PMMY: A Boon to Small Businesses

PMMY: A Boon to Small Businesses

What is Mudra Loan? 

Mudra is a loan scheme initiated by the Government of India in 2015. The word MUDRA stands for Micro Units Development and Refinance Agency. This Loan scheme is also called PMMY or Pradhan Mantri Mudra Yojana. This scheme is an initiative by Government of India which targets offering loans to individuals, MSMEs and SMEs. MUDRA Loan is divided under 3 loan schemes categories namely Shishu, Kishor, and Tarun. These loans do not ask for any security as these are collateral  loans provided by NBFs and banks with the repayment tenure ranging from 36 months to 5 years (as the case may be) with  EMIs that are flexible to suit the needs of individuals.

Details of Mudra Loan: Products that are offered under Mudra Loan

Products or loans that are offered under Pradhan Mantri Loan Yojana or PMMY can be categorised under three different types of loan schemes. These different categories are named as Shishu, Kishor and Tarun. Details about each type of category is listed below:-

  • SHISHU Loan: This Loans is limited to an amount of Rs. 50,000 as this is basically meant for new businesses or start-ups. It is called Mudra Shishu Loan scheme.
  • KISHOR Loan: Under this category loans can be taken from Rs. 50,001 to a maximum of Rs. 5,00,000. For example if a person wants to buy raw materials or machinery for his existing enterprise or, in other words, for expansion of his business, he can opt for this category of loan which is called Kishor Loan Scheme.
  • TARUN Loan: This third type of category is called Tarun loan under which a person can get a loan from Rs. 500,001 to Rs. 10,00,000. This type of loan is meant for enterprises and businesses that are already established.

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Features of Mudra Loan

The main features of Mudra loan are mentioned below:-

Rate of Interest It depends from bank to bank and changes as per the needs of the customer 
Collateral/SecurityNot required
Loan Amount (Minimum)No limit
Loan Amount (Maximum)Rs. 10 lakh
Repayment TenureFrom 36 months to 60 months
Processing ChargesNo such charge
Category of Mudra LoanShishu, Kishor and Tarun

Benefits offered by Mudra Loan

The main benefits of Mudra loan are:-

  • Mudra loans are mainly offered to traders, shopkeepers, vendors. MSMEs who are engaged in trading, manufacturing, and service sector activities can also apply for such loans.
  • The Government of India covers Mudra schemes under Credit Guarantee Schemes.
  • Loan amount availed as Mudra loan can also be used as overdraft facilities or term loans.
  • All types of non-farm enterprises, i.e. micro firms or small firms which are engaged in income generating activities can be benefited by Mudra loans.
  • People from SC/ST category can get these loans at concessional interest rates.
  • Mudra schemes can be received via Mudra cards, too.

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Mudra Loan Scheme under PMMY purpose

Mentioned below are a list of businesses engaged in some sort of income generating activities that are covered under MUDRA Loans.

  • Commercial Vehicle: If a person wants to purchase any type of commercial transport vehicle like e-rickshaws, auto-rickshaws, taxis, tractors, trollies, 3 wheelers or any type of goods transport vehicles he can apply for Mudra finance for machinery and equipment.
  • Service Sector Activities: If anybody wants to start any type of service based business activity like spa, gym, salons, beauty parlour,  tailoring shops, repairing shops, medical shops, dry cleaning or photocopying shops, etc. one can apply for Mudra Loans for service sector.
  • Food and Textile Product Sector Activities: Various businesses involving activities in the food and textile sector can avail of such loans in respective sectors.
  • Business activities for Traders and Shopkeepers: A person can opt for such loans if he wants to set up a shop for trading and business activities which come under non-farm income generating activities.
  • Equipment Finance Scheme for Micro Units: Under this type a maximum loan of up to Rs. 10 lakh can be sanctioned for purchasing machinery, etc.
  • Agri-allied Activities: A person can apply for Mudra Loans if he undertakes any activities linked to businesses in agribusiness centres and agri-clinics, food & agro-processing units, sorting, poultry farming, bee keeping,  livestock-rearing, dairy business, aggregation agro industries, etc. 

Mudra Loans – Process of Application

The application form for Mudra loan can be downloaded from the official website. Anybody can download the form from there and fill in all the necessary details therein. Different banks have slightly varying application procedures. One needs to visit the desired bank from where he wants to get the Mudra loan. He can submit the filled downloaded from there and then complete the bank formalities.

A startup business can apply for a MUDRA Yojana loan in a simple five step process as listed below:

Step 1: To get the scheme application form, a person will have to visit the nearest bank branch associated with the scheme. The MUDRA portal shows a list of lenders that come under this scheme.

Step 2: The applicant is then required to fill up the application form and then submit it along with documents asked for.

Step 3: The applicant is asked to submit documents such as Resident Proof, Identity Proof, Business Address Proof, Applicant’s Photograph and Proof of Category of the business. Additional documents can be asked for depending on the type of loan applied for.

Step 4: The applicant need not worry about any bank charges as there are no processing fee charges for loans under PMMY. Besides, the loans are collateral-free.

Step 5:  If the loan is approved the applicant receives a MUDRA Card, which is quite similar to a credit card.

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What is MUDRA Card?

Mudra card is like a debit card which is given to all the MUDRA loan applicants who want to get a Mudra loan. When the applicant fills up the application form for the loan and on the approval of the lender or the bank opens the Mudra loan bank account and they issue the card along with the bank account. The sanctioned loan amount now is disbursed to the Mudra loan account so that the beneficiary can get the required amount from the Mudra bank account. Such a process aids in keeping a record of the credit history taken by the borrower that has applied for the loan from the bank or the lender. This information and details related to this Mudra card can be checked online from its official website.

Factors on which the interest rate depend upon for a MUDRA loan

The interest rate depends on the following:-

  • Loan repayment capacity 
  • Business report made by the applicant
  • Credit score 
  • Previous years bank statement 
  • Condition of existing business 
  • If the applicant has defaulted on the previous loans or not
  • Loan paying tenure
  • Varies from bank to bank
  • Needs of the applicant for which loan is being taken

Mudra Loan Documents required

Some of documents required for Mudra Loan are:-

  • A business plan made by the applicant
  • Completed filled and signed application form 
  • 2 passport sized recent photographs
  • The KYC documents of the borrower and all the co-applicants: Voter’s ID card, Passport, Aadhar Card, PAN card, Driving License, Utility Bills (Electricity or Water Bills)
  • It also requires proof that the applicant belongs to the special category, like ST, SC, OBC, Minority, or others. (if it is applicable)
  • Previous six months’ statement of bank
  • Address of business address and tenure of active business proof, if it is applicable
  • Any extra documents which are requested by the bank or the lender.

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FAQs

1. What is the minimum time required for the Mudra Loan in getting approved?

On an average, it requires about 7 days to 10 working days for the Mudra loan approval by the lender or the banks for this Mudra Yojana under the PMMY.

2. Is any collateral or security necessary for the Mudra Loan under PMMY?

No, any such collateral and/or security is not necessary by the banks or lender under the Mudra Finance.

3. Is any kind of ITR necessary for the Mudra Loan?

For all running salaried professionals or businesses, previously filed ITR is compulsory and needs to be attached along with the application form for applying for the MUDRA loans.

4. How can one check their application status for Mudra loan?

One can easily check their Mudra loan application status by going to the bank’s or lender’s website and clicking on the ‘e-mudra loan application status’ button.

5. Are people from the metropolitan cities eligible for applying for the Mudra Loan Scheme?

Yes, all kinds of sole proprietors and business owners of MSMEs or Micro, Small and Medium Enterprises that are engaged in any kind of non-agricultural activities and services in the country, that includes urban, metro, semi urban and also the rural areas are eligible to apply for the Mudra loan.

6. Can one apply for Mudra loan under the Pradhan Mantri Mudra Yojana or PMMY for food related startups?

Yes, one may apply for the Mudra loan for starting a new food related business except for agricultural needs, if their requirement is not greater than Rs. 10 lakh. Interest rate in this scheme depends on the profile of the applicant, requirements of the business, tenure required for repayment, etc.

7. Is there any such special Mudra loan scheme for the women entrepreneurs?

Yes, there is one such scheme for women entrepreneurs. The UMUY or United Mahila Udyami Yojana which is also a part of this Mudra loan policy. Under it, the women who are engaged in the production, service-related, manufacturing or other economic activities may apply for the loan. 

8. Are women co-shareholders eligible for the United Mahila Udyami Yojana under MUDRA loan?

Yes, women co-shareholders are eligible for the United Mahila Udyami Yojana under MUDRA loan if they have financial holdings greater than 50% in the company.

9. What are the various financial institutions that help in the Pradhan Mantri Mudra Yojana or PMMY?

All the Mudra loans that are given on a tie-up with the several financial institutions such as public sector banks, private sector banks, MFI or Micro Finance Institutions, regional rural banks, and others as directed by the RBI.

10. What are some of the required features for the Pradhan Mantri Mudra Loan or PMMY for women entrepreneurs?

Some of the key features of the Mudra loan under PMMY for women entrepreneurs are as mentioned below:

  • Mudra loan is broadly classified into 3 loan categories, such as Shishu – for loan up to Rs 50,000, Kishor for loan between Rs 50,001 to Rs 5 lakh and Tarun for loan above 5 lakhs and below 10 lakhs 
  • There is no minimum loan criteria
  • The loan amount that can be taken is up to a maximum of Rs. 10 lakh
  • It is a collateral-free loan
  • The repayment term is from a minimum of 3 years to a maximum of 5 years

11. Can NRI apply for this loan scheme? 

No, NRIs are not eligible for this scheme.

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