It is estimated that there are about 6 Crores of small and medium business units in the country and they are growing by the day. Micro enterprises account for a significant chunk of economic activity in our country, and they also employ over 10 crores people. These enterprises are typically proprietary concerns and are engaged in the manufacturing, services and trading sectors. This sector comprises of a variety of small units, vendors, food service units, taxi/transport operators, and so on. Access to financing from banks and other financial institutions has not reached this sector. They typically depend on self, family and private money lenders for funds. To address this glaring gap in funding a critical sector for the economy which creates a lot of employment, Union Government had announced and launched MUDRA bank in 2015.

What is MUDRA (Micro Units Development & Refinance Agency Ltd)?

MUDRA is the scheme introduced by the ministry of finance for extending loans upto Rs. 10 Lakhs to small and medium businesses. This loan has proven to be a boon for startup entrepreneurs and entrepreneurs who cannot give collateral for security. Let’s look at this scheme in detail.

What is a MUDRA Loan?

A small and medium enterprise of 10 require capital to either start a new business or to upgrade your existing business. The options available for it are few, and the process is also expensive in terms of money and time. Until recent times, a major source of reliability for Business Loans in India were family members or friends for capital or procurement of a secured or unsecured loan at a higher interest rate from local money lenders. Keeping these micro units in mind, the Union Government introduced the MUDRA yojana, popularly known as Pradhana Mantri Mudra Yojana (PMMY). Under this scheme, if you are a micro unit, and if you are either one of the following, i.e., a non-corporate or non-farm small/micro-enterprise,you can avail a loan upto Rs. 10 Lakhs without any collateral. Various Banks/ MFI’s extend this loans to entrepreneurs. A total of 203 banks and other financial institutions are tied-up with the government to provide these loans. The numerous re-financing partner of the government for these loans constitute of 15 Co-operative Banks, 25 MFI, 35 NBFC, 47 NBFC-MFI, 18 Private Sector Banks, 21 Public Sector Banks, 36 RRB and 6 SFB. Depending on the amount of loan required and the stage of growth of the business, the scheme is divided into three categories.

  • If you require a loan upto Rs. 50,000, you will be covered under the Shishu Key features of this loan are – no collateral requirement, no loan processing fee, extended at a rate of interest of 1% per month, repayable in 5 years and working capital loans. These Business Loans from Mudra Bank can be availed through MUDRA cards.
  • If your loan requirement is over Rs. 50,000 and under Rs. 5,00,000 you will be covered under Kishor scheme. The terms of this loan will slightly vary from one financial institution to another.
  • If your loan requirement is over Rs. 5,00,000 and under Rs. 10,00,000, you will be covered under Tarun scheme. In this scheme too, the terms of the loan will slightly vary from one financial institution to another.

While there won’t be any processing fee for business loans from Mudra Bank under Rs. 5,00,000, you will be charged with a processing fee of 0.5% of the loan amount plus applicable taxes for loans availed under the Tarun Yojana.

Purpose of Mudra loan

Business Loans from Mudra Bank can be availed for the following:

  • Business Loan for service sector activities carried out by vendors, traders, shopkeepers, and so on.
  • Working capital loans for carrying out day-to-day business and expanding an existing business.
  • Equipment finance loan to micro units for buying machinery or renovating offices.
  • Transport vehicle loans will be extended to purchase vehicles for goods and personal transport such as auto rickshaw, mini trucks, passenger cars, cabs, and so on.

MUDRA Card

MUDRA Card is an innovative product which provides working capital facility as a cash credit arrangement. MUDRA Card is a debit card issued against the MUDRA loan account, for working capital portion of the loan. The borrower can make use of MUDRA Card in multiple withdrawal and credit, to manage the working capital limit most efficiently and keep the interest burden minimum. MUDRA Card will also help in digitalisation of MUDRA transactions and creating a credit history for the borrower.

Qualification Criteria for This Loan

If you wish to avail this loan, you should meet the following eligibility criteria

  1. Your firm should be registered as a private limited company under SME /SSI.
  2. Angel /VC investor should fund your firm. Such Investors may or may not be registered with SEBI.
  3. A Share purchase agreement and a share allotment proof are mandatory.

The promoters should fund 4.10% of the financing cost for the project, and 20% from the investors (angel funds, VCs, individuals). The remaining 70% can be taken as a loan under the MUDRA scheme.

  1. Types of loans – Either a term loan or working capital assistance will be provided based on your requirement.
  2. The term loan is given for a maximum period of 7 years and the maximum moratorium period for such a loan will be three years.
  3. Loan is covered under credit guarantee fund trust for micro and small enterprises scheme. The promoters’ guarantee is mandatory.  The coverage is also chargeable.

Some Facts & Figures

  • MUDRA started with a total refinance corpus of Rs. 20,000 Crores.
  • RBI has set a margin cap at 10% for MFIs that have a loan portfolio of more than Rs. 100 Crores.
  • RBI has set a margin cap at 12% for smaller MFIs having a loan portfolio of less than Rs. 100 Crores or 2.75 times the average base rate of five major commercial banks, whichever is less.
  • RBI has also put a cap on the interest rate at the Base rate/ MCLR for micro lending units by commercial banks by availing of MUDRA refinance.
  • RBI has given RRBs and Cooperative banks an interest cap of 3.50%.

How Can You Avail This Loan?

Under this scheme, the bank analyses the promoter team, the investor’s profile, innovative idea and revenue visibility. To avail this loan you can approach public sector banks like SBI, Vijaya Bank, Dena Bank, and others, or any private sector banks like ICICI, Yes Bank, Standard Chartered Bank Business Loan, and others, and other financial institutions. They will grant you a loan based on your merit and with/ without collateral.

Other details like the list of documents to be submitted along with the MUDRA loan application, a list of banks that provide a loan under this scheme can be obtained from the MUDRA Yojana website.

You can apply for this loan online, or visit the nearest financial institution that offers the loan under the PMMY scheme or through a financial expert for your business loan requirements.

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