Essential Guide to Pradhan Mantri Mudra Yojana Loan

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Economic reforms are important for the growth of any country. While most of us (the working class) are interested only in the income tax details, there are a lot of other initiatives taken to offer assistance to other sections of the economy especially the small and medium enterprises to boost that sector. While there are schemes like Pradhan Mantri Jeevan Jyoti Bima Yojana for individuals, there’s an interesting scheme Pradhan Mantri Mudra Yojana for small & micro enterprises.

Launched by our honorable Prime Minister Narendra Modi on 8th April 2015, the Pradhan Mantri MUDRA Yojana (PMMY) aims to offer loans to a maximum of ₹10 lakhs to small/micro enterprises under non-corporate and non-farm categories.

The loans are called as MUDRA loans under the Pradhan Mantri MUDRA Yojana (PMMY). Such loans will be issued by Small Finance Banks, RRBs, Commercial Banks, NBFCs, and MFIs. 

What is MUDRA?

MUDRA stands for Micro Units Development and Refinance Agency Limited which has been created as a refinancing institution that will provide loans up to ₹10 lakhs to enterprises which are eligible RRBS, NBFCs, MFIs, and Cooperative Banks. Borrowers can approach these institutions mentioned above or apply online.

The origin of MUDRA

Non-corporate micro enterprises comprise the largest economic sector of the country after agriculture, generating employment opportunities to the tune of ten crores impacting 50 crore Indian livelihoods. The enterprises are classified as Own Account Enterprises (OAE) or proprietary and are engaged primarily in services, processing, trading and manufacturing. This sector, although deemed to be the economic firewall of the country, as a business eco-system, it is reckoned to be largely disorganized.

The NSSO survey, 2013 places the number of OAE at 5.77 crores, which lie outside the scope of the formal financial sector enjoying none of the credits facilities offered by them. The MUDRA scheme under the Pradhan Mantri MUDRA Yojana is aimed to bring this huge sector into the folds of the banking system, transforming and realigning them so as to generate GDP growth and employment. 

MUDRA, Structure

It was initially formed as a refinance company and as a subsidiary of SIDBI, with a paid-up capital of ₹750 crores and an authorized capital of ₹1000 crores. The responsibilities of MUDRA are to develop and refinance micro enterprises which are employed in extending MUDRA loan scheme.

The PM MUDRA Yojana aims to partner with lending institutions at a micro level within states in order to facilitate micro finance at the national level. The lowest strata of the society shall gain in the areas of social support, financial literacy and employment generation through this scheme.

The Mission Statement: 

The mission goal of Pradhan Mantri MUDRA Yojana is to create financial sustainability and an entrepreneurial culture in the unorganized sector which forms the bulk of our nation and employs most of the country directly or indirectly. 

Key points of the MUDRA loan:

• Small and micro scale enterprises involved in generating income are the prime target in regards to lean facilities.
• No processing charges for availing the loans concerned.
• No collateral or security are required to be provided by borrowers to avail these loans.
• These loans can be either credit, bank guarantees, overdraft facility, letters, or term loans.
• There’s an element of flexibility in these loans as they can be provided for the funded as well as non-funded category.
• There’s no minimum permissible amount for the Mudra loan scheme.

Important Details:

There are three categories of loans under the Pradhan Mantri Mudra Loan scheme:

1. Shishu: Meant for entrepreneurs who intend to start a business or are in the process of establishing a business. The maximum amount sanctioned under this category can be ₹50000. The basic features of this sub-yojana are:

• To finance machinery.
• When valid supplier details and quotation are required. 

2. Kishore: This category of loan targets entrepreneurs who intend to expand their business and require capital injection. The amount sanctioned under this category is in the range of ₹50001 to ₹500000. The requirements of an eligible borrower are:

• The balance sheet for the last two years.
• Their bank account statement.
• Sales and Income returns.
• An estimated balance for the present year.
• Economic and technical viability of the concerned project

3. Tarun: This sub-category is for entrepreneurs who have properly established themselves in their respective businesses and are looking to expand further. The loan range for this sub-yojana is ₹500001 to ₹1000000. As the amount involved is higher, the requirements are respectively more stringent. They are as follows:

• All the requirement for the Kishore yojana under the MUDRA loan.
• Identity and Address proof.
• Certificate of caste if applicable.

Other features of Pradhan Mantri Mudra Loan Scheme:

• There are three categories of loans under this scheme.
• There is no prescribed minimum amount.
• The maximum amount is ₹1000000.
• No security or collateral needs to be deposited.
• No processing fee required.
• Primarily extended to non-corporate non-farm enterprises, this loan can also be availed by farm sector enterprises involved in horticulture, pisciculture and food-processing among others.

Eligibility criteria:

Enterprises that fall under the following headers are eligible to receive the loan:

• All non-farm, non-corporate entities.
• Engaged in generating employment through services, trading and manufacturing.
• Where ever the credit requirement is of a maximum amount of ₹1000000.
• Engaged in allied agricultural services since the 1^st of April, 2016.

Interest Rates:

The interest rate applicable on the loans are based on certain guidelines setup by the RBI called the MCLR (Marginal Cost of Lending Rate) and which are as follows:

Loans up to a maximum amount of ₹50000 (Shishu Scheme):

• For Micro Enterprises the interest rates will be the sum of the interest rates for the MCLR and SP.
• For Small Enterprises the interest rates will be the sum of the interest rates for the MCLR, SP and Bank Load.

Loans starting from ₹50000 up to a maximum amount of ₹200000 (Kishore Scheme):

• For Micro Enterprises the interest rates will be the sum of the interest rates for the MCLR, Bank Load and SP.
• For Small Enterprises the interest rates will be the sum of the interest rates for the MCLR, SP and Bank Load.

Loans starting from ₹200000 up to a maximum amount of ₹1000000 (Tarun Scheme):

• For Micro Enterprises the interest rates will be the sum of the interest rates for the MCLR, Bank Load and SP.
• For Small Enterprises the interest rates will be the sum of the interest rates for the MCLR, SP and Bank Load. 

Final Thoughts on Pradhan Mantri Mudra Yojana

If you are a small or micro industry player looking to get some assistance to setup your business or expanding it the Pradhan Mantri Mudra Yojana is a good scheme to assist you. This post has laid out almost all the data you need towards Mudra loan under this initiative.

Note: I’m not a financial expert and just sharing the information about the Pradhan Mantri Mudra Yojana. Hence request you to please consult your financial advisor for the next steps.