Mudra Yojana: Types, Interest Rates, Objectives, Eligibility

Small businesses often struggle to get bank loans due to lack of security and funds for interest payments. Thus, the government launched the Pradhan Mantri Mudra Yojana (PMMY) on 8 April 2015 to provide micro-units with financial aid through MUDRA Bank (Micro Units Development and Refinance Agency).

 Keep reading to find out:

• The loan amount provided under Mudra Yojana.
• Businesses that can avail Mudra Yojana.
• Interest rates of Mudra loans.
• Application process under Mudra Yojana.

Mudra Loan: Features

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.

Types of Mudra Loans

There are four types of Mudra loans with different loan limits for accommodating for the growth phase of the respective business. The applicable limits are as follows:

• Shishu – Loans up to a limit of Rs.50,000. 
• Kishore – Loans from Rs.50,000 up to Rs.5,00,00. 
• Tarun – Loans from Rs.5,00,000 up to Rs.10,00,000.
• TarunPlus - Loans from Rs.10,00,000 up to Rs.20,00,000. 

Mudra Loans Interest Rates

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.

Nature of Assistance Under Mudra Yojana

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, vendors and shopkeepers.

Eligibility for Mudra Yojana

Sectors and Activities 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.
• 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.

How to Apply for a Mudra Loan?

Various financial institutions, including public and private sector banks, Regional Rural Banks (RRBs), Non-Banking Financial Companies (NBFCs), Microfinance Institutions (MFIs), and small finance banks, are disbursing Mudra Yojana loans. Eligible borrowers can apply through these institutions or online. 

Mudra Loan Online Application

Step 1: Visit the PSB Loans website.

Step 2: Click on ‘Login’ and click on ‘Register’ option.

Step 3: Enter the required details and register on the portal.

Step 4: Select ‘Mudra Loan’ option and click on ‘Apply Now’.

Step 5: Fill out the application, upload the documents and submit it.

Step 6: Once the application is approved, submit it to the bank to disburse the loan amount.

Mudra Loan Offline Application

Step 1: Visit the bank or institution offering Mudra loans.

Step 2: Request the Mudra loan application from the officials.

Step 3: Fill out the application and attach the documents. 

Step 4: Submit it to the officials. They will verify it and disburse the loan amount.

What Documents are Required to Apply for a Mudra Loan?

• Proof of identity and address of applicants
• Identity proof and address proof of the business (relevant certificates and licenses)
• 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. 

What is a Mudra Card?

A Mudra card is a debit card issued to beneficiaries of Mudra loans, allowing access to loan amounts. It enables multiple withdrawals and credits to manage working capital and minimise interest. The card also digitises transactions, helping track the borrower's credit history. It is valid nationwide for cash withdrawals at ATMs/micro ATMs and payments at point-of-sale machines.

A Mudra loan provides support to micro-units and small enterprises under the Prime Minister Mudra Yojana (PMMY). It is a government initiative to financially support micro, medium and small enterprises by providing loans with no collateral of up to Rs.10 lakh. There are three types of Mudra loans, i.e. Shishu (up to Rs.50,000), Kishor (Rs.50,00–Rs.5 lakh), and Tarun (Rs.5 lakh–Rs.10 lakh) to help the business growth of an enterprise.