Is Mudra Loan Right for You? Eligibility Criteria Demystified
Micro, Small, and Medium Enterprises (MSMEs) form the backbone of the Indian economy. However, the MSME sector often faces challenges like insufficient cash flow and poor credit scores. As a result, the government has launched a number of credit capitalization and loan schemes in order to strengthen the sector. One such initiative is the MUDRA plan, also known as the Mudra loan scheme or the Pradhan Mantri Mudra Yojana (PMMY), designed to bolster the MSME sector.
Banks and NBFCs offer a range of credit programs to assist MSMEs in overcoming these challenges. In addition to lending schemes, the Government of India (GoI) has developed a number of MSME subsidy schemes to assist MSMEs in flourishing and growing. Mudra loans are one such credit scheme that has shown to be beneficial to the MSME sector. This page describes what a Mudra loan is, who qualifies for one, what evidence is required, and how to apply.
What is Mudra loan?
The Mudra loan is officially termed the Pradhan Mantri Mudra Yojana (PMMY). It is a lending program established by the Government of India through MUDRA (Micro Units Development & Refinance Agency), an affiliate of the Small Industries Development Bank of India (SIDBI).
The scheme provides micro and small businesses with loans of up to ten lakh rupees. The repayment period ranges from 3 to 5 years, depending on the loan category and loan amount. The PMMY lending system is categorized into three types: Shishu, Kishor, and Tarun. These categories represent the borrowing business unit's credit facility requirement as well as its stage of development. Here's how the classification works.
Shishu classification: This provides loan assistance of up to Rs.50,000 to business owners with limited needs. It is also an excellent financing method for startups and entrepreneurs that are just getting started.
Kishor classification: This addresses financing needs of up to 5 lakhs. It is perfect for business owners looking for additional operating capital or financing for other business purposes.
Tarun classification: This caters to loan funding requirements of up to 10 lakh and is a good approach for proven micro and small businesses to seek funding.
What are the advantages of the Mudra loan scheme?
The following are some of the primary advantages of applying for a Mudra loan or PMMY plan.
- There is no need for collateral or security to acquire a Mudra loan because it is a collateral-free loan.
- Processing fees: There are no charges for processing involved.
- A multipurpose loan is similar to a working capital loan in that it can be utilized for a variety of business needs.
- There is no set minimum loan amount: There is no minimum loan amount. The highest limit, however, is Rs. 10 lakhs.
- Mudra loans have the lowest possible interest rates since they are decided by the marginal cost of lending rate (MCLR), which is controlled by the RBI.
Who qualifies for a Mudra loan (Eligibility Criteria)?
Listed below are the business activities and types that are eligible for the Mudra loan (PMMY scheme).
- The company must engage in the service sector, trading, or manufacturing operations.
- Agri-allied businesses are eligible, as are micro and small businesses involved in non-farm operations. Businesses engaged in agricultural-related industries, such as beekeeping, dairy, fishing, cattle, food-processing centers, and so on, are also eligible.
- Manufacturing: Micro and small businesses engaged in manufacturing can also apply for a Mudra loan.
- Micro and small firms that provide services such as consultancy, marketing, and so on can apply for a Mudra loan.
- Trading: Owners of micro and small-sized businesses, such as shopkeepers/retailers, wholesalers, and traders.
- Artists: Any type of artist is acceptable.
- Loan requirement limit: Micro and small businesses with a financial requirement of less than ten lakh rupees.
- Applicants should be aged between 18 and 65.
Who is ineligible for the PMMY scheme/Mudra loan (PMMY scheme)?
- The Mudra financing scheme is intended specifically for micro and small businesses. As a result, huge corporations and corporations are not eligible for this plan.
- Irrigation, canals, and other land enhancement business activities are not eligible.
What documents are required for the Mudra loan/PMMY scheme?
Below is a list of commonly required documents for MSME loans. The list of documents necessary for a Mudra loan (under the PMMY plan) is equally identical.
It is, however, better to obtain an exhaustive list of essential documents from the lender.
- Completed application form
- Valid photo identification (Aadhaar card/Passport/Voter ID, for example)
- Proof of address (utility bill, Aadhaar card, passport, voter ID, bank statement, etc.)
- Proof of business registration (registration certificates/deed copy, etc.)
- The applicants' most recent images
- Bank statement over the previous six months
Interest Rates on MUDRA Loans
Prospective borrowers often prioritize the interest rate as a key feature of the MUDRA loan. The applicant's profile and company criteria influence the interest rate they must pay on their MUDRA loan. Based on their rules, lending institutions determine the final interest rate. It normally ranges from 11.75% to 26% every year.
Banks offering MUDRA Loan
Under the directive of the RBI, the following banks offer MUDRA loans:
- Axis Bank
- Bank of India
- Bajaj Finserv
- Bank of Baroda
- Bank of Maharashtra
- Central Bank of India
- Canara Bank
- HDFC Bank
- IDBI Bank
- ICICI Bank
- Indian Bank
- IDFC first bank
- Lendingkart Finance
- Karnataka Bank
- Kotak Mahindra Bank
- Punjab National Bank
- State Bank of India (SBI)
- Syndicate bank
- Saraswat Bank
- Tata Capital
- Yes Bank
- Union Bank of India
How to apply for a Mudra loan?
The MUDRA loan application process differs widely depending on the lender. Once you've selected a bank from the MUDRA loan list, proceed to fill out the application. Then go to the local branch, fill out the application form, and complete the loan paperwork. To apply for an e-MUDRA loan, you must submit an online application on the bank's website. After getting and verifying all documentation, the lender will grant the loan. Upon approval, you can expect the funds to be disbursed within a few business days.
Online application for Mudra loan: To fill out your application for the PMMY program online, go to the Udyami Mitra portal. The advantage here is that your application is seen by several lenders.
Some frequently asked questions about the PMMY scheme
What is the interest rate on a Mudra loan (under the PMMY scheme)?
The interest rate fluctuates on a regular basis. It is not regulated by the Indian government. Instead, it adheres to the Reserve Bank of India's broad rules.
Is the Mudra loan/PMM plan appropriate in the event of a franchise company model?
Yes. This scheme is open to traders and shops. Furthermore, franchise service providers are eligible to apply for the loan. (Note: Banks and NBFCs offer business loans to merchants as well.)
Can you file a complaint if you have any complaints?
Yes. If there are any lapses on the part of the bank, you file a complaint with the bank's higher authorities, such as the Regional Manager/Zonal Manager.
Conclusion
The Mudra loan scheme (PMMY) is a valuable initiative by the Government of India to empower MSMEs. It offers numerous advantages, including collateral-free loans, minimal processing fees, and competitive interest rates. Whether you're a startup entrepreneur or an established small business owner, a Mudra loan can help you meet your financial needs and propel your business forward.
Call to Action
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