The MUDRA Loan, offered under the aegis of the Pradhan Mantri MUDRA Yojana (PMMY) can be considered one of the most significant financial offering by the government, which has allowed numerous MSMEs to access easy funding for their businesses.
- More 6.2 crore loans sanctioned in the FY2019-20.
- As of December 2019, total loans amounting to a quantum of Rs.9.45 lakh crore had been extended to borrowers under this scheme.
The recent growth of MSMEs, often touted as the backbone of the Indian economy, can to an extent be attributed to the easy availability of quick and easy funding. Much of this has been initiated by various government-backed schemes, MUDRA Loans being one of them.
These loans have successfully helped in bolstering the development of MSMEs across India by offering financial aid to meet various requirements. Following is a look at what these loans entail and how small business owners in India can benefit from them.
What does the MUDRA Loan entail?
As per an NSSO survey, in 2013 there were about 5.77 crore micro and small business units in India. Nonetheless, while there were quite a few of such units in India, they had limited access to formal lending institutions, which led them to avail financial support from informal sources against high rates of interest.
The MUDRA Loan, introduced in 2015, is one the government business loan schemes in India. Its primary objective is to bridge the gap between the country’s growing MSME sector and a viable source of financing through which such business-owners could expand their operations.
- MSMEs or Micro, Small and Medium Enterprises increased from 21.21 lakh to 25.13 lakh between FY2019 and FY2020.
MUDRA helps in the development and refinancing of such businesses by lending support to financial institutions which offer loans to these enterprises engaged in the service, trade and manufacturing sector.
What are the three categories of the MUDRA scheme?
The offerings under this scheme are divided into three distinct categories. These include –
Sishu loans
These loans are available for a quantum of up to Rs.50,000 and can be availed by individuals looking to set up their own businesses. One of the most popular avenues for utilising Sishu loans is to purchase equipment for business.
- Kishor
This category of loans is mostly availed by business owners looking to expand the scope of their operations or avail working capital for their ventures. Kishor loans are available between the quantum of Rs.50,000 and Rs.5 lakh.
- Tarun
Tarun loans are most popular among established business persons who are looking for capital to expand their firm even further. These loans have a bigger ticket size and range between Rs.5 lakh and Rs.10 lakh.
These three categories of MUDRA Loans are available at interest rates as determined by the Reserve Bank of India.
Nonetheless, to avail any of the above-mentioned advances, individuals must first satisfy a few eligibility criteria and submit a set of documents.
Eligibility criteria to avail loans under the MUDRA scheme
In order to avail financing through any of the above-mentioned loan categories, applicants must satisfy a few eligibility criteria. These are –
- Borrowers must be between 18 years and 65 years of age.
- They must also be any of the following –
- An MSME.
- An individual.
- A business owner.
- A trader.
- A manufacturer.
- A small industrialist.
- Owner of a start-up.
- A shopkeeper.
- An individual engaged in various agriculture-allied activities since 1st April 2016.
Besides satisfying these MUDRA Loan eligibility criteria, individuals must also submit required documents to apply, without which they cannot proceed.
Those who do not satisfy the above-mentioned criteria, or are in need of financing that exceeds the stipulated limit of Rs.10 lakh disbursed under these loans can also look for business loan options offered by financial institutions across India.
These business loans, available for up to a quantum of Rs.20 lakh, can meet any requirements effectively and are instantly available within 24 hours of their application. Thus, with such financing options like MUDRA Loans and credits from private financial institutions available easily, business owners can access funding for their ventures without any hassle. They can use the loans without any restrictions and expand the scope of their business effectively.