MSME sector, steel procurement, and logistics. In her personal time, she enjoys reading fiction and being up-to-date on trends in digital marketing and the Indian business ecosystem.
I’m so grateful to have stumbled upon this article. I had heard of the Mudra loan scheme, but I didn’t know the details of how it worked, what the benefits were, or how to apply. I particularly appreciate the breakdown of the three categories of loans – Shishu, Kishor, and Tarun – and how they cater to different business needs.
I like the collateral-free aspect of the Mudra loan. Would also like to see a comparison of Mudra loans with other government or bank loan schemes for MSMEs, as it would paint a better picture of the benefits of each scheme with respect to each other.
thats exactly what i thought! somebody pls take this into consideration as it will help us alot.