What is a Mudra Loan?
MUDRA or Micro Units Development and Refinance Agent is an institution that provides loan to non-farming and non-corporate, small scale businesses and entrepreneurs who are looking to fund their business further. It is a multipurpose loan to be used for business purposes only. MUDRA is also known as MUDRA Loan Yojana, MUDRA Bank Scheme or Pradhan Mantri MUDRA Yojana (PMYY). The MUDRA Yojana provides women, entrepreneurs, people from backward or scheduled tribes to avail loans for funding their businesses. Enterprises or individuals can avail up to ₹10 Lakh.
Pradhan Mantri MUDRA Yojana
The Pradhan Mantri MUDRA Yojana was as scheme launched by the Central Government in 2015 to train and educate aspiring entrepreneurs in the field of business. Since India is a developing country where many young graduates and aspiring business men and women find it difficult to get a job that matches their profile, they turn to creating their own unique businesses. To help facilitate the dreams and passions of such young entrepreneurs, The Union Ministry of Skill and Development under Prime Minister Narendra Modi, the PMMY or Pradhan Mantri MUDRA Yojana was launched. Under this scheme, young entrepreneurs will be trained in business and entrepreneurial skills for a period of five years.
The eligibility criteria to avail a Mudra Loan is very straight forward. One must be an Indian Citizen. It is not required to have a degree in the field of expertise. One should simply be knowledgeable and skilled in their field of business. Under each scheme of the Mudra Loan, there are specific documents required which need to be fulfilled. The person applying for the loan should not have defaulted at any financial institutions. An applicant must be residing at his or her current address for a minimum of 1 year and should not be younger than 23 years or older than 65 years of age at the time of the application. Their minimum monthly income should be ₹17,000. Most importantly, their business should be a non-corporate enterprise.
Features and Highlights of Pradhan Mantri MUDRA Loan
|Who is Eligible?||Small scale units and entrepreneursNew and existing businesses|
|What is the Loan Amount?||Maximum loan of up to₹10 LakhShishu = Loans up to₹50,000Kishor = Loans up to₹5 Lakh and above ₹50,000Tarun = Loans up to ₹10 Lakh and above ₹5 Lakh|
|Interest Rate||10-12% for Shishu category14-17% for Kishor category16% and above for Tarun category|
|Repayment Period||3-5 Years|
Benefits of the MUDRA Loan
The Mudra Loan is extended for a variety of purposes which aids in better income and employment for sectors such as manufacturing, retail, transport, agriculture, community and social services etc. Following are some of the major benefits of availing a Mudra Loan under the PMMY scheme:
- It helps to support, empower and providing funding for small scale, micro units, enterprises and individuals.
- Mudra has partnered with various regional, state, public and private sector banks which helps to provide loans at standard interest rates to people living in remote areas of India where banking facilities are not commonly available.
- It does not require any collateral. Therefore business and personal assets are secure.
- The system is efficient and easy as one can simply use the MUDRA card for avail the loan and going to a bank is not necessary.
- The repayment tenure is flexible and a borrower can determine how and when to repay based on the cash flow of their business.
- Mudra loans support small scale industries and businesses in many different sectors such as food, retail, manufacturing which helps promote home-grown businesses.
- Women are encourage as entrepreneurs to finance their business through this loan with lower interest rates.
- There are no processing charges levied for Mudra Loan applications.
- Formalize and institutionalize grass root organizations
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The MUDRA card is very useful as it acts like a debit card issued against the loan amount for the working capital portion of the loan. This means that the borrower need not visit a bank to make a withdrawal every time. Multiple withdrawals and credits can be done helping the borrower run his or her business in a cost efficient manner and at the same keeping the interest rates low. The card also helps to keep track of credit history for the borrower and aids in digitalization. The MUDRA card can easily be used at any ATM or Micro ATM across the country as well as at any Point of Sales location.
MUDRA Support System for Small Businesses
Small scale businesses and non-corporate enterprises can sometimes face many challenges other than financing and credit. Some of them include:
- Skill Development Gaps
- Data Gap
- Lack of Proper Information
- Financial or Business Knowledge
- Lack of Understanding on Growth, Development and Positioning
To address these concerns, MUDRA plans to introduce a credit plus approach and offer development and support systems. This will help to build up the market as well as create an efficient eco-system of small-scale business enterprises that require such of support to fuel their development. It will also help to provide the right knowledge and education when it comes to finance and business. Information on the various kinds of financial tools and market products as well as rewards and risks will be taught so that a business can make an informed decision.
Although the MUDRA loan is a wonderful scheme introduced by the government to empower small scale non corporate entities, many banking institutions are raising their concerns about the scheme. The government has taken upon a big liability on themselves by offering the MUDRA loan. Banks are asked to not take any collaterals which makes the loans completely unsecure. This could become a serious issue in the future. However, the government is confident that MUDRA will create many employment opportunities and fuel the grass root institutions in India. They claim to be on target for the current year when it comes to the number of applications sanctioned and loans distributed. There is no doubt that the scheme has benefited the 51 million small scale businesses that currently exist out of which only 5 million have access to formal financial sources. Although the banking institutions are stressed and aggravated because of the burden of Mudra Loans, there is no doubt that micro small scale and medium enterprises are going to be the ones to uplift the economy in the future.
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