Mudra Yojana: Loan Limits, Interest Rates, Objectives, Eligibility

Medium and small businesses are often incapable of availing loans from banking institutions due to lack of security and inadequate funds for paying off the interest. Helping these businesses grow would ultimately lead to the advancement of the economy. 

Mudra Yojana is a financial initiative for facilitating micro-units and providing them with sufficient funds to help them develop their business. Under the Jan Dhan Yojana, the government launched its MUDRA Bank (Micro Units Development and Refinance Agency) initiative on 8th April 2015.

Latest Update:

Budget 2024-25: The ‘Tarun’ category limit under the Mudra loans is enhanced to Rs.20 lakh from the current Rs.10 lakh for those entrepreneurs who have successfully repaid previous loans under the same category.

Objective of Mudra Yojana

The inception of Mudra Yojana was done keeping in mind several objectives to be fulfilled during the implementation of this yojana. The most prominent of these are:

• For laying down policy guidelines for financing small/ micro enterprises.
• Getting all the Microfinance Institutions and related entities registered and then regulating the same.
• For helping the small businesses develop and grow further.
• Assisting lower income groups in building and expanding their business.
• To assist in creating easy access to finance for unbanked and help in lowering their cost of finance.
• To provide SC/ST lending preference.
• For regulating all Microfinance Institutions that are dealing with trading, manufacturing, and service.

Loan Limits and Interest Rates under Mudra scheme

As per the choices for financing available under this scheme, the loan limits and interest rates vary for accommodating for the growth phase of the respective business availing such loan. The applicable limits and rates are as follows:

• Shishu – Loans up to a limit of Rs.50,000. The interest rate would depend on the bank, as per the guidelines of the schemes and keeping in view the applicant’s credit history. Loan repayment period is dependent on the option of the bank
• Kishore – Loans from Rs.50,000 up to Rs.5,00,00. The interest rate would depend on the bank, as per the guidelines of the schemes and keeping in view the applicant’s credit history. Loan repayment period is dependent on the option of the bank.
• Tarun – Loans from Rs.5,00,000 up to Rs.10,00,000. The interest rate would depend on the bank, as per the guidelines of the schemes and keeping in view the applicant’s credit history. Loan repayment period is dependent on the option of the bank.

Overall 21 Public Sector Banks, 36 Regional Rural Banks, 18 Private Sector Banks, 35 Non-Banking Financial Company (NBFC), 25 Micro Finance Institutions (MFI), 47 NBFC-MFI,15 Co-operative Banks and 6 Small Finance Banks have been selected for disbursing this loan as of now. 60 per cent of the loans under the scheme to be offered via ‘Shishu’ option and the remaining 40 per cent would be via ‘Kishore’ and ‘Tarun’ schemes.

What can the loans taken under Mudra Yojana be used for?

The loans under this scheme could be availed for the purposes listed below:

• Commercial vehicle loan.
• Transport vehicle loan.
• Working capital loan.
• Loan for plant and machinery.
• Loans for agri-allied non-farm income generating activities.
• Business loans for traders and shopkeepers.

Eligibility of the Borrower

Loans would be provided to all the non-farm income-generating businesses in trading, manufacturing and services whose credit requirements are less than Rs.10 lakhs by all Scheduled Commercial Banks, Small Finance Banks, Regional Rural Banks, NBFCs, MFIs and Urban Co-operative Banks would be known as Mudra loans under the PMMY (Pradhan Mantri Mudra Yojana).

Basically, all those who want to avail loans below Rs.10 lakhs for micro units are qualified for such loan. An application form under the scheme would be available with each of the above-mentioned institutions or online on the Udyamimitra portal. This application form needs to be submitted together with the documents listed below:

• Proof of identity
• Identity proof/address proof of the business (relevant certificates & licenses)
• Category proof, if any
• Statement of accounts for the last six months
• Income tax returns along with last two years balance sheet
• Proof business existence, such as Memorandum of Association or Partnership Deed

Apart from the documents mentioned above, applicants’ banks might ask for other documents as required. The Banks should not charge any processing fee and aren’t supposed to request any collateral. The loan repayment period is extended to 5 years. However, it is made clear that any applicant shouldn’t be a defaulter to any financial institution.

Business Sectors and Services Covered under Mudra Yojana

The following is an illustrative list of business activities and services that are eligible for obtaining Mudra loans:

• Entrepreneurs who purchase transport vehicles for transportation of goods and passengers such as auto-rickshaws, three-wheelers, small goods transport vehicles, taxis, e-rickshaws, etc.
• Tractors, Power Tillers, Tractor Trolleys, two-wheelers used only for commercial purposes are also eligible for obtaining Mudra Loans.
• Entrepreneurs running salons, gymnasium, beauty parlours, tailoring shops, boutiques, dry cleaning, Medicine Shops, cycle and motorcycle repair shops, Courier Agents, DTP and Photocopying Facilities, etc. can obtain loans under Mudra Yojana.
• Entrepreneurs carrying the activities such as achaar making, papad making, sweet shops, jam/jelly making, small service food stalls and day to day catering or canteen services, ice-making and ice cream units, cold storages, bread and bun making, biscuit, etc. can obtain loans under Mudra Yojana.
• Entrepreneurs who carry the activities of handloom, khadi activity, power loom, traditional dyeing and printing, traditional embroidery and handwork, apparel design, computerized embroidery, cotton ginning, stitching and other textile non-garment products such as vehicle accessories, bags, furnishing accessories, etc. are eligible for Mudra Loans.
• The ‘Activities allied to agriculture, e.g. beekeeping, poultry, livestock-rearing, aggregation agro-industries, fishery, dairy, food & agro-processing, agri-clinics and agribusiness centres, etc. and services supporting these are eligible for Mudra Loans.

Changes in Lending Target Under the Mudra Yojana

The finance minister in the Budget 2016-2017 set a target of advancing INR 1.22 lakh crores under the Mudra Yojana to help to support and to revive the MSMEs. This lending target was not only achieved but was actual overran by a big margin. Consequently, in light of the erstwhile success, the union government decided to double the lending target under the Mudra yojana. It means that the target would be INR 2.44 lakh crores.

Emphasis on Specific Segments

The Finance Minister said that though the target for lending is scaled up, the key targets would be women, backward classes, minorities, Dalits and Tribals who have been usually not provided the adequate opportunity of getting finances for their businesses.

Mudra Loans Interest Rates

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