What is MUDRA Scheme? Who can get a Loan Under MUDRA Scheme?

By | February 1, 2020

The Pradhan Mantri Mudra Yojana (PMMY) or the MUDRA scheme was launched on 8th April 2015 by the Government of India, with the aim of providing affordable funds to fledgling business enterprises.

To facilitate affordable and accessible business finance, the government set up the Micro Units Development and Refinance Agency Bank (MUDRA Bank).

This public sector financial institution provides funds to several NBFCs and MFIs, which in turn is offered to entrepreneurs and business entities as MUDRA loan.

The Indian Government with initiatives like Pradhan Mantri Mudra Yojana, Stand-Up India Scheme, and so on, looks to better the business scenario in the country.

Any Indian who owns a business involving a non-farm sector income-generating activity like trading, manufacturing, processing, service, etc. can avail a MUDRA loan.

Loans under MUDRA scheme can be classified into 3 categories –

  • Shishu- Loans up to Rs.50,000 for start-ups or small businesses.
  • Kishor- Loans ranging from Rs.50,000 to Rs.5 lakh for larger business units.
  • Tarun- Loans ranging from Rs.5 lakh to Rs.10 lakh for small to medium business enterprises.

The processing fee is zero in case of Shishu and Kishore MUDRA loans. While in case of Tarun loan, the fee is 0.5% of the total loan amount.

Entrepreneurs looking for tips to grow a business can also rely on the MUDRA scheme to draw funds.

Key objectives of the MUDRA loan scheme

Some of the most prominent objectives of the MUDRA loan scheme are-

  1. To lay down policy guidelines relative to financing for small and micro-enterprises.
  2. To help small businesses thrive and grow.
  3. A single regulatory and registration body for all microfinance institutions.
  4. Assisting individuals from the lower-income groups in building and expanding their business.
  5. To provide loans based on SC/ST preference.

MUDRA loans are extended through Public Sector Banks, Regional Rural Banks, Private sector banks, Non-banking Financial Companies (NBFCs), and so on.

There are no restrictions specified as to for which purpose a MUDRA loan can be used. The borrower can use the funds available for equipment financing, business expansion, maintaining working capital, and so on.

Who can avail MUDRA loans?

To make sure maximum businesses benefit from the MUDRA scheme, loans are extended, focusing on specific activities and sectors.

The sectors which are included under the MUDRA loan scheme are –

  • Textile products sector –

Textile-related activities like handloom, chikan work, zari, zardosi, power loom, handwork, embroidery, stitching, traditional dyeing, knitting, and so on, are backed through MUDRA loans. Other non-textile products like bags, accessories, etc. are also a part of this category.

  • Food products sector –

Individuals undertaking activities of making several food items or running canteen services are to be backed through this scheme.

  • Land transport sector and activities –

MUDRA scheme provides support for the purchase of vehicles to transport of goods, and other transports used to earn a living, such as auto rickshaw, passenger cars, etc.

  • Community, personal, and personal service activities –

This includes saloons, gymnasiums, beauty parlors, tailoring shops, medicine shops, boutiques, and so on.

To apply for MUDRA loans, an individual has to approach a financial institution, fill in the application form, pay the processing fee, and ascertain the amount he wants to borrow.

The maximum amount of loan which can be borrowed through the MUDRA scheme is Rs.10 lakh. Moreover, the maximum amount will be provided only when the applicant and the business entity manage to fulfill the specified conditions, i.e. eligibility criteria.

If an entrepreneur requires more funds for the business undertaking, he can consider availing a business loan from a reputed financial company. In such loans, the maximum amount of funds available is Rs.30 lakh.

Under the MUDRA scheme, the Mudra card has been introduced. It is a debit card which accounts for the working capital part of the MUDRA loan. Take advantage of these benefits offered by this government initiative. If in need of a higher amount of funds, refer to leading lenders who offer business loans at affordable interest rates and beneficial loan terms.