The MUDRA Loan Scheme, also known as Pradhan Mantri MUDRA Yojana (PMMY), is a significant initiative by the Government of India to provide financial assistance to small businesses and entrepreneurs, particularly in the micro-enterprise sector. This piece explores the salient features and guidelines of the MUDRA Loan Scheme, designed to promote self-employment and economic empowerment.
Background of the MUDRA Loan Scheme
The MUDRA Loan Scheme was launched to address the financing gap for small and micro enterprises in India. These enterprises, often owned by individuals from marginalized communities, face challenges in accessing credit from formal financial institutions. The scheme aims to provide a platform for these entrepreneurs to access affordable loans and grow their businesses.
Key Features of the MUDRA Loan Scheme
The MUDRA Loan Scheme has several salient features:
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Micro-Credit Facility: Provides micro-credit to small and micro enterprises.
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Focus on the Underserved: Targets small businesses and entrepreneurs from marginalized communities.
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Affordable Loans: Offers loans at reasonable interest rates.
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Collateral-Free Loans: Loans up to ₹10 lakh do not require collateral.
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Three Categories of Loans: Loans are categorized as Shishu, Kishore, and Tarun, based on the loan amount.
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Promotion of Digital Transactions: Encourages digital transactions among borrowers.
Categories of MUDRA Loans
The scheme provides loans under three categories:
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Shishu: Loans up to ₹50,000.
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Kishore: Loans from ₹50,001 to ₹5 lakh.
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Tarun: Loans from ₹5,00,001 to ₹10 lakh.
More focus is given to Shishu loans, which target the most vulnerable entrepreneurs.
Eligible Borrowers
The scheme is available to:
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Individuals
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Proprietary concerns
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Partnership firms
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Private Limited Companies
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Public Companies
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Other legal forms
Applicants should have a satisfactory credit track record and the necessary skills/experience for the proposed activity.
Nature of Assistance
The MUDRA loans are provided for:
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Acquiring capital assets.
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Working capital.
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Composite loans for both capital and working capital.
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Income generation activities in manufacturing, processing, service, and trading sectors.
The loan amount is based on the project cost and the investment proposed.
Amount of Assistance and Margin/Promoters Contribution
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Loan Amount: Up to ₹10 lakh.
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Margin/Promoters Contribution: As per the policy framework of the RBI. Banks may not insist on margin money for Shishu loans.
Interest Rate
Interest rates are determined by the lending institutions as per their policy. However, rates are expected to be reasonable. MUDRA Ltd. advises banks on interest rates from time to time.
Upfront Fee/Processing Charges
Banks may charge an upfront fee as per their internal guidelines. However, processing charges for Shishu loans are waived by most banks.
Security
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A first charge on all assets created out of the loan is mandatory.
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A Demand Promissory Note (DPN) is required.
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Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)/MUDRA guarantee cover is available.
Repayment
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Term loans are to be repaid in suitable installments based on the cash flow of the business.
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Overdraft and cash credit limits are repayable on demand.
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Annual reviews are conducted as per the bank’s guidelines.
Availability of Loans
MUDRA loans are available at all bank branches across the country. Loans are also issued by NBFCs and MFIs engaged in financing for micro-enterprises.
Promotion of Digital Transactions
The scheme promotes digital transactions by providing incentives to vendors who use digital payment methods.
Who Can Lend?
Loans are provided by:
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Scheduled Commercial Banks
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Regional Rural Banks (RRBs)
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Small Finance Banks (SFBs)
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Cooperative Banks
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Non-Banking Financial Companies (NBFCs)
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Microfinance Institutions (MFIs)
Conclusion
The MUDRA Loan Scheme is a crucial initiative for promoting financial inclusion and empowering small businesses and entrepreneurs in India. By providing collateral-free loans, encouraging digital transactions, and offering affordable credit, the scheme helps individuals from marginalized communities to achieve economic independence and contribute to the nation’s growth. The focus on micro-enterprises and the ease of access to credit makes MUDRA a significant program for poverty alleviation and self-employment.