“When money realizes that it is in good hands, it wants to stay and multiply on those hands.”
Idowu Koyenikan
This quote is a perfect example of the whole idea behind Mudra loans. The Indian economy is primarily based on agricultural produces. The government has launched many schemes to boost the agricultural sector. However, we needed to catch up and have a scheme to support and strengthen India’s medium and small industries.
For a country to grow, agriculture and industry, both must evolve side by side. Considering the fact, the government came up with the MUDRA loan scheme in 2015. Mudra is a refinancing agency with full-form Micro Units Development and Refinance Agency Ltd. Its primary function is to develop and refinance to institutions like banks, NBFCs, MFIs, and Other financial intermediaries, which further lends to units involved in manufacturing, processing, trading, and service sector activities. The Pradhan Mantri Mudra Yojana (PMMY) or Mudra yojana is only for Non-Corporate Small Business Sectors (NCSBS) whose credit are less than INR 10 lakh.
Eligibility entities for Mudra Loans;
Those who are owner of small businesses either as a individual, proprietor or partner are eligible. To name the business categories considered under the scheme are;
Important points to note about the eligible/not eligible entities are;
Documents required for Mudra loans
Nature of loans under Mudra Scheme
- Cash Credit: To meet working capital requirement to run the business.
- Term Loan: For the purchase of equipment or machinery required for the business.
- Overdraft Limit: Up to INR 50,000/- for Shishu Category only
- Working Capital term Loan: From INR 5.00 to 10.00 lacs for GST registered firms with at least 12 months of GST returns.
Classification of Mudra Loans
PMMY (Pradhan Mantri mudra yojana) are classified into three categories;
- Shishu: For loans up to INR 50,000/-
- Tarun: For loans above INR 50,000/- and up to INR 5.00 lacs
- Kishore: For loans above INR 5.00 lacs and up to INR 10.00 lacs
How to apply for Mudra loans?
Applicant can visit any commercial scheduled bank, NBFC or MFI with all the required set of documents. Few financial institutions accept Mudra loan application through online mode as well.
E Mudra or Digital Mudra, How to apply online?
Government has recently launched JanSamarth portal for accepting online application for business loans. Applicants need to register on the portal. After completing the required details on the portal, different banks give digital approval. The applicant is free to choose any bank offer. After selecting a bank offer, the application will be routed to the designated bank. A few leading banks, like SBI/BOB, accept online digital applications such as E-Mudra or Digital Mudra as well. However, Jansamarth is a better option as it gives the option to analyze offers from different banks and the freedom to choose one.
Other two good option for applying online are Psbloansin59minutes.com and Udyamimitra.in
Rate of Interest for Mudra Loans
These loans are offered on the bank’s base rate plus spread. For example, if a bank’s base rate is 8.5%, it may apply a spread of 2%(Banks are free to set the spread range on different loans) above the base rate. The effective ROI would be 10.5%. Generally, the spread applied by the banks is between 1% to 4%.
Collateral required for Mudra Loans
No collateral is required for availing Mudra up t. However, the asset created out of the bank’s finance (Mudra loan) will have a hypothecation charge of the bank.
Mudra Loans for start up and new businesses
Yes, this scheme can be availed by start-ups or new businesses. In such cases, the applicant must provide projections to the bank. The bank will ascertain the proposal based on projections for the next five years.
Does Mudra loans have subsidy?
No subsidy is offered under this PM Mudra loan scheme.
Reasons for Rejection
- Unsatisfactory business plan for new business or start ups.
- Low Credit score
- Insufficient Cash Flow
- Banks statement having less transaction
- Lack of Margin Money
What if Mudra loan is not repaid?
Initially, bank’s follow soft recovery measures by visiting the applicant’s home. Giving them time to make payment in parts. For cases when soft recovery measures are ineffective, banks initiate legal suit against the borrower in DRT.
Conclusion
In conclusion, MUDRA loans are pivotal instruments in fostering entrepreneurship and empowering small businesses across India. By providing access to financial assistance without collateral constraints, these loans have enabled countless individuals to turn their entrepreneurial dreams into reality.
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