Mudra Loan

Micro, small, and medium enterprises (MSMEs) sometimes struggle to obtain loans from banks through typical borrowing channels due to the lack of collateral and insufficient finances to repay high-interest loans. To address this, in 2015, the Indian government introduced the Pradhan Mantri MUDRA Yojana (PMMY), intending to stimulate the development and growth of small- and medium-sized businesses.

We have addressed all you need to understand about the Mudra loan in this blog.

What is the Pradhan Mantri Yojana Scheme?

The Indian government introduced PMMY on April 8, 2015, to assist different sub-small/micro-companies and non-corporate firms with finance requirements. The program was designed to provide these organizations with loans of up to Rs. 10 lakhs. These are referred to as MUDRA loans and are available from non-banking finance companies (NBFCs), microfinance institutions (MFIs), commercial banks, small finance banks, and regional rural banks.

MUDRA, or Micro Units Development and Refinance Agency, is a lending institution that was established with the primary objective of issuing loans. It was initially set up as a wholly-owned affiliate of the Small Industries Development Bank of India as a refinancing business with a paid-up capital of Rs. 700 crores and authorized capital of Rs. 950 crores.

Now, let us examine everything there is to know about the Mudra loan.

Type of Industries that Can Apply for Mudra Loan

The jobs and sectors listed below are eligible for the Mudra loan under PMMY.

Shop Owners and Traders

PMMY loans are available to those who deal in agricultural products, chemicals, and textiles. Additionally, proprietors of retail establishments, service businesses, and any non-farm livelihood promotion and income-generating activities are included.

Non-Corporate Small Business Sector (NCSBS)

Businesses that function as small manufacturing units for a particular product or service and comprise a diverse array of partnership or sole proprietorship firms. These entrepreneurs can apply for a loan to purchase the equipment essential to start their micro-enterprise.

Transportation Services Sector

Under this one can purchase a transport vehicle such as a personal vehicle, a goods carriage, a passenger automobile, a taxi, a rickshaw, an e-rickshaw, a small-goods transport vehicle, or any three-wheeler. Even two-wheelers acquired for commercial purposes qualify for the PMMY financing program.

Food Services Sector

This sector comprises establishments devoted to the preservation of agricultural commodities on a rural scale. For example, bakery owners, fruit and vegetable vendors, bread and bun manufacturing units, small-service food stall owners, catering business owners, canteen or tiffin manufacturing unit owners, cold chain vehicles and cold storage unit owners, jams and jelly makers, pickle and papad makers, and all types of sweet shops, ice cream, and ice manufacturing units.

Mechanics and Repair Sector

Automobile, cell phone, laptop, refrigerator, air conditioning, and television repair businesses/shops.

Textile Workers and Artisans

Cotton ginning, embroidery, handloom workers, digital embroidery, pottery, clay modeling, dyeing and printing of cloth, and any textile non-garment products such as napkins, shoes, utensils, bags, tablecloths, and other furnishing accessories are included. Additionally, this includes the production of stitching, zardozi and zari work, automobile accessories, and other sorts of handwork and tailoring.

Agricultural Sector

Beekeeping, grading or sorting agro-industries, poultry, pisciculture, livestock rearing, agricultural clinics, fisheries, agricultural business centers, aggregation agro-industries, dairy, agricultural clinics, agricultural food processing industries (excluding land improvements such as irrigation, wells, and canal construction, and crop loans), and any agri-services that generate revenue and provide support.

Machine operators

Individuals who work on mines, manufacturing plants, or construction sites and are responsible for operating heavy equipment and machinery. These individuals include drill operators in the construction industry, truck drivers, crane operators, manufacturing workers, and nuclear power plant personnel.

Features of the Mudra Loan

• Regulating microfinance borrowers and lenders and fostering sector stability through inclusive involvement.

• Extending credit and finance to support MFIs and other lending institutions that lend money to self-help groups, small businesses, traders, and people.

• For the first time, registering all MFIs and establishing an accreditation and performance rating system. It will assist last-mile borrowers in evaluating and approaching MFIs that best fulfill their requirements and has the most satisfactory track record as a lender. Additionally, such a policy will instill a sense of competition within the organization. The ultimate beneficiary will be the borrower.

• Providing organized guidance to borrowers to help them prevent business disasters or take early corrective action. Mudra loan will also assist in establishing acceptable methods and rules for lenders to follow when collecting money from defaulters.

Benefits of Mudra Loan

There are numerous advantages to obtaining a Mudra loan, which include the following:

• One of the primary advantages of this strategy is that no collateral or security is required to provide. Additionally, there are no processing costs.

• Another advantage is that it does not require a minimum payment. Borrowers who do not require a specified amount might apply for this loan based on their unique circumstances.

• The loan may take the form of term loans, overdraft facilities, cards (such as the Mudra Card), letters of credit, or bank guarantees. Hence, the loan conditions are easily adaptable and easy for borrowers.

• Additionally, women company owners and entrepreneurs may qualify for additional discounts or a reduced rate of interest on loans. This is extremely beneficial for women business owners because it involves a high degree of availability, which is a significant advantage.

What are the Mudra Loan Products?

There are three types of loans available under this plan, and the loan categories' names reflect the various stages of development at which micro-enterprises may require financing. The three types of loans are as follows

Shishu Mudra Loan

This is for aspiring entrepreneurs who are getting started and are in the planning phase of their firm. This loan has a maximum sanctioned amount of Rs. 50,000. This loan will be used to fund any required machinery and equipment, as well as any other necessary resources to execute the business plan. To qualify for this loan, the borrower must provide authentic supplier information and any additional mudra loan documentation that may be required.

Kishor Mudra Loan

This category approves loans between Rs. 50,001 and Rs. 5 lakhs. This category is for those seeking funding to grow their firm into a new geography or product line. Mudra loan documentation required for sanctioning this loan include income statements, bank statements, prior year balance sheets, as well as an estimate of the future year's balance sheet and the sustainability of their company plan or project.

Tarun Mudra Loan

This loan is available to those seeking funds above Rs. 5 lakhs. The highest amount that can be borrowed is Rs. 10 lakhs. This loan is generally intended for businesses or people seeking to diversify their operations or accelerate their growth. All of the requirements for the Kishor loan apply to the Tarun loan as well.

Mudra also offers two distinct financing options, which are as follows

Micro Credit Scheme (MCS)

This applies to loans up to Rs. 1 lakh financed by MFIs. These are for small/micro businesses or people engaged in various revenue-generating activities.

Refinancing Scheme for Commercial Banks and NBFCs

Refinancing Scheme for Commercial Banks and NBFCs

This has a cap of Rs. 10 lakhs. The refinancing program applies to both term and working capital loans. Occasionally, additional services may be provided to female entrepreneurs to encourage them. These services may include a discount or decrease on their debt.

Purposes of Mudra Loan

Mudra loans are issued for a range of uses that generate revenue and jobs. The loans are mostly used for the following purposes

• Vendors, traders, shopkeepers, and other service sector businesses can apply for a business loan.

• Loan for working capital via MUDRA Cards

• Finance for Micro Units' Equipment

• Loans for transport vehicles

Eligibility Criteria of Mudra Loan

Applicants must be at least 18 years old and no older than 65 years old.

Individuals, startups, business owners, entrepreneurs, small- and medium-sized enterprises (SMEs), and MSMEs are all eligible.

Additionally, traders, artisans, manufacturers, and retailers operating exclusively in the trading, service, and manufacturing sectors are eligible.

Applicants with a solid payback history, who are members of the SC/ST/OBC categories, and who have never defaulted on a loan with any banking instituti

Mudra Loan Interest Rate

Lenders	Interest Rate	Processing Fee	Maximum Loan Amount	Repayment Tenure
SBI	9.75% onwards	Nil for the Shishu scheme	Up to Rs. 10 lakhs	Up to 5 years
Oriental Bank of Commerce	8.15% onwards	As per the applicant’s profile	Up to Rs. 10 lakhs	Up to 5 years
Bank of Baroda	9.65% onwards + SP (Strategic Premium)	Nill	Up to Rs. 10 lakhs	Up to 5 years
Andhra Bank	8.20% onwards	As per the applicant’s profile	Up to Rs. 10 lakhs	Up to 5 years

Mudra Loan Interest Rates vary by bank and are determined by the applicant's profile and company needs. To obtain the precise interest rate, the applicant must contact the particular bank or visit the bank's official website. Several of the above-mentioned banks have been consolidated in the preceding table. Hence, the precise interest rate will be determined by the individual bank.

Documents Required to Apply for a Mudra Loan

• Official documentation of the business, such as its license, certificate, registration forms, and identification, as well as any other documents necessary to establish its existence.

• Identification and proof of address documents, such as an Aadhar card/voter identification card/passport/driving license and a bank statement. Additionally, the applicant must send two passport-sized pictures.

• Proof of membership in a special category (if applicable), such as SC, ST, OBC, or Minority.

• Additionally, for any new firm, it is required to present paperwork outlining the whole business plan, including a list of suppliers and data on equipment acquisition.

• Additionally, the viability of the company proposal must be demonstrated. Thus, projected plans for the following years must be presented along with documentation describing how the firm intends to repay the loan. It is particularly true with Shishu loans.

Application Procedure for Mudra Loan

Businesses can apply for Mudra loans through the respective portal of commercial banks, regional rural banks, small financing banks, MFIs, and NBFCs.

To apply for a Mudra loan, simply follow these steps:

• The loan application form can be downloaded from the bank's website.

• Complete the required fields.

• Submit the completed form together with the required documents, as specified below.

• Follow the bank representative's instructions on the formalities.

• After processing and validating the loan application form and any accompanying documentation, the bank will approve and transfer the loan amount.

Why Indifi For a Business Loan?

We at Indifi recognize how difficult it is for MSMEs to obtain loans through banks or other government programs. Hence, we developed a solution that enables firms to readily obtain financing for their capital requirements.

Indifi can assist your organization in resolving cash flow issues via

Working Capital Loans:

Indifi provides collateral-free loans to businesses at affordable rates with flexible repayment terms. You can apply for the loan easily online and receive the funds quickly.

Cash Advance Loans:

Indifi provides an unsecured line of credit to help you manage cash flow requirements before receiving customer payments. You can withdraw cash up to the amount of your credit limit, refund it as customers pay, and borrow again as needed.

Mudra Loan FAQs

Do I have to submit any collateral to obtain a Mudra loan?

No, there is no requirement to submit collateral to any bank, and the bank will not request collateral from you.

Is it possible for a college graduate to apply for a MUDRA loan?

Yes, any college graduate (minimum age of 18 years) interested in starting his or her own business and requiring financing may apply for a MUDRA loan.

I am 19 years old; am I eligible to obtain a Mudra loan to establish my own business?

Yes, anyone over the age of 18 years old is eligible to apply for a Mudra loan to start a business in the commerce, service, or manufacturing sectors.