Learn about the Pradhan Mantri Mudra Yojana (PMMY), how it offers loans to small businesses, eligibility criteria, loan limits, interest rates, and how to apply for Mudra loans.
Contents
Introduction
Micro, Small, and Medium Enterprises (MSMEs) play a crucial role in fueling economic growth, yet they often struggle to secure financing due to the lack of collateral or formal financial history. To address this gap, the Pradhan Mantri Mudra Yojana (PMMY) was launched to provide financial support to micro-enterprises, particularly to those who have limited access to traditional banking loans. If you’re a small business owner looking to expand or set up a new venture, understanding how Mudra loans can benefit you is essential.
What is Pradhan Mantri Mudra Yojana?
Launched in April 2015, the Pradhan Mantri Mudra Yojana (PMMY) aims to provide loans to non-farm income-generating businesses. Through this scheme, businesses in the trading, manufacturing, and service sectors can get loans up to Rs. 10 lakhs without having to provide any collateral. This initiative empowers businesses to expand, create jobs, and contribute to India’s economic growth.
Key Objectives of the Mudra Yojana
The Mudra Yojana was designed with the following objectives:
- Facilitating loans for small and micro-enterprises that have difficulty accessing traditional financing.
- Regulating and supporting microfinance institutions to ensure fair and responsible lending.
- Helping the economically weaker sections, such as SC/ST and minority groups, to start or expand businesses.
- Encouraging job creation and fostering entrepreneurship among women, backward classes, and other disadvantaged groups.
Loan Categories Under Mudra Yojana
There are three categories of loans under the Mudra Yojana, each catering to different stages of a business:
- Shishu (Up to Rs. 50,000)
- Ideal for startups and micro-enterprises that are in the initial stages.
- Interest rates and repayment terms depend on the lender.
- Kishore (Rs. 50,000 to Rs. 5 lakhs)
- Suitable for businesses that have already been established but need additional funding for growth.
- Repayment terms vary by the bank and depend on the applicant’s credit history.
- Tarun (Rs. 5 lakhs to Rs. 10 lakhs)
- For businesses that are looking to expand significantly and need higher funding.
- Update (2024): The loan limit for Tarun category has been increased to Rs. 20 lakhs for entrepreneurs who have successfully repaid previous loans under this category.
Eligibility for Mudra Loans
To qualify for a Mudra loan, the following criteria must be met:
- Non-farm income-generating activities such as trading, manufacturing, and services.
- Businesses requiring a loan amount of less than Rs. 10 lakhs.
- All types of small businesses, including shopkeepers, traders, and service sector enterprises, are eligible.
Additionally, entrepreneurs must provide documents such as identity proof, business proof, and income tax returns when applying for the loan.
Note: Mudra loans can be applied for through Scheduled Commercial Banks, Small Finance Banks, NBFCs, Regional Rural Banks, and Micro Finance Institutions (MFIs). You can also apply online through the Udyamimitra portal.
In addition to PMMY, which provides loans to small businesses and startups, the Prime Minister’s Employment Generation Programme (PMEGP) offers another avenue for entrepreneurial support by providing financial assistance for setting up micro-enterprises.
Interest Rates and Repayment
The interest rate for Mudra loans varies across banks, depending on the borrower’s credit history and the bank’s policies. Most loans have a repayment period ranging from 1 to 5 years. Some banks offer attractive interest rates; for example:
- State Bank of India (SBI) offers loans with interest rates as per its guidelines.
- Union Bank of India offers loans starting from 7.30% p.a. with a repayment tenure of 1 to 7 years.
- Bank of Baroda has rates starting from 9.65% p.a.
How to Apply for a Mudra Loan
Applying for a Mudra loan is a straightforward process:
- Visit a bank offering Mudra loans or the Udyamimitra portal.
- Fill out the application form and submit the required documents such as:
- Identity and business proof
- Income tax returns for the past two years
- Bank account statement for the last six months
- Await approval from the bank after your application is processed.
Benefits of Mudra Yojana for Small Businesses
The Mudra Yojana has several benefits for small businesses, including:
- No collateral required – Small businesses can get loans without providing security.
- Low-interest rates – Compared to private lenders, banks under this scheme offer competitive interest rates.
- Flexible repayment options – The repayment period can extend up to 5 years, depending on the loan category and bank.
- Inclusion of marginalized groups – Women, SC/ST, and minority-owned businesses are given priority.
5 FAQs About Pradhan Mantri Mudra Yojana
- Who is eligible for a Mudra loan?
- Any non-farm income-generating business such as a trader, manufacturer, or service provider with a credit requirement of less than Rs. 10 lakhs is eligible.
- What documents are required to apply for a Mudra loan?
- Basic identity proof, business proof, income tax returns, and bank statements for the last six months are required.
- Is there any collateral required for Mudra loans?
- No, Mudra loans do not require any collateral or security.
- What are the loan limits under Mudra Yojana?
- Loans are categorized into Shishu (up to Rs. 50,000), Kishore (Rs. 50,000 to Rs. 5 lakhs), and Tarun (Rs. 5 lakhs to Rs. 10 lakhs). Tarun has now been extended to Rs. 20 lakhs for successful loan repayments.
- How can I apply for a Mudra loan?
- You can apply through participating banks or via the Udyamimitra portal.
Conclusion
The Pradhan Mantri Mudra Yojana has been a game-changer for small and micro businesses in India. By providing collateral-free loans, it has enabled many entrepreneurs to grow their businesses and contribute to the nation’s economy. Whether you’re starting a new venture or looking to expand, Mudra loans offer flexible financing options that could be just what you need.
