Mudra loan: All you need to know about Pradhan Mantri MUDRA Yojana (PMMY)

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MUDRA loan is Prime Minister Narendra Modi’s big-ticket development initiative. By the time this report was being prepared, nearly 11 crore people have already benefitted from the scheme. With Lok Sabha elections 2019 round the corner, MUDRA loan scheme has become a highlight of the Modi government’s achievement list. Here’s all you need to know about Modi’s flagship MUDRA loan scheme.

On April 8, 2015, Prime Minister Narendra Modi launched the Pradhan Mantri MUDRA Yojana, commonly known as the PMMY, under which banks are required to finance small and/or micro-enterprises for up to Rs 10 lakh. Banks that can provide loans include regional rural banks (RRBs), small finance banks, cooperative banks, micro finance institutions (MFIs) and non-banking financial companies (NBFCs).

A flagship scheme of the Modi government, MUDRA is also referred to as Micro Units Development and Refinance Agency Ltd. It also enables enterprises involved in allied agricultural activities to apply for Mudra loans.

Simply speaking, PMMY loans are basically aimed to 'fund the unfunded'.

Who all can avail MUDRA loan

MUDRA loan is extended to a variety of purposes that motivate income generation and employment creation. The loans are extended mainly for:

• Business loan for vendors, traders, shopkeepers and other service sector activities
• Working capital loan through MUDRA cards
• Equipment finance for micro units
• Transport vehicle loans

3 types of MUDRA loan under Pradhan Mantri Mudra Yojana

To signify the stage of growth/development and funding needs of the beneficiary micro unit/entrepreneur, loans under the PMMY are divided into three categories. The categorisation also provides a reference point for the next phase of graduation/growth.

1. Shishu: This is a starter scheme, which covers loans up to an amount of Rs 50,000. The interest rate in this section is between 10-12 per cent.
2. Kishor: Depending upon the requirements of the borrower, the loan amount in this scheme may vary anywhere between Rs 50,000 to Rs 5 lakh. Generally mid-level organizations opt for this one by paying an interest amount in the range of 14-17 per cent.
3. Tarun: Loan amount in this scheme varies between Rs 5 lakh to Rs 10 lakh. Entrepreneurs who are keen to develop their setups can avail this loan, by paying an interest rate of 16 per cent and above.

Benefits of Pradhan Mantri Mudra Yojana

• Borrowers of MUDRA loan are not required to provide security or collateral. Moreover, there are no processing charges on MUDRA loans
• Those residing in remote areas can use the PMMY for availing banking services such as savings accounts, credit cards, loans
• Credit from MUDRA loans can be used for term loans and overdraft facilities, even to apply for letters of credit and bank guarantees
• There is no minimum loan amount for MUDRA loans

Terms and conditions to avail MUDRA loan

While many poor and lower-middle-class youth have benefited from the scheme, its reach is just growing.

• Indian citizens having business plans for an income-generating micro or small business activity can avail MUDRA loans under the Pradhan Mantri MUDRA Yojana. The credit need for such business activities should not exceed Rs 10 lakh
• MUDRA loans are available to non-farm micro or small enterprises engaged in income generation through manufacturing, processing, trading or service sectors
• Enterprises involved in allied agricultural activities can also apply for MUDRA loans
• The Reserve Bank of India issues guidelines on lending rates from time to time, which should be followed
• Borrowers also need to follow the usual terms and conditions of the lending agency

How to use MUDRA card

Borrowers can avail hassle-free and flexible credit through the MUDRA card, which is a RuPay debit card and an innovative credit product. It provides a facility of working capital arrangement in the form of an overdraft facility to the borrower.

The MUDRA card can be used to withdraw cash from an ATM or to make a purchase using point of sale (POS) machine.

The card also facilitates repaying the amount, as and when surplus cash is available. This in turn reduces the interest cost.