All you need to know about Mudra Loans

Ashish M. Shaji

24 Mar, 2021

A financial support provider, MUDRA Loan under Pradhan Mantri Mudra Yojana, can be availed from your nearest bank. It can fulfill loan requirements of up to 10 lakh rupees for economic growth and social growth however it doesn’t lend directly to micro traders/individuals. In this article, we shall look at some of the key highlights of Mudra Loans.

Mudra Loans- Brief Overview

The Pradhan Mantri Mudra Yojana was launched on 8^th April, 2015. MUDRA is an acronym for Micro Units Development and Refinance Agency, which is an institution set up by the government to fund the income-generating activities of the micro and small enterprises in the non-farming and non-corporate sector. As stated above, the mudra loan offered under the Pradhan Mantri Mudra Yojana permits enterprises to avail of funds up to 10 lakh rupees.

Features of Mudra Loan

This type of loan has different features. Here a quick look at some of the main features of Mudra Loan:

• It is essentially a working capital term loan;
• It can serve different purposes like capacity expansion, modernization, purchase of plant and machinery, renovation of business premises etc.;
• It is offered to both new and existing units;
• The repayment period ranges between 3 to 5 years;
• One can avail this type of loan online.
• No collateral or security is required to obtain loan;
• There is no minimum loan amount;
• The processing charges are nil; and
• The interest rate may vary from bank to bank.

What are the benefits of availing Mudra Loans?

The benefits are enlisted below:

• The availed loan amount under this may be used as term loans and overdraft facilities;
• All non-farm enterprises that is small or micro firms engaged in the income-generating activities can obtain Mudra Loan;
• Mudra Scheme can be availed through Mudra cards; and
• Loans can be availed without any collateral. This makes it unsecured loans.

What are the types of Mudra Loans?

Products offered under this loan are classified under 3 loan schemes. These are as follows:

• SHISHU Loan;
• KISHOR Loan; and
• TARUN Loan.

Loans up to 50000 rupees can be availed in the Mudra Shishu Loan scheme^[1]. This can be availed by start-ups and new businesses.

Loans ranging between 50001 to 5 lakh rupees is available under the Kishor loan scheme. This can be availed for buying raw materials, equipment or machinery, and for business expansion for existing enterprises.

Loans from 5,00,001 to 10 lakh rupees can be availed under the Tarun Loan scheme. It can be availed by established businesses and enterprises.

How to apply for Mudra Scheme?

Under the Pradhan Mantri Mudra Yojana, borrowers can visit any branch of the financial institutions such as PSU banks, Regional Rural Banks, co-operative banks, private sector banks, micro finance institutions, and Non-Banking Financial Companies. A borrower can avail the loans as per his or her business needs which shall be approved according to the eligibility of the lending institution.

Documents required to apply for Mudra Loans

There are a number of documents required according to the specific loan requirements.

Vehicle Loans:

• A Duly filled Mudra application form;
• Vehicle loan application form;
• 2 passport size colour photographs;
•  Identity proof such as Passport, Voter ID card, Driving License, PAN card, Aadhaar Card;
• Address proof such as Voter ID card, Utility bills, passport, Aadhaar Card, Driving License, Rent agreement;
• Proof of income- last six months salary slip, last year’s ITR/sales Tax returns; and
• Bank statement.

Business Instalment Loan:

• A Duly filled Mudra application form;
• A Duly filled Business Instalment Loan application form;
• Photo Identity proof;
• Proof of address;
• Establishment proof;
• Bank statement;
• Ownership proof of residence/office/store;
• Proof regarding continuity of business;
• Qualification proof;
• Trade references;
• Documents of Income tax return of last 2 years; and
• CA certified financials.

Business loans group and rural business credit:

• A Duly filled Mudra application form;
• A Duly filled Business Instalment Loan application form;
• A duly filled rural business credit application form;
• Proof of address;
• Ownership proof of residence/office;
• Business vintage proof;
• Bank statement; and
• Documents of Income tax return of last 2 years.

What is the eligibility for Mudra Loan Application?

It may be noted that the entities and enterprises falling under the following categories comprise eligibility for Mudra Loan.

• All non-corporate non-farm enterprises;
• Primarily engaged in income generation through trading, services, and manufacturing;
• In case of credit requirement of maximum 10 lakh rupees or lower; and
•  Engaged in allied agriculture services since April 1, 2016.

Mudra Loan interest rate

The interest rate applied on the Mudra Loans are based on RBI defined Marginal Cost of Lending Rate with the following break-up:

Up to 50000 rupees;

• Micro enterprises- Marginal Cost of Lending Rate + SP
• Small enterprises: Marginal Cost of Lending Rate + SP + Bank Load.

More than 50000 rupees and up to 2 lakh rupees;

• Micro enterprises- Marginal Cost of Lending Rate + SP + Bank Load
• Small enterprises: Marginal Cost of Lending Rate + SP + Bank Load.

More than 2 lakh rupees and up to 10 lakh rupees;

• Micro enterprises- Marginal Cost of Lending Rate + SP + Bank Load
• Small enterprises: Marginal Cost of Lending Rate + SP + Bank Load.

How can you utilize the Mudra Loans?

The Mudra loan can be availed by the MSME Entrepreneurs from the following sectors and for the following purpose:

• Transport Vehicle– Purchase of transport vehicles for transporting goods and passengers like small goods transport vehicles, 3 wheelers, e-rickshaw, taxis, etc. Tractor/Trolleys/Power tillers used for commercial purposes are also eligible for assistance under the PMMY. Two wheelers that are used for commercial purposes are also eligible for coverage.
• Community, Social, and Personal Service Activities– Salons, beauty parlours, GYMs, Boutique, tailoring shops, cycle, and motorcycle repair shops, medicine shops, courier agents etc.
• Food Products Sector– activities like papad making, achar making, jam making, agricultural produce preservation at rural level, sweet shops, cold chain vehicles, cold storages, ice and ice cream making units, biscuit, etc.
• Textile Products sector/Activity– Handloom, power loom, Khadi activity, traditional embroidery and hand work, traditional dyeing and printing, knitting, cotton ginning, apparel design, computerized embroidery, stitching and other textile non-garment products like bags, vehicle accessories, furnishing accessories etc.
• Business loans for traders and shopkeepers– financial support for lending to individuals to run their shops/trading and business activities/ service enterprises and non-farm income generating activities with loan size of maximum 10 lakh rupees per enterprise/borrower.
• Equipment finance scheme for micro units– Setting up of micro enterprises by buying necessary machinery/equipment with per beneficiary loan size of maximum 10 lakh rupees.
• Activities allied to agriculture- Activities that are allied to agriculture such as pisciculture, bee keeping, livestock rearing, grading, sorting, diary, fishery, agri-clinics, and agri-business centres, food, and agro-processing, etc. (apart from crop loans, land improvement like canal, irrigation and wells) and services that support these and which promote livelihood or are income-generating shall be eligible under PMMY.

Conclusion

The government of India had designed Mudra Loans to help small business owners to meet their capital needs and operating costs through financing schemes. This loan has been stretched out for a variety of purposes. Mudra Loan can be applied for online quite easily.

Read our article:Mudra scheme for NBFCs – Special Refinance window