What is Mudra  loan Scheme?

Micro- Units loan Development and Refinance Agency (MUDRA) is also known as Mudra Loan Yojana, Mudra Bank Scheme and Pradhan Mantri Mudra Yojana. Mudra loan is one of the key measures taken by the Indian government to promote Micro, Small and Medium Enterprises (MSMEs) throughout the country. This scheme was introduced on 8th April in 2015 by the Prime Minister of India.

What is Mudra Loan?

Mudra loan offers credit products which help the micro businesses grow and manage operational needs with the help of finance schemes. This Yojana embolden the neglected people and initiates them to start or expand their business. It has gained more publicity after the initiatives of “Make in India” campaign. Mudra loan brings the unadjusted or unfunded people into the formal financial system. Mudra loan provides minimum Rs. 50,000 and maximum up to Rs. 10,00,000 to the startups.

Mudra wants to ensure that all its credit facilities should be provided to the budding entrepreneurs. It has partnered regional banks, state banks, micro banks and the other lending financial institutions. The slogan “Fund the Unfunded” fights for self- dependence and self- reliance of the neglected population. Apart from making people independent, this scheme has been generating more employment facilities. This scheme has brought a shelter to the unemployed population and has become the major employment sector for people after agriculture.

MUDRA CARD: Mudra Card is normally a debit card issued by the banks to the borrowers. The banks open an account and issue a credit card to those whose Mudra loan application is accepted by the bank or the financial lender. Meanwhile, the amount is disbursed in their account so that they can debit the amount from their respective accounts. It is also helpful in tracking the borrowers’ credit history.

3 Types of Mudra Loan

Mudra loans have been distributed into 3 different categories namely shishu, kishore and tarun. These categories are based on borrowers funding requirement and business owners loan eligibility. These three types of Mudra loan have been discussed below:

Shishu Loan

This is the child category of Mudra Loan which suits to micro units and small business owners. Under this category, a borrower can get a loan amount of Rs. 50,000. This category targets the startups where the owner needs a small capital to get started. In order to avail an instant loan amount the borrower must present his business idea.

Kishore Loan

This category mainly targets the small businesses. Its main aim is to provide the funds to the businesses who have already started but want to establish their foundations. Under this category, the borrower can get a loan amount up to Rs. 5,00,000. There is a little difference in the application procedure which varies from bank to bank. The borrower need to fill the application and submit the minimal documents in order to showcase the current position of his business.

Tarun Loan

Under this category those businesses who have already established but need capital for expansion can apply for Mudra loan under Tarun category.  This category provides the larger amount than the above two categories. It offers a loan amount up to Rs. 10,00,000. However, it is only for the setup businesses.

Mudra Loan Interest Rates

The interest rates of these categories vary slightly from bank to bank. Therefore you must check with bank of your choice regarding the interest rates. Moreover, they solve your different queries as well. But vaguely the interest rates for these categories are as follows: Shishu charges 10 % to 12 %, Kishore charges 14 % to 17 % and Tarun charges 16 % onwards.

Purpose of Mudra Loan

We have already acquainted with the objectives of the mudra loan. Now what are the main purposes of Mudra loan? The following purposes are given below:

MUDRA LOAN FOR SHOPKEEPERS: Mudra loan scheme is helpful for vendors and shopkeepers. By availing the loan amount of Rs.10 lakh. They can plan different business and entrepreneurial activities.

FOOD PRODUCTION SECTOR: Borrowers who are working in food stalls and cold storages can apply for the mudra loan and exaggerate their foundations. They can scale up their buisnesses.AGRICULTURAL ACTIVITIES: Agricultural activities like poultry farming, dairy farming and fishing can avail a good funding under the scheme of Pradhan Mantri Mudra Yojana.

Eligibility Criteria for Mudra Loan

We are aware of the fact that mudra loan does not demand any security which means there is no need to attach anything. But at the same time everyone cannot get this loan. It also contains some criteria which has been given below:

  • Business vendors 
  • Shopkeepers
  • Small Industrialists and Manufacturers
  • Individuals who are engrossed in Agriculture
  • Entrepreneurs who wants to begin a start-up

Besides this the borrower can get the Mudra loan from the Public Sector Banks, Private Sector Banks, Micro Finance Institutions and Regional Rural Banks.

Documents required for Mudra Loan

The application procedure of Mudra loan is quite similar to any other loans. Moreover, you need to submit the similar documents which are submitted for the other loans. The important documents which are required in this procedure are given below: 

  • Recent 2 passport sized photographs of the borrower.
  • Proof of Identity includes your Aadhar card, Voter’s ID card, Passport and Driving License.
  • Proof of Residence includes your Passport, Electricity Bill, Telephone Bill and Bank Statement.
  • If you belong to a special category such as SC, ST, OBC, Minority, etc. then you need to require Proof of Belonging.

Make sure you are filling the application carefully. In addition to this you need to mention your business ideas.

Advantages of Mudra Loan

  • There is no minimum amount of loan for Mudra loans. It avails the loan amount up to Rs.10,00,000.
  • Mudra loan does not compel any collateral or security or any third- party guarantee. Although the application procedure for Mudra loan varies from one bank to another. 
  • The borrowers do not require to give any processing charges unlike the other loans.
  • All non-farm enterprises, i.e. small or micro firms engaged in the generation of income can avail of this loan.
  • The Mudra loan can be used for different requirements and purposes as the loan facility has been extended.

Objectives of Mudra Loan

  • Almost half of the India’s population live in the remote areas. The people haven’t heard of banking services such as loan, credit cards, debit cards and other saving accounts. The main objective of the Mudra Loan is to provide banking services to micro scale businesses or small businessmen. 
  • The utmost objective of Mudra loan is to create a system for the small businesses in order to make them independent.
  • Mudra loan makes a credit guarantee to those who has taken the loan which means that the person will not go into debts. The government will also have to bear the responsibility of the loan.
  • Many agents are also hired so that they can guide people in order to avoid the negative results.

Limitations of Mudra Loan

One of the major disadvantage of the Mudra loan is that it is providing larger amount of funds to the established businesses. MFIs are not able to push the small businesses to the next level. As they are given very small amount of capital. Moreover, there are a number of existing refinancing agencies such as NABARD (The National Bank for Agriculture and Rural Development) which was set up in 1982. Another financing agency is SIDBI (Small Industries Development Bank of India) which was set up in 1990. There is also a of interest due to the Mudra Bank’s responsibilities.