Mudra Loans: All You Need to Know About Them

Mudra loan is one of the much-acclaimed schemes announced by the Government of India to provide financial support to micro and small enterprises. It is created as an endeavour to ‘fund the unfunded.’ Under the MUDRA scheme, loans up to 10 lakh are available to non-corporate, non-farm small and micro-enterprises. Small business owners in the country can avail of Mudra loans to meet the initial capital requirements or operating costs of the business.

What is MUDRA?

MUDRA is the short form for Micro Units Development and Refinance Agency Ltd. It is structured as an NBFC to support the micro-enterprise sector in the country. It provides refinancing support to micro-businesses under the initiative Pradhan Mantri MUDRA Yojana (PMMY).

The credit products offered by MUDRA are commonly referred to as Mudra loans. These loans are provided to the beneficiary through private sector banks, public sector banks, Regional Rural Banks (RRB), Urban Cooperative Banks, loan from NBFC, Micro Finance Institutions (MFI), state banks, and foreign banks.

What are the Three Types of Loans Under Mudra?

Under MUDRA, the interest rates and loan amount limits depend on the growth phase of the business. Mudra loans are disbursed under three schemes which are discussed below. 

  • Shishu – It is the first category of Mudra loans that provides finance credit to small start-ups to kick-start the business. One can apply for a loan up to Rs 50,000 under the Shishu category. They have to present the business idea along with the loan application. The interest rate of the Shishu loan is 1 percent per month or 12 percent per annum, and the term for repayment is five years.
  • Kishore – The Kishore scheme is aimed at business owners who have already started their venture but need financial assistance to strengthen the business. One can apply for a loan from Rs 50,000 to Rs 5,00,000 under this plan. The repayment period varies according to the bank through which the borrower applies for the loan. The interest rates depend on the credit history of the borrower, and the bank is entitled to calculate it.
  • Tarun – The third category of Mudra loans is dedicated to small business owners with an established business but needs funds for expanding it. These types of loan covers from Rs 5,00,000 to Rs 10,00,000. The bank decided on the repayment terms and interest rates while being compliant with the terms and conditions of the scheme.

Who Can Apply for Mudra Loans? 

The government launched Mudra loans as an initiative to strengthen the MSME sector of India. The PMMY has published an illustrative list of activities and sector that can avail the benefits of Mudra loans. The sectors covered are Agriculture, Food, Textile, Service and Transport and the activities vary according to the sector.

Business owners, start-up entrepreneurs, shopkeepers, small-scale industries in manufacturing, artisans who want to establish a business, agriculture-allied business owners, etc. are eligible to apply for Mudra loans. 

There are general eligibility criteria that need to be met along with the specific requirements of the different loan schemes under MUDRA. The minimum age of the borrower should be 18 years, and the maximum limit is 65 years. 

What are the Benefits of Mudra Loans?

  • Small scale business owners can avail funding up to Rs 10 lakh to expand the business at affordable and reasonable interest rates. The borrower has to repay the loan in 5 years and this period can be extended up to 7 years in some cases. 
  • Funding up to Rs 50,000 for people who wants to start a micro-enterprise.
  • No collateral required for Mudra loans and small business owners can get financial assistance without pledging personal or business property.
  • No minimum loan amount under MUDRA.  
  • Mudra loans do not incur any processing charges.
  • Available for business owners in rural and urban areas.
  • Hassle-free and instant access to funds through the MUDRA card.
  • Better benefits and low-interest rates for women entrepreneurs.
  • The government takes the responsibility of loan when default occurs.

How to Apply for MUDRA Loan? 

  • Get the necessary documents ready which include identity proof, address proof, and proof of business (Business idea for Shishu loan, registration certificate, and other relevant documents for Kishore and Tarun). 
  • Approach a financial institution where you can apply for a Mudra loan.
  • Apply for the loan along with the necessary documents and complete the required formalities. Some institutions accept online applications as well. 

After verifying your eligibility for the applied scheme, the bank will approve the loan and the money will be disbursed through MUDRA debit cards. The cash withdrawal limit of this debit card is Rs 25,000 per day.