Financial Updates

Mudra Loan

All about Mudra Loan under PMMY Scheme

Loans can be taken under the MUDRA loan scheme by micro, small, and medium scale enterprises / entrepreneurs who wish to establish or expand their businesses.

Recent reports and studies show that only around 1.45 crore people are employed in the organized corporate sector, and draw regular monthly salaries through an established system. In a developing country as densely populated as India, the huge majority of people – estimated to be around 12 crore workers / potential earners – with earning potential are either self-employed, agriculturalists, artisans, or employed in an unorganized sector.

The MUDRA Loan scheme was conceptualized on the basis that if these 12 crore people were somehow able to get adequate financing, they could establish self-sustaining businesses and manufacturing units which could achieve many goals, like:

  • Increasing the GDP of the country through:
    • Increasing per-capita income.
    • Reducing dependency on imports.
    • Mobilizing a massive workforce.
  • Providing the vast majority of Indians with a meaningful livelihood and establishing a steady and sustainable source of income for them.
  • Expanding micro and small scale industries, establishments, and businesses to be relevant in the modern world.
  • Enabling the purchase of tools, machinery, vehicles, business assets, and land for the establishment or expansion of entrepreneurial ventures by the Indian masses.
  • Empowering the Indian workforce and reducing dependency on foreign aid.
  • Reducing the amount of tax money that is spent on providing basic necessities all over the country – which can be done by the people themselves once they are empowered.
  • Promoting local artisans, art, and culture by financing its progress.
  • Enabling people to maintain a decent standard of living.
  • Mobilizing funds to people who previously never had access to funding.
  • Enabling banks and lenders to have a wider reach to all Indian borrowers.
  • Empowering Last-Mile Financiers and cooperative banks with some real funding which has far reaching benefits.

Since a large part of the Indian workforce is unorganized and not employed by the corporate sector, this MUDRA loan scheme could be exactly what the doctor ordered to get India’s manufacturing off the ground, and to enable its people to break free of the chains of poverty.

Mudra Loan Eligibility

Under the MUDRA scheme, there are three categories of loans that can be taken:

  • Shishu: This is the basic MUDRA loan, and is given to micro entrepreneurs like vegetable vendors, etc. in order to enable them to buy the assets they require to perform business activities in a productive way. The loan amounts available under this are up to Rs.50,000 – which is small by the standard of urban borrowing, but huge for people who previously had no access to credit. These loans are usually taken by what is known as micro entrepreneurs and micro establishments like vendors of various goods / services who need to buy new vending carts, weighing machines, hand tools, etc.
  • Kishore: This is the second level in MUDRA loan borrowing. The loan amounts for the MUDRA Kishore loan go up to Rs.5 lakh – and those that wish to borrow under this category must either have first cleared off the Shishu loan, or have a sound business plan that can convince the lender that the loan will be invested in a profit generating enterprise. This profit is what the lender will look to in order to approve the loan, as it directly impacts the borrower’s repayment ability. These loans are usually taken by micro and small scale entrepreneurs / artisans who require financing to fund the purchase of better tools, business assets, machines, or cheap commercial vehicles.
  • Tarun: The last and highest category of MUDRA loans is the Tarun category. Under this category, loans can be secured for amounts up to Rs.10 lakh. Those who wish to borrow under the Mudra Bank Scheme Tarun category must have already successfully cleared off the Kishore category loan. Either that, or they must have a sound business plan that can prove that the loan amount will be invested in a profit generating business. The expected profits are the factor which will help the bank decide that this loan can be granted, as the profits can help the borrower repay the loan. Since the quantum of financing is so high (Rs.10 lakh) borrowers under this loan category will be thoroughly scrutinized, and so will their business and investment plans. These are taken up by small and medium scale enterprises who require business assets like machinery, tools, land, building, commercial vehicles, etc.

MUDRA Loans have a lot of potential as long as funds are not misappropriated or embezzled on their way to the end borrower.

Who are the entities or lenders authorized to disburse MUDRA Loans?

  • Regional Rural Banks: These banks are present in rural areas all over the country, and are present in almost every registered region so as to enable people of that region access to credit.
  • Scheduled Urban Cooperative Banks: These are lenders in the urban and semi-urban areas that are under the government schedule as Urban Cooperative Banks.
  • State Cooperative Banks: These are cooperative banks established and run by the states they’re in.
  • Micro Finance Institutions like Trusts, Societies and Non-Banking Financial Companies (NBFCs): These are lesser regulated but still trustworthy sources of borrowing for MUDRA Loans. A few selected organizations like these have been authorized and empowered by the relevant authorities and government to offer loans under the MUDRA scheme.
  • Banks in India: There are many major banks present in India who have been authorized to disburse funding under the MUDRA Loans scheme.

How to apply for the MUDRA Loan scheme:

The application process for the MUDRA loan scheme is quite simple and straightforward. The interested borrower need only follow these steps:

  1. Go to the lender and acquire a MUDRA loan application form.
  2. Select the type of loan required and the amount of funds required.
  3. Fill out the form as necessary as per instructions provided.
  4. Attach the following documents to the form:
    1. Proof of Identity: PAN Card / Voter’s ID Card / Aadhaar Card / Driving License.
    2. Proof of Address: Driving License / Passport / Utility Bills.
    3. Recent passport sized photographs – 2 in number.
    4. Price and cost quotation from a recognized merchant of asset required to be bought using MUDRA loan (if applicable).
    5. Official records of present sources of income (if applicable).
  5. Await confirmation of application.

What are the interest rates for MUDRA Loans?

The MUDRA scheme lends to MFI (Micro Finance Institutions) at the rate of 7%. The banks are given the liberty to further lend to the end customer at their own discretion.

Currently, the MUDRA Loan interest rates (as documented from official sources) are:

  1. ICICI Bank – MUDRA Loans lent at 6% p.a. interest.
  2. Corporation Bank – MUDRA Loans lent between 11% and 11.9% p.a. interest.
  3. HDFC Bank – MUDRA Loans lent between 11% and 13% p.a. interest.
  4. PNB – MUDRA Loans lent between 11% and 12.5% p.a. interest.
  5. IDBI – MUDRA Loans lent at 11% p.a. interest.

*Please note that all promotions, amounts, tenures, repayment requirements, time frames, interest rates, other rates, charges, fees, ceilings, requirements, criteria, features, benefits, exclusions, calculations, ratios, ratings, terms and conditions mentioned above are as of July, 2016, and are subject to change at any time. Interest rates were found on the official MUDRA website. All banks / NBFCs / insurance providers / financial service providers / companies, etc. mentioned above retain all rights to modify, replace, or add to or subtract from any of the above, in any way, at any time, and at their own discretion. You are requested to reconfirm the same with your chosen bank / company / NBFC / insurance provider / financial service provider, etc. before making any financial commitments.

Mudra Loans from Top Banks:

ICICI Mudra Loan

IDBI Mudra Loan

IOB Mudra Loan