What is a Mudra Loan? Features, Eligibility & More

. 6 min read
What is a Mudra Loan? Features, Eligibility & More

Everything you need to know about Mudra Loan

Micro Units Development and Refinance Agency (MUDRA) loans are micro-loans that are available under the Pradhan Mantri Mudra Yojana (PMMY). MUDRA loans are targeted to aid and relieve the MSME sector by freeing them from the inconvenience of liquidity crunch.

These loans are readily made available to the concerned persons, and they are largely accessible by connecting the lending partners all across India. The type of loans under this scheme can be widely categorised into three major types on the basis of requirements like the quantum of loan and business stage

The maximum loan that can be provided under the Pradhan Mantri Mudra Yojana is around ₹ 10,00,000 and it is applied under the 'Tarun Scheme'.

An Introduction to the Project Report and its Contents

Just like any other business loan, MUDRA loans also require the borrowers to show a project report during the time of their loan application submission. The project report is an extremely important document that is required to initiate the loan application and sanction process.

The project report has to be furnished to apply for a MUDRA loan under the 'Tarun' or 'Kishore' category. The loans under the 'Shishu' scheme are most likely to be available easily to small business owners and they do not generally require the borrowers to provide a detailed project report along with their loan application.

Rubber stamping that says 'Loan Approved'.

What is a Project Report?

A project report is a document that offers a detailed account of the business proposal. It also provides the cost-benefit analysis, project implication of the proposed expenditure, and overheads for which the loan is sought.

Project report gives an overview of the project concept, scale of its activities, existing debts, project revenue, and more. The project report has to be precise and must contain valid data so that it can be easily approved and accepted by the loan authorities.

To initiate the application to obtain a MUDRA loan, the major contents in any project report that are needed are the cost of benefit analysis of the proposed expenditure, a detailed account of the business and entrepreneur, and more.

So, below mentioned are the major contents that a project report must essentially have-

  • General business profile or information such as the area of products/ Business, services, achievements, duration of the existence, etc.
  • The central aim, budget, and target of the proposed business enterprises and investment for the same.
  • Details of the plant, machinery, equipment, and other accommodations required for initiating the business proposal or sustenance.
  • Business quotation and detailed business plan from at least two sellers/ vendors specialised in the same sector.
  • Types of business development and manufacturing processes that are involved in the execution of the proposed plans.
  • Partner details, transportation cost, marketing, and promotional activities, strategies, and other requisites that are involved in the business of product development.
  • Information about the third party participant or investors involved in project execution.
  • Business revenue projections and conclusion of the report.

The aforementioned is a list of project report contents that are required by the lenders. Many loan lenders have specific requirements in terms of accepting the project reports. However, the main requisite with respect to MUDRA loan is the project report that has to be accurate and factual, or it may lead to the rejection of the whole loan application. This can also eventually affect the credit score of the borrower therefore project report has to be made with due concern and as per the guidelines.

Advantages of MUDRA Loan

Some of the most crucial advantages of MUDRA loan are mentioned below-

  • The borrower gets easier access to the loan worth ₹10,00,000
  • Collateral free loan
  • Minimum interest rate as compared to the business loan products and other proposals.
  • Comfortable repayment duration up to 5 years (or more in specific cases).
  • Flexible repayment options as per the terms and conditions of the money lender.
  • A revised definition of the sector (MSME) that offers a wide scope of eligibility under the scheme of MUDRA loan thereby supporting more businesses.
  • Interest subvention of around 2% to 'Shishu Loan' under PMMY

A Glance at MUDRA Loan

The Pradhan Mantri Mudra Yojana was launched in 2015 with an objective to offer credit up to rupees 10 lakhs to small and medium entrepreneurs. This scheme acts as a regulator for the micro-finance institutions (Mafia).

MUDRA Yojana targets skilled workers, educated professionals, and entrepreneurs and ensures their interests. This scheme is specially designed to encourage and promote the axis of financial amenities to non-corporate small business sectors (NCSBS) that can turn them into the driving forces for Employment generation and GDP growth.

The MUDRA loan is offered under the Pradhan Mantri Mudra Yojana (PMMY) to the non-corporate micro and small businesses and non-farming enterprises. These bodies can avail of a loan up to 10 lakhs under the development of the micro-unit and refinance agency Ltd scheme. This loan is accessible in three broad categories i.e. Shishu, Kishore, and Tarun for signifying the stage of business growth, developing and funding the requirements of the beneficiary business/ entrepreneur, and to offer a reference point for the next phase of their business growth.

The features of the MUDRA loan scheme

MUDRA Yojana offers refinancing support to the banks for small businesses having a loan requirement up to rupees 10 lakhs. The applicant can approach the amount to any leading institution.

The core features of this scheme are-

1. Loan amount - The scheme considers maximum loan amount up to rupees 10 lakh, which is further segmented as-

  • Loan of up to ₹ 50, 000 under the 'Shishu' category.
  • A loan from ₹ 50, 001 to ₹ 500, 000 under 'Kishore' category.
  • A loan from ₹ 500, 001 to ₹ 10, 00, 000 under 'Tarun'.

2. Processing- processing fee is zero for Kishore and Shishu loans. However, there is a 0.5 % loan amount for the ‘Tarun’ loan

3. Eligibility criteria - New and Existing Units

4. Repayment period - 3 to 5 years

5. Minimum Age - 18 years

6. Maximum Age - 65 years

7. Collateral - No third party security or collateral is required.

8. Documents- residency proof, identity proof, etc.

The Motive Behind Pradhan Mantri Mudra Yojana

The MUDRA loan scheme can be availed for performing multiple income-generating programs for activities like-

1. Commercial vehicle

This supports purchasing commercial transport vehicles like auto-rickshaw, tractor, taxi, trolley, goods transport vehicles, and many more.

2. Service Sector Activities

Starting any business like gym, salon, tailoring shop, repair shop, medicine shop, photocopy shop, dry cleaning shop, etc.

3. Food and Textile Sector Activities

Multiple activities involved in the food and textile sector, third party involvement, and more.

4. Traders and Shopkeepers Business Activities

Setting up service enterprises, shops, trades, business activities, non-farm incomes, etc.

5. Equipment Finance Scheme

This is for the micro-business units where the maximum loan amount is around ₹ 10, 00, 000.

6. Agri-Allied Activities

This involved the activities related to the agribusinesses or agriculture clinics, food, and agro-processing units, beekeeping, livestock rearing, dairy, fisheries, etc.

Eligible Borrowers of MUDRA Loan

The borrower of the loan should not be bankrupt or a defaulter of  any financial institution or Bank. The concerned person should also have a clean and satisfactory credit track record. Individual borrowers of the loan are required to have the necessary skills/ knowledge/ experience/ requisites to undertake the business proposition or plan. The requirements to have educational qualifications are needed for assessing the application based on the nature of the business plan or proposed activity.

  • Individuals
  • Proprietary concern
  • Private limited company
  • Partnership firm
  • Public company
  • Any legal firm
Loan bag and colour wood bar graphs in different height on a table

MUDRA card

A MUDRA card is more like a debit card that gets issued to the borrower or loan applicant who is applying for the amount. When the loan applicant applies for the loan process, and if it gets approved then the bank or borrower can open a loan account. The loan amount is dispersed in the account so that the concerned person or borrower can debit the amount whenever required.

Also read:

1) What is Business Loan? A Complete Guide.
2) How To Get Small Business Loan From Government?
3) How is the Government helping Small Businesses & Startups fight the financial crisis?
4) Schemes Initiated by the Government to Help Women Entrepreneurs