MUDRA stands for Micro Units Development and Refinance Agency Limited and is a loan extended for setting up and developing small businesses and micro-enterprises across India. MUDRA loan is available under the Pradhan Mantri MUDRA Yojana (PMMY). The loan was initiated from 8th April 2015 to provide financial assistance to non-farming micro-enterprises and small non-corporate businesses.
The loans are provided by NBFCs, commercial banks, small finance banks and RRBS, and a loan of up to Rs 10 lakh can be availed depending on the scheme. The primary role of MUDRA loans is to create sustainable business growth and finance rural or small scale entrepreneurs. In the Financial Year 2020-21, the total number of MUDRA loans sanctioned across the country is 24530897. Within this year, the total loan amount authorised was Rs 147478.66 crore.
Who Can Apply for the Mudra Loan?
Under the aegis of MUDRA loan, most of the micro-enterprises and small businesses have the chance to flourish and grow. It is mostly provided for income-generating enterprises and applies to diverse domains. It mainly provides loans to business entities involved in trading, manufacturing, and secondary allied businesses. The loans are provided to individuals, partner firms or small private companies. It is even extended to vegetable or fruit vendors, shopkeepers, repair or servicing shops, machine operators, artisans, food processors, food service businesses, etc. It is applicable for small companies across both rural and urban areas.
Eligibility Criteria for Loan Application
1. All Indian citizens above 18 years, owning an incoming generating small manufacturing, trading, or service sector business are eligible for applying for the loan.
2. It can be applied by the individual, traders, manufacturers, MSME, business owners, shopkeepers, start-up micro-enterprises and small scale industrialists.
3. The following categories of businesses can apply for the MUDRA loan:
- Land transport
- Food products & vendor services
- Textile industry like handicraft
- Food product manufacturers or bakers
- Community services like gym, salon, printing shops, repair shops
- Agricultural activities like dairy, poultry, fisheries etc.
Understanding the Types of MUDRA Loans
There are three categories of MUDRA loans under the PMMY scheme. Each of the categories has a different financial limit and helps fund a small business's financial needs.
1. Shishu MUDRA Loan
Under this category, a loan up to Rs 50,000 is sanctioned. This loan is for those who are starting off the business or have a business plan. This loan covers the basic cost of setting up the unit, purchasing machines or equipment and resources necessary for business set-up. This requires the primary loan documents and costing for application of the loan.
2. Kishor MUDRA Loan
Under this category, a loan within the range of Rs 50,000 to Rs 5 lakhs is sanctioned. This loan is for those who have an established business and require financial assistance to expand and grow their business. Since it is for existing income-generating business, loan application requires bank statements, income statement, estimated expenses, balance sheet and business proposal for viability or expansion.
3. Tarun MUDRA Loan
Under this category, a loan within the range of Rs 5 lakh to Rs 10 lakh is sanctioned. This loan is for enterprises or businesses looking to expand their business domain and diversify it. This requires all the necessary documents under the Kishor Loan category.
The funding or loan can be availed under two schemes, which are:
- Micro Credit Scheme (MCS) – These are for micro-enterprises or small businesses, and a loan is provided through MFIs. The granted amount is up to Rs 1 lakh.
- Refinance Scheme – NBFCs, commercial banks and RRBs provide this loan, granting up to Rs 10 lakh. These are provided either as term loans or working capital for running and developing the business.
Process for Application of MUDRA Loan
Applying for the MUDRA loan is not complicated; one can do it both online and offline.
Online application of MUDRA loan
- The first step is finding the right lender, which includes commercial bank, NBFCs, RRBs, etc. Visit the official website for the lender financial institution and download the form. The form for the three categories of MUDRA loan is different.
- Fill out all the detailed information, both personal and business-related, in the online form. Make sure all the information provided is correct.
- Apply along with all the documents required by the financial institution to check and process the loan.
- The application form and attached documents are checked, verified, and if the loan is successfully approved, it will be processed for the disbursal amount. A MUDRA card is issued with the pre-loaded sanctioned loan amount. It can be used as a credit card.
Offline application of MUDRA loan
The offline process is convenient for people who are not well versed with online systems of application. It requires visiting the bank or lender financial institution in person for the process.
- The offline process for loan application requires visiting in person the lender financial institution. The MUDRA loan form can be availed from the lender bank or downloaded online and printed.
- A self-written plan for business and necessary documents should be submitted, along with the duly filled application form and a passport-sized photograph.
- All the documents, business plan, and application are verified. Once the loan is confirmed, the amount is pre-loaded in a MUDRA card and provided to the applicant.
Documents Required for Loan Application
The documents can vary from business to business. For a new business, a business plan and estimated purchase cost are required. Here is the complete list of documents necessary for the application of the loan:
- Official business documents are essential for obtaining a loan for an existing business. They include license, registration forms, certification and relevant documents supporting the business.
- If the loan is for starting a new business, one must submit a business plan document. It should include information about suppliers, vendors, resources, pieces of machinery, utilities, etc. required for setting-up the business. A cost estimating for the upcoming year or upcoming plans or document showing the business plan's viability is required.
- Document showing Proof of Identify and Address Proof for business. It includes one's Driving License/Passport/Aadhar Card/ Bank Statement/Voter's ID card.
- Duly filled Application Form for the loan along with the passport-sized photo.
- Proof of Certification of belonging to Special Category like ST, SC, Minority, OBC, Handicapped, Senior Citizen, etc.
- For Kishor and Tarun Loan, it is essential to show documents like bank statements, financial or income statements of the past year and balance sheet of the previous year, and expenditure estimation in the coming year.
The document regarding proof of identity and address proof needs to be self-attested. For refinancing or term loans for expanding business, ensure all documents related to the purchase of equipment and money spent on various resources.
How MUDRA Loans Benefit Businesses?
The MUDRA loan scheme aims to help growth and expansion or set up of MSME industries and support small entrepreneurs. Here are some benefits for getting a MUDRA Loan approved:
- It has no processing fee for the approval of the loan. It does not require collateral or security deposit for applying for the loan.
- There are different ways of providing the loan. It can be extended as a term loan, working capital, MUDRA card, or letters of credit. The loan terms are convenient.
- The loan tenure is for 5 years. The borrower can repay the loan within 5 years in flexible EMIs. The interest rates set by the lender are reasonably low-interest.
- The processing time for the loan is short and takes only 7 to 10 days.
- The interest rates are lower for women entrepreneurs or borrowers under the special category.
- The government gives the credit guarantee for the borrower. Hence, it does not matter what the credit score rating is for the borrower.
- It helps provide financial aid to new small businesses set-up or expansion, even in an area without proper basic banking facilities.
The MUDRA Loan has helped promote the "MAKE IN INDIA" campaign by supporting small and micro-entrepreneurial ventures and businesses. It has also helped break the bottleneck faced by Micro, Small and Medium Enterprises (MSMEs) in financial assistance. The collateral-free and low-interest-rate loans have helped ten-fold the growth of micro-businesses in the past few years.
1) What is Business Loan? A Complete Guide.
2) How To Get Small Business Loan From Government?
3) Schemes Initiated by the Government to Help Women Entrepreneurs
4) How is the Government helping Small Businesses & Startups fight the financial crisis?