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written by | October 11, 2021

Mudra Loan: Concept, Benefits, and Eligibility

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The Pradhan Mantri Mudra Yojana, also known as PMMY, is the government of India's main initiative to offer small businesses and startups affordable finance.

Mudra loans are designed to "help the unfunded" or to bring informal banking activities within the legal and financial framework. Credits under the PMMY plan are available to non-agricultural, small or casual businesses engaged in the production of income through important business activities such as services, trade, and manufacturing. Applications for Mudra loans are also accepted from organisations involved in joint agricultural endeavours.

Did you know? Mudra scheme target is set at ₹3 lakh crores for the financial year 2022.  

What is the Pradhan Mantri Mudra Yojana Scheme?  

On April 8, 2015, Prime Minister Narendra Modi introduced the Pradhan Mantri Mudra Yojana, which aims to give non-corporate organisations loans up to ₹10 lakhs. Under Pradhan Mantri Mudra Yojna, MUDRA Loan makes financing the credit needs of all non-farm income-generating enterprises easier. This program's main goal is to lend money to small and medium-sized businesses that aren't corporations or agricultural.   

Non-corporate micro-enterprises, estimated to number in the region of 10 crores and influence the lives of 50 crore Indians, make up the bulk of work opportunities in the country after agriculture. They are frequently involved in manufacturing, trading, logistics, and distribution. They are also known as Proprietary or Own Account Firms (OAE) enterprises. This industry is accurately recognised as the nation's economic backbone despite being the largest unorganised firm ecosystem in the world. The MUDRA initiative, run under PMMY, aims to transform this major industry into a bank credit base, making it a strong engine for GDP growth and employment creation. 

Also Read: Types of Loan - What are different Types of Loan in India?

Types of Loans Offered Under the MUDRA Scheme

Mudra loans are designed for small business entities. A mudra loan can be applied for by anybody who owns a small business. The MUDRA Loan primarily offers two forms of financing:   

  • First, a microcredit programme, primarily offered to various microenterprises and small companies by microfinance organisations, which offer loans up to ₹1 lakh in total.   
  • The second one is Refinance Initiative for Banks. For MUDRA refinancing assistance, various banks, including Commercial Banks, Municipal Rural Banks, Small Financial institutions, and NBFCs, are permitted. This refinancing is accessible up to a maximum of ₹10 lakhs per business and mostly applies to term loans and working capital loans. The plan is divided into 3 categories to make it simpler:

Shishu: Start-up businesses can apply for a mortgage under this category for up to ₹50,000. The interest rate would be between 10% and 12%.   

Kishor: Unestablished enterprises can apply for a loan under this category and pay a rate of interest of 14%–17% for loan amounts ranging from ₹50,000 to ₹5 lakhs.   

Tarun: Applying for a loan under this class with the financing of up to ₹10 lakhs is an option for established firms that want to expand their current unit. The interest rate range is over 16%. 

MUDRA Loan Eligibility  

Indian residents may qualify for Mudra loans if they have their personal business ideas for the service industry, commerce, or manufacturing activities and need sums up to ₹10 lakhs. Banks in the public and commercial sectors, as well as regional rural banks, small financing banks, and microfinance organisations, can provide it.  

According to the requirements for MUDRA Loan eligibility, a candidate should fulfill the following criteria:   





 

  

  

Minimum age of eligibility  



 

  

  

  

  

18 years  



 

Maximum age of eligibility  

 

  

  

65 years  



 

  

Who can avail a Mudra Loan?  

 

  

  

Both new and existing units are eligible for loans.  



 

Security or collateral  

 

  

  

No security from a third party or collateral is necessary.  



 

  

Institutions eligible to offer Mudra Loan  

 

  

  

Regional Rural Banks, Public Sector Banks, Private Banks, and Micro Finance Organizations  

Benefits of Mudra Yojana: 

Avail High Loan Amount Under Mudra Scheme 

The mudra yojana plan provides start-up businesses, small business groups, and MSMEs with loans ranging in size from ₹50,000 to ₹10 lakh. The loan products made available through the mudra loan programme aid micro-units and small enterprises in expanding their operations and meeting financial obligations. 

Also Read: Government Loan Schemes for Small Businesses In India

No Collateral Required 

As an unsecured form of business loan, the Pradhan Mantri MUDRA Yojana loan does not obligate the borrower to guarantee any significant assets as security to the lender. 

Hassle-free Services 

The Micro, Small, and MSME industry has long been disregarded due to a lack of trustworthy financial data and the assumption that they won't be able to make as much money. As a result, because of the lack of access to financing, the expansion of this enormously potent industry has continued to be hampered. Giving the MSME sector fast services and simple clearances tackles this problem and have greatly benefited the industry. 

Favourable for Small or Micro Firms 

Under the Pradhan Mantri MUDRA Yojana, people are given access to a microcredit programme for a specified income-generating microenterprise operation. This programme offers financial support for startup companies as well as micro-small companies. The borrower's debt is guaranteed by the government under the MUDRA Yojana programme. This implies that the government is responsible for the loan if the borrower defaults on it. The Pradhan Mantri MUDRA Yojana offers advantages to even the weakest economic entities, such as shopkeepers and food outlets. 

The Loan Amount can be Utilized for Multiple Purposes 

The Mudra Loan programme offers funding for working capital via Mudra Cards, equipment loans for micro-units, and financing for transport vehicles to vendors and store owners. Under the PMMY plan, the lending facility is made available for any kind of fund- or non-fund-based necessity. People who choose the Pradhan Mantri MUDRA Yojana can obtain small-scale business loans from reputable banks at low-interest rates. 

Documents Required for the MUDRA Loan Application:   

  • Identity proof such as a self-certified photocopy of a voter identification card, driver's licence, PAN card, Aadhar card, or passport.   
  • Acceptable forms of proof of residencies such as Recent utility bills, property tax receipts (not older than two months), voter identification cards, Aadhar cards, and the passport of the proprietor, any partners, or any directors.   
  • Evidence of SC/ST/OBC/minority status   
  • Proof of the commercial enterprise's identity and address like copies of pertinent licences, registration certificates, and other papers related to the ownership, identity, and location of the business group.   
  • A defaulter in any bank or financial institution is not permitted to apply.   
  • Statement of accounts from the current bank, if any, during the last six months.   
  • Unit balance statements from the previous two years, coupled with income tax returns and sales tax returns, etc. (Applicable for all cases from ₹2 Lakhs and above).   
  • Projected balance statements for the duration of the loan in the event of a term loan and for the year in the terms of working capital limit.   
  • Sales made up until the application deadline during the current fiscal year.   
  • Report on the proposed project that includes information on its technical and financial feasibility.   
  • The company's declaration and articles of association, the partnership agreement, etc.   
  • In the lack of a third-party guarantee, the borrower's assets and liabilities statements, including those of its directors and partners, may be requested to determine its net worth.   
  • Photographs of the proprietor, partners, and directors (two copies).

How to Apply for a Mudra loan? 

Offline

  1. Visit a bank or NBFC that has PMMY authorization. 
  2. Make sure you have a unique business strategy. 
  3. Request the Mudra loan registration form, then complete it with the necessary information. 
  4. Send the application form, two passport-size photos, and other paperwork. 

Online

Anyone interested in applying for a Mudra Loan can do so by going to the authorised banks' official websites. Depending on your demands and the size of your operations, you must fill out the online application for the Shishu, Kishore, or Tarun loan programme. The straightforward methods to apply for a Mudra loan online are listed below:

Step 1: Visit the official website of the financial institution that PMMY has authorised for you to receive the Mudra loan. Choose the appropriate form from the menu selections, which should resemble those in the screenshot below, and download it.

Step 2: Download the necessary loan application (Shishu, Tarun, or Kishore) and fill it out with your name, date of birth, residential or business address, educational background, and other pertinent personal and professional information.

Also Read: How to get an MSME loan without collateral?

Step 3: After that, send the application. When submitting it to the bank or lending institution, make sure you have the necessary documentation.

Step 4: The loan will be approved and deposited into your bank account after the processing and verification of the Mudra loan application form and any accompanying documents. 

Also Read: How To Apply For Dairy Farm Loan - Intrest Rates, Eligibility, Features

Conclusion:

On April 8, 2015, Prime Minister Narendra Modi introduced the Pradhan Mantri Mudra Yojana, which aims to give non-corporate organizations loans up to ₹10 lakhs. Under Pradhan Mantri Mudra Yojna, MUDRA Loan makes it easier to finance the credit needs of all non-farm income-generating enterprises. This program's main goal is to lend money to small and medium-sized businesses that aren't corporations or agricultural. A mudra loan can be applied for by anybody who owns a small business. 

Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: Does MUDRA loans have subsidy?

Ans:

No loans taken out under the Pradhan Mantri Mudra Yojana plan are subsidised. There would be an exemption, though, if the applicant's loan application was tied to a government programme and received a capital subsidy. This qualifies under the PMMY.

Q: What is the process for a MUDRA loan?

Ans:

  • Visit a bank or NBFC that has PMMY authorization.   
  • Make sure you have a unique business strategy.   
  • Request the Mudra loan registration form, then complete it with the necessary information.   
  • Send the application form, two passport-size photos, and other paperwork.

Q: What is the MUDRA loan interest rate?

Ans:

Banks provide MUDRA loans to non-corporate, non-farming sector microenterprises that generate income and have credit needs under ₹10 lakhs. MUDRA loan interest rates begin at a rate of 7.3% p.a. and the loan payback period varies from one year to seven years.

Q: What is the Mudra loan and its benefits?

Ans:

For financing micro units with credit requirements up to ₹10 lakh, MUDRA offers to refinance assistance to banks, MFIs, and NBFCs. Under the MUDRA Yojana Scheme, MUDRA offers refinancing assistance to micro businesses. The additional goods are for the industry's development assistance.

Q: Is ITR compulsory for the MUDRA loan?

Ans:

Yes, an ITR is required in order to apply for a MUDRA Loan. You'll need to present two years of Income Tax Returns (ITRs) as confirmation of whether you're qualified for a MUDRA loan. Your income will be taken into account when determining the eligibility as well as the loan amount for a business loan.

Q: Can I get a MUDRA loan without income proof?

Ans:

Lenders may not require applicants to produce income documentation since they are start-ups. For the Kishore and Tarun classes, however, applicants would already have their firms up and running and would be choosing a greater amount of funding; they would need to provide documentation proving the existence of their enterprises.

Q: Who is eligible for Mudra?

Ans:

Every Indian citizen who already has a business model for an activity that generates non-farm revenue, such as production, processing, trade, or the service sector, and whose credit demand is up to ₹10 lakhs, can go to a bank, MFI, or NBFC to apply for MUDRA loans under the PMMY scheme.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.