Pradhan Mantri Mudra Yojana: An Easy Guide

Micro Units Development and Refinance Agency Limited or MUDRA is a refinancing institution, which was launched by the government in 2015 to support entrepreneurial activities of Indian micro enterprises and business units. MUDRA extends refinancing support to microfinance institutions, banks, and NBFCs so that they can lend to micro units who have a small requirement of upto Rs 10 lakh. According to the government, a total of Rs 30 crore loans amounting to Rs 15.97 lakh crore have been so far sanctioned ever since the Pradhan Mantri Mudra Yojana was launched.
 
If you are looking to understand more about Mudra loans and the Mudra Yojana Scheme details, here is a quick guide to help you.
 

What is Mudra Loan?

Mudra loans are a PM loan scheme for businesses that are available to micro enterprises involved in the manufacturing, trading, and service sectors, among other industries. This loan is available for up to Rs 10 lakhs.
 

Key objectives of Mudra financing

 
Mudra finance was launched by the government with specific goals in mind. The areas in which the government aims to focus through this initiative are listed below.
 

• The government aims to establish lending guidelines and policies for small and micro-enterprises.

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• To get all the microfinance companies and other related entities registered so that they can be more effectively regulated.
   

• The government intends to support small and micro enterprises in their growth strategy.

 

• To support low-income populations in starting and growing their businesses.

 

• To provide lending support to SC/ST groups. 

 

• To provide easy access to funds to the unbanked sector of the society by reducing the financing costs. 

 

• To regulate microfinance institutions that are focused on lending to manufacturing, service, and trading businesses. 

 

How many schemes are there under the Pradhan Mantri Mudra Yojana? 

 
There are a total of three different types of loans offered under the Pradhan Mantri Mudra Yojana.
 

1. Shishu Yojana

   • This loan is available for the maximum amount of Rs 50,000.
    
   • Individuals who want to establish a business or who need to meet their basic business requirements can benefit from this loan.
    
   • There are no processing costs for Shishu Yojana loans.
    

2. Kishore Loan

   • This loan is available for the amount ranging from Rs 50,001 to Rs 5,00,000
    
   • The loan is ideal for established businesses.
    
   • There are no processing costs for Kishore Yojana loans.
    

3. Tarun Loan

   • This loan is available for the amount ranging from Rs 5,00,001 to Rs 10,00,000
    
   • The processing fees for Tarun Yojana loans are 0.50% plus applicable taxes. 
    

Salient features of PM Mudra Yojana

 

• The loan is accessible to both new and existing business firms.

 

• PMMY mainly focused on manufacturing, service, and trading industries. 

 

• The Pradhan Mantri Yojana loan is an unsecured form of financing.

 

• The repayment tenure of this loan ranges between three years and five years.

 

• The funds availed through the Mudra loan can be utilised for any business purpose. For example, you may use it for staff hiring, meeting working capital requirements, business restructuring, and a few more. 

 

Benefits of PMMY

 

• Unsecured Loans: PMMY loans are available without putting up any assets as collateral. 

 

• Multiple Forms: Mudra loans are available in different forms to cater to the different financial needs of businesses. For example, you can use credit to get overdrafts, term loans, bank guarantees and letters of credit.

 

• Special Concessions: Business owners who fall under the category of a scheduled caste or scheduled tribe are eligible for discounts on PMMY interest rates.

 

• Zero Processing Fees: Two out of three different loan products offered under the Mudra loans come with zero processing fees. 

 

Pradhan Mantri Mudra Yojana Eligibility Criteria

 

1. Age Criteria:

   The minimum and the maximum age under this loan are 18 and 65 years.
    

2. Who can apply?

   The loan is available to the following applicants.
   • Individuals
   • MSMEs
   • Traders
   • Manufacturers
   • Shopkeepers
   • Start-ups
   • Businesses dealing in the agriculture sector
    
   Proceed to the next section to learn more about the Mudra loan requirements.
    

Business Sectors/ Activities Covered under PM Mudra Yojana

 

1. Food Product Sector

   Some of the common food product businesses covered under this scheme are:
    

   Papad business	Cold storage	Agriculture products preservation	Food stalls
   Pickles business	Ice making units	Jelly and jam-making business	Bun and bread-making business
   Sweet shops	Ice cream making units	Canteen services	Biscuit making business

    

2. Transport Vehicle 

   You can apply for this financing if you wish to buy a vehicle for commercial purposes. Some examples of commercial vehicles are
   
    
   • Tractors
   • Power tillers
   • Three-wheelers
   • E-rickshaws
   • Taxis
    

3. Textile Sector

   Some of the most common textile businesses that are eligible for this loan are:
    

   Khadi activity	Traditional handwork embroidery	Apparel design
   Handloom	Cotton ginning	Traditional dyeing
   Powerloom	Computerised embroidery	Knitting
   Chikan work	Stitching	Non-garments products

    

4. Service Activities

   Service activities that are eligible for this loan are. 
    

   Salons	Tailoring shops	Dry cleaning
   Gyms	Pharmacy	Courier agents
   Boutiques	Motorbike and cycle repairs shop	Photocopying facilities

    

5. Agriculture Allied Activities

   You can apply for this loan if you work in one of the following agriculture-related businesses.
    

   Pisciculture	Dairy farming	Food & agro-processing
   Poultry	Fishery	Grading and sorting
   Livestock-rearing	Bee-keeping	Agri-business centres

    

Mudra Loan Interest Rate

The rate of interest on Mudra loans, like any other loan, is determined by your credit profile. Furthermore, different financing institutions charge varying rates for this loan. They factor in various parameters to arrive at the final rate of interest. 
 
Below is a table that will give you a rough idea of interest rates.
 

Loan Type	Interest Rates
Shishu Loan	1% to 12% p.a.
Kishore Loan	8.60% to 11.15% p.a.
Tarun Loan	11.15% to 20% p.a.

 

What are the Required Mudra Loan Documents?

 

• Self-prepared business plan
• Duly filled Mudra loan application form 
• Recent passport size photographs
• KYC documents of primary applicant and co-applicant (Voter ID card/ Aadhar card/ PAN card/ Driver's licence/ Utility bills)
• If you fall into a special group such as ST, SC, OBC, or minority, you must provide documentation to prove your status.
• Establishment proof (if you already own a business)
• Bank account statement for the previous six months
• Additional documents that a financial institution may require

 
Also Read: Simplifying Business Loan Documentation
 

Can Mudra Loan Application Form be Submitted Online?

 
Even though Mudra is a refinancing financial institution, it does not lend funds directly. You can apply for this loan by visiting the nearest branch of a microfinance institution, banking institution, or non-banking financial institution (NBFC). You can also apply online through the Udyamimitra portal.
 

What is Mudra Card?

When you open a Mudra loan account, you get a Mudra card that is a part of your loan's working capital portion. It is a type of debit card that functions similarly to traditional bank debit cards. You can use them for multiple withdrawals up to a prescribed limit. Mudra cards can be used at any ATMs across the country. You may further use it for making payments through ‘Point of Sale’ machines. 
 
The key benefit of using the Mudra card is that it assists you in managing your working capital limit effectively.
 

Limitation of Mudra Financing 

Despite its multiple benefits, Mudra Loans are accessible for the maximum amount of Rs 10 lakhs. This means that this loan is not the best alternative if you wish to expand your business to new places or buy heavy equipment.

So what alternative funding choices do you have that are considerably superior to Mudra? To find out the answer, scroll down.
 

Hero FinCorp Business Loans

 
Hero FinCorp offers customised business loans. In the context of business, not every funding requirement has the same objective. As such, the fund amount, repayment term, and eligibility requirements must all be different in order to help businesses expand. In light of this, the following are the many forms of business loans offered by Hero FinCorp.
 

1. Unsecured Term Business Loan

   • Loan amount: Up to Rs 5 lakhs
   • Repayment tenure: Up to 36 months (flexible)

2. Medical Equipment Finance

   • Who can apply?
     Medical professionals and business owners that own or operate a hospital or diagnostic facility
   • Loan amount: Starting from Rs 10 lakhs
   • Repayment term: Up to 7 years (flexible)

3. Working Capital Loan

   • Loan amount: Up to Rs 5 crores
   • Loan to value (LTV) ratio: Up to 80% of the underlying assets
   • Repayment term: Up to 36 months (flexible)

4. Invoice Discounting Finance 

   • Repayment term: Up to 120 days
   • Interest rate: 11% to 14%

5. Machinery Loan:

   • Repayment term: Up to 7 years (flexible)
   • Loan amount: Up to 75% LTV

Also Read: A Quick Guide To Finding The Right Loan For Your Business
 

To Conclude:

The Pradhan Mantri Mudra Yojana allows you to borrow up to Rs 10 lakhs for a maximum of 5 years tenure. The business loan interest rate applicable on this scheme varies from one lending institution to the next. However, the loan amount under PMMY may not always be sufficient to meet your needs. In this circumstance, it is preferable to resort to financial institutions for all your long-term and short-term business requirements.