Mudra Yojana: Empowering Small Businesses with Easy Financing

Small and medium-sized businesses typically are not able to obtain bank loans due to a lack of security or resources to pay the interest. Helping these businesses grow will eventually lead to the growth of the economy.

Mudra Yojana is a finance initiative to facilitate micro-units by offering them the funds they need to develop their businesses.

Objectives of Mudra Yojana:

The genesis of Mudra Yojana was done with a variety of goals in mind. Some of them are:

• Establishing policy guidelines for financing micro and small businesses.
• Recognizing and regulating all Microfinance Institutions and related entities.
• Supporting small-scale companies in growth and expansion.
• Assisting low-income groups in developing their businesses.
• Facilitating easy access to financing for unbanked individuals and reducing the cost of financing.
• Offering preferential lending to SC/ST communities.
• Regulating Microfinance Institutions engaged in manufacturing, trading, and services.

Limits on Loans and Interest Rates in the Mudra Scheme:

Based on the financing options in this program, the loan limits and interest rates vary according to the business's growth phase. The applicable rates and limits are as follows:

• Shishu - Loans up to Rs.50,000. Mudra Loan Interest Rate depends on the bank as per scheme regulations and the applicant's credit history. The repayment timeframe is at the bank's discretion.
• Kishore - Loans ranging from Rs.50,000 to Rs.5,00,000. Interest rates depend on the lender, following scheme guidelines and the applicant's credit score. The lender determines the repayment period.
• Tarun - Loans ranging from Rs.5,00,000 to Rs.10,00,000. The lender sets interest rates as per scheme regulations and the applicant's credit history. The repayment period is at the institution's discretion.

Currently, 21 Public Sector Banks, 36 Regional Rural Banks, 18 Private Sector Banks, 35 Non-Banking Financial Companies (NBFCs), 25 Micro Finance Institutions (MFIs), 15 Cooperative Banks, and 6 Small Finance Banks are selected to distribute loans. 60% of loans are provided under the "Shishu" category, while the remaining 40% fall under the "Kishore" and "Tarun" programs.

Usage of Loan Funds from Mudra Yojana:

The loans under this scheme can be used for the following purposes:

• Commercial car loans.
• Transport vehicle loans.
• Working capital loans.
• Loans for plants and machinery.
• Agri-related loans for income-generating activities.
• Business credit for shopkeepers and traders.
• The business loan for shopkeepers and traders.

Eligibility of the Borrower:

These loans are available to all non-farm income-generating businesses in manufacturing, trading, and services with credit needs up to Rs.10 lakhs. Scheduled Commercial Banks, Small Finance Banks, Regional Rural Banks, NBFCs, MFIs, and Urban Cooperative Banks issue Mudra loans under PMMY (Pradhan Mantri Mudra Yojana).

Essentially, anyone seeking loans up to Rs.10 lakhs for micro-units is eligible. The application form can be accessed at the mentioned institutions or on the Udyamimitra portal. Required documents include:

• Identity proof
• Business address proof (relevant documents, certificates, and licenses)
• Category proof (if applicable)
• Bank statements for the past six months
• Income tax returns and balance sheets for the last two years
• Proof of business existence (e.g., Memorandum of Association or Partnership Deed)

Banks may request additional documents if necessary. No processing fees or collateral are required. The repayment period can extend up to five years, provided the applicant is not in default with any institution.

Business Sectors and Services Covered Under Mudra Yojana:

Here is a brief list of businesses and services that qualify for Mudra loans:

• Entrepreneurs who purchase transport vehicles such as auto-rickshaws, three-wheelers, small goods transport vehicles, taxis, and e-rickshaws.
• Commercial vehicles like tractors, power tillers, and two-wheelers for business use.
• Entrepreneurs running salons, gyms, beauty parlours, tailoring shops, dry cleaners, medical stores, courier services, photocopying centres, and similar businesses.
• Small food processing businesses, including papad-making, pickle-making, sweet shops, catering services, bakeries, and cold storage facilities.
• Entrepreneurs engaged in traditional crafts such as handloom weaving, khadi production, embroidery, textile manufacturing, and garment accessories production.
• Agricultural-related businesses such as poultry farming, beekeeping, dairy farming, fisheries, agro-industries, food processing, and agricultural support services.

Conclusion

Mudra Yojana plays a crucial role in empowering micro and small enterprises by offering them financial assistance without the burden of collateral. By ensuring easy access to credit, the scheme fosters entrepreneurship, encourages self-employment, and contributes to the overall economic development of the country. Through its various loan categories, Shishu, Kishore, and Tarun, the scheme caters to businesses at different stages of growth, making it an inclusive financial initiative for aspiring entrepreneurs.