The increase of startups and the interest of young entrepreneurs to start their businesses has led to many schemes introduced by the Government of the country. Several opportunities are given, to pursue the dream of being an entrepreneur to the interested people. Out of so many schemes, one of them is Mudra Loan.

Mudra loan or the Pradhan Mantri Mudra Yojana (PMMY) scheme was launched in 2015 by the Prime Minister of India. MUDRA, which is short for Micro Units Development and Refinance Agency, provides loans up to Rs. 10 Lakh to the non-corporate and non-farming small and micro-enterprises. This also includes enterprises involving allied agricultural activities.

It is known globally that Indians have a great creative and innovative mind, however the majority of them are unable to convert these ideas into profitable businesses due to financial reasons. This is common in almost all the different sections of society. PMMY was mainly to encourage everyone to try and implement their ideas.

What is Mudra Loan?

In 2013, it was found that there were around 5.77 crore micro and small enterprises in India and about 60% of these were owned by backward classes. These units cannot be covered by the formal loan lending sectors. This means that they might have to depend on informal lending sectors which can lead to a lot of issues or manage with their own funds. The Mudra Loan scheme is to support young, budding entrepreneurs and also existing businesses to expand and experiment with their ideas. This is much more secure and the rate of interest is not very high.

The Schemes Under Mudra Loans

Mudra loans have several schemes under them and they are:

Shishu

This is when the amount required by the borrower is less than INR 50,000. This is usually given to entrepreneurs in their early stages. This is basically a working capital term loan. There are a few things that are checked in this case. The checklist here includes the Machinery quotations and the details. The machine details have to be provided perfectly well. The borrower should also provide all the details that the banks ask for. This might include the details of the supplier. This is basically for startups.

Kishor

This covers loans from INR 50,001 to 5,00,000. This is not for beginners but already established businesses when they want to expand their business operations. In this case, they might require tax returns. The lender needs to know all the details of the company. It is also required to submit the balance sheet for the last 2 years, the estimated balance sheet for 1 year, MOA and AOA, and the sales made before the company applied for the loan in the Financial year.

Tarun

This is another scheme that covers loans from INR 5,00,001 to 10,00,000. This is when the business owner meets certain preset conditions. The required documents and details are similar to that of Kishor but there are a few other proofs that are to be included. This includes the caste certificate, Address proof, Identity proof, and other essential documents. The loans are approved only if all the documents are perfect and none of the documents is missing or faked.

Who Can Borrow Mudra Loans?

Mudra Loan Schemes encourage women
Mudra Loan Schemes encourage women

There are various enterprises that can borrow under the Mudra loans scheme. This includes individual business entities, partnership firms, public companies, private companies, Proprietary firms and so on. Also, to be eligible to borrow this, the applicant should have a proper credit track record. The proposed activity is properly studied and based on that, the lender might ask for educational qualifications and other basic requirements.

The borrower will be eligible if he submits all the documents and has all the basic requirements listed by this scheme.

Sectors Covered Under Mudra Loans

  • Food product sectors
  • Textile
  • Transport and transport activities
  • Community, personal service and social activities.
  • Activities allied to farming and agriculture.
  • Finance for the equipment in micro-units.
  • Business loans for shopkeepers.

Features and Benefits of Mudra Loans

The key benefit of this scheme for borrowers is that they do not need to show collateral or security. Also, there is no processing fee for this. Also, there is no minimum amount that you need to borrow. It can be used for various purposes like expansion, modernization, machine purchase, renovation, etc. There is no processing fee involved. Only in the case of the Tarun loan, 0.5% of the loan amount is charged as the processing fee. Mudra loan can also be availed online and the repayment period lies between 3 and 5 years, depending on various factors. The interest percentage for Shishu is nil and for the other 2, it is 10%. Also, the age of the borrower must be above 18 and below 65 years to avail of Mudra loans.

Steps To Apply For Mudra Loans

It is very easy to apply for Mudra loans. You have to have all the necessary documents.

  • Step 1: Check what are the documents necessary for the amount you need and keep all the documents ready.
  • Step 2: Approach a financial institution. This loan is available in almost all renowned financial institutions. You can approach any one of them or even check their website out for details. Make sure to check if the financial institution is registered under the Mudra scheme.
  • Step 3: The next step is to fill out the application form carefully. Almost all the details like personal and business details. The documents have to be attached. Mention the amount you might need. There are different forms for Shishu, Kishore and Tarun. Choose the right form and keep the documents in hand while filling out the form.
  • Step 4: Wait for approval. Once the loan is approved, you will receive the Mudra card. You can use the card to draw the money you need.

This is the set process in almost all approved financial institutions. It is safe and secure.

Conclusion

Small businesses and entrepreneurs can go for a Mudra loan as it is easy to get approved and also it will help them get the first capital for their company. Since there is no collateral or security required, it can be availed by anyone satisfying the criteria. This serves as an encouragement for youngsters with an idea to get basic funding for their business idea and hence they will be able to put their idea into practice. This is available in various institutions and also can be dealt with online. This makes the entire process much easier than it is. The only major criteria are that all the documents to be submitted must be perfect and the borrower should be within the specified age limit.

FAQs

Who introduced Mudra Loan?

Prime Minister Narendra Modi introduced the Mudra loan.

When was Mudra Yojana announced?

The Mudra Yojana was announced on 8th April 2015.

How much loan is provided by Mudra Yojana?

Mudra Yojana provides loans of up to INR 10 Lakhs to borrowers.

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