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What is Mudra Loan?

The Pradhan Mantri Mudra Yojana (PMMY) was launched by the Prime Minister of India on April 8, 2015. An acronym for Micro Units Development and Refinance Agency (MUDRA), this is an institution set up by the government to fund the income-generating activities of micro and small enterprises in the non-farming, non-corporate sector. The Mudra loan, offered as a part of the Pradhan Mantri Mudra Yojana, allows eligible enterprises to borrow funds as high as Rs. 10 lakhs.

Mudra Loan Infographic

What are the features of the Pradhan Mantri Mudra Yojana?

The Mudra loan has a number of defining features that make it one of the best financial products offered by the Government of India. Here’s a look at the primary characteristics of this loan.

  • This is essentially a working capital term loan.
  • It can be used for a variety of purposes, including capacity expansion, modernization, meeting working capital requirements, purchase of plant and machinery, and renovation of business premises, among others.
  • The loan is offered to both new and existing units.
  • The target group of the Pradhan Mantri Mudra Yojana includes businesses involved in manufacturing, trading, or providing services. This is inclusive of allied agricultural activities.
  • The repayment period ranges from 3 years to 5 years.
  • An eligible enterprise can avail the Mudra loan onine.

What are the products under PMMY?

The PMMY scheme offers 3 products to eligible entities, namely Shishu, Kishore, and Tarun. The details of these three products are explained here.

Shishu loan

Shishu loans under the Mudra scheme allow entrepreneurs on the threshold of starting a business to borrow up to Rs. 50,000. The following details need to be furnished to avail this loan.

  • Quotation of machinery and other items that need to be purchased
  • Details of plant and machinery purchased
  • Details of the supplier providing the plant and machinery

Kishore loan

Kishore loans range from Rs. 50,001 to Rs. 5,00,000. They’re ideal for businesspersons who require additional funds for expanding their trade. Here’s a checklist of details and documents needed.

  • Balance sheet of the business pertaining to the two previous financial years
  • Income tax and sales tax returns
  • Bank account statements for the previous 6 months
  • Estimated balance sheet for the next 1 year or for the duration of the loan sought
  • Memorandum of association and articles of association, if applicable
  • Sales made in the current financial year before applying for the Mudra loan
  • A report exploring the technical and economic sustainability of the applicant’s business

Tarun loan

Tarun loans under the PMMY scheme range from Rs. 5,00,001 to Rs 10,00,000. Business owners who wish to avail a Tarun loan need to furnish these documents, in addition to the details required for applying to Kishore loans.

  • Proof of address
  • Proof of identity
  • Certificate of SC, ST, OBC, as applicable

With the PMMY scheme, you can borrow up to Rs. 10 lakhs. If your business is in need of more capital or funds, or if you don’t qualify to borrow under the PMMY scheme, you could always avail a business loan on Finserv MARKETS. On Finserv MARKETS, you can apply for loans as high as Rs. 30 lakhs without the need to provide any collateral. The process from application to disbursal is also quick and easy, since there’s minimal documentation involved.

Purpose of Mudra Loan

The Micro, Small and Medium Enterprises (MSMEs) have contributed significantly to the growing economy of India. In addition to that MSMEs also play a crucial role in generating job opportunities across the nation. Keeping all these factors in mind, the Indian Government has established Micro-Units Development and Refinance Agency (MUDRA) to offer financial support to small businesses and startups in India.

MUDRA loan is approved and disbursed by public and private banks and NBFCs registered under this scheme.

Benefits of Taking MUDRA Loan

  • The primary benefit of Mudra loan is that this loan is provided without any collateral. This makes MUDRA loans unsecured loans

  • The interest rate of Mudra Loan doesn’t exceed 1.00% per month and it also depends on the base lending rates of the lender.

  • MUDRA loans have processing charges or Loan application fees.

Knowing these benefits of MUDRA loan will help you make the most of it for the growth and expansion of your small business. Make sure that you check the eligibility criteria before applying for MUDRA loan. This will help you avoid any inconvenience in the later stage.

Frequently Asked Questions on Mudra Loan

  • ✔️Who is eligible to apply for Mudra Loan?

    Small manufacturers, shopkeepers, artisans, and individuals carrying on agricultural activities like rearing livestock and raising poultry are all eligible to apply for the Mudra loan under the PMMY scheme. All small businesses, whether they’re proprietary concerns or firms in rural or urban areas, can avail Mudra loans. Keep in mind that the applicant must be an Indian citizen above 18 years of age.

  • ✔️What is the maximum amount of loan you can avail under the PMMY scheme?

    You can avail loans under any of the three products offered by the PMMY scheme. Here’s a breakup of the maximum amounts you can borrow under each of these three products. 1. Shishu loan product: Up to Rs. 50,000 2. Kishore loan product: Up to Rs. 5,00,000 3. Tarun loan product: Up to Rs. 10,00,000

  • ✔️Does CIBIL score affect Mudra loan eligibility?

    Your eligibility to apply for a Mudra loan does not depend on your CIBIL score. So, anyone who fulfils the other criteria required to avail this loan can go ahead and apply for the same, irrespective of their credit history.

  • ✔️Is there any subsidy on mudra loan?

    At present, there is no subsidy on MUDRA loans. But, the interest rates are much lower than what banks charge. Through Mudra Loan, credit to small businesses is given at reasonable rates.

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