Mudra loan or the Pradhan Mantri Mudra Yojana (PMYY) scheme was launched in 2015 by the Prime Minister of India. MUDRA, which is short for Micro Units Development and Refinance Agency, provide 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 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 the society. PMYY was mainly to encourage everyone to try and implement their ideas.
Mudra Loans- A Brief Background
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 the 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:
This is when the amount required by the borrower is less than Rs. 50,000. This is usually given to the 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 Machinery quotation and the details. The machines 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 start-ups.
This covers loans from Rs. 50,001 to 5,00,000. This is not for beginners but already established business when they want to expand the 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 of the last 2 years, estimated balance sheet for 1 year, MOA and AOA and also the sales that were made before the company has applied for the loan in the Financial year.
This is another scheme that covers loans from Rs. 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, etc.
The loans that are approved only if all the documents are perfect and none of the documents is missing or faked.
Who Can Borrow Mudra Loans?
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 qualification 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.
The Sectors Covered Under Mudra Loans
- Food product sectors
- 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 the borrower is that he/she need not 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 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 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 the 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 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 the approved financial institutions. It is safe and secure.
The Final Note
Small businesses and entrepreneurs can go for 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.