All you need to know about Mudra Loan
The NDA government launched the Micro Units Development and Refinance Agency (Mudra) under the Pradhan Mantri Mudra Yojana (PMMY), on 8 April 2015, with a corpus of Rs. 20,000 crore. As the name suggests, the agency has been set up to refinance and develop micro units across the country. The purpose of Mudra is to extend funding to the non-corporate small business sector. Lack of financial support is the biggest roadblock to the growth of small businesses in our country, and Mudra has been launched to resolve the issue.
A report by the National Sample Survey Organisation (NSSO) in 2013, revealed that there are over 5.7 crore small-scale business units in the country—mostly sole proprietorship firms—that undertake manufacturing, trading, retail, broking and other activities. Compare this with the larger companies in the organised sector that employ more than 1.25 crore people. Clearly, there is an immense potential to nurture small businesses so that they can contribute more towards the country’s GDP. The segment is largely unregulated and has no organised financial system especially in the mofussil and rural areas. Pradhan Mantri Mudra Yojana (PMMY) through Mudra loans particularly target this segment of the population.
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Objectives of Pradhan Mantri Mudra Yojana (PMMY):
The main objectives of Mudra are as follows:
1. Regulating the borrower and the lender of microfinance and forging a stability in the sector through inclusive participation.
2. Extending credit and finance to support microfinance institutions (MFIs) and agencies that lend money to self-help groups, small business, traders, and individuals.
3. Registering all MFIs and putting in place an accreditation and performance rating system for the first time. It will help the last-mile borrowers to evaluate and approach MFIs that best meets their requirements and whose records, as a lender, are the most satisfactory. Such a measure will also introduce competitiveness among the institution. The borrower will be the ultimate beneficiary.
4. Providing structured guidelines for borrowers to avoid business failures, or adopt timely corrective measures. Mudra will also help to lay down the acceptable procedures and guidelines to be followed by lenders for recovering money from defaulters.
5. Developing standardised covenants that would become the backbone of the last-mile business in future.
6. Introducing proper technologies to assist swift lending and monitoring of the disbursed money.
7. Building a stable framework under the Pradhan Mantri Mudra Yojana (PMMY) to develop an efficient last-mile credit delivery system for small businesses.
Here are some points that ideated the setting up of Mudra:
1. Pradhan Mantri Mudra Yojana (PMMY) is expected to benefit over 58 million small business owners and entrepreneurs in the country. More than 120 million people are employed in this sector and they mostly come from the underprivileged sections of the society.
2. Most of the small business owners have always remained beyond the ambit of organised and mainstream bank credit. This is because products and services of most banks and financial institutions mostly target secured businesses that can afford to pay a higher rate of interest. Pradhan Mantri Mudra Yojana (PMMY) attempts to change the trend.
3. While institutional finance was always relevant to small businesses, inadequate corpus and unorganised credit management failed to reach it to eager entrepreneurs. Mudra is backed by a dream to fulfil the aspirations of many young and budding entrepreneurs spread beyond the big metros.
4. Repayment has always been a major concern for institutional lenders shying away from extending credit to small entrepreneurs in semi-urban and rural areas. But Mudra promises to assure the lenders on this front and help both banks and MFIs, and small business owners come on a common platform.
Who can apply?
The borrowers has been categorised into three stages i.e. the starters, the mid-level finance seekers, and the advanced-level growth seekers under Pradhan Mantri Mudra Yojana (PMMY). The segments have been labelled as Sishu, Kishor, and Tarun.
How to apply?
Once you come up with a business plan you can contact your nearest public or private sector bank for a Mudra loan under Pradhan Mantri Mudra Yojana (PMMY). Give the bank a detailed description of your plan. It will ask you to fill up a Mudra form. Your application will be processed quickly if you already have a current account with the bank. If you require any equipment for the business, please carry an invoice of the same.
No collateral required
Mudra loans are free from collaterals, and if you have a good credit record, it will further ease the process. Take the acknowledgement paper from the bank for future reference. As of today, 27 public sector banks, 31 regional rural banks, 17 private sector banks, 36 MFIs, 4 cooperative banks, and 25 non-banking financial corporations, are offering the loan. More lenders would be added in the future.
The Mudra loan application form must be submitted with the following supporting documents:
• Identity proof like a self-attested photocopy of voter identity card, passport, driving license, PAN card, or Aadhaar card.
• Proof of residence i.e. most recent electricity or landline telephone bill, property tax receipt (not more than two months old), voter identity card, driving license, or passport of the proprietor, partners or directors (as applicable).
• Proof of scheduled caste (SC), scheduled tribe (ST), other backward class (OBC), or minority certificate, if any.
• Proof of address of the business enterprise, copies of all relevant licenses, registration certificate, and other documents that prove the ownership of the business.
• Bank account statement for the last six months, if required.
• The Balance sheet of the unit for the last two years, along with sales tax/income tax return etc. This is mandatory for all cases of Rs. 2 lakhs and above.
• Projected balance sheet for one year in the case of working capital limits and the period of loan for term loans (applicable in cases of Rs. 2 lakhs and above).
• Sales during the current financial year, till the date of submission of the application.
• Project report of the proposed business, along with technical details and economic viability.
• Memorandum and articles of association in case of a company, and registered partnership deed in case of a partnership firm.
• Photographs (two copies) of the proprietor, partners, or directors, as applicable.
Besides the above mentioned documents, lenders may ask for other papers, if required. Banks do not levy any fee to process the loan application. But the government has made it clear that the applicant must not be a defaulter with any bank or financial institution.
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Interest charged by some of the major banks is given below.
The Mudra loan, as already said, is meant for small businesses. There are no laid down criteria regarding who exactly are eligible. The loan can’t be used for any educational purposes and neither for buying a house or property. However, you can get a Mudra loan to purchase a vehicle to be used in your business. High turnover businesses are not eligible for a Mudra loan.
The government has clarified that women belonging to the SC, ST and OBC category, will be preferred while extending loans under the Mudra scheme. But there’s no reservation in this regard. Even the criteria for preference have not been disclosed.
Also read: Pradhan Mantri Awas Yojana – Housing For All
What is a Mudra card?
It’s a type of credit card which will be given to a borrower at the time of disbursing the loan. The card may be used to buy raw materials and equipment from registered vendors online. The credit limit of the card is capped at 20% of the loan amount, subject to a maximum of Rs. 10,000. So far, only Corporation Bank has introduced the card.