What is Mudra Loan: Key Features, Eligibility & How to Apply

Table of Contents

• Overview of Mudra Loans
• What are the Different Categories of Mudra Loan?
• What are the Key Features of Mudra Loan?
• What are the Main Benefits of a Mudra Loan?
• Eligibility Criteria for Mudra Loans
• What Documents are Required for a Mudra Loan?
• How to Apply for a Mudra Loan?
• How Mudra Loans Impact Indian Agriculture?

Overview of Mudra Loans

Pradhan Mantri Mudra Yojana (PMMY) is a flagship scheme of the Indian government aimed at providing affordable credit to micro as well as small enterprises. It was announced on April 8, 2015, to extend credit to income-generating enterprises involved in the manufacturing, service, and trading sectors. Managed by the Micro Units Development & Refinance Agency Ltd. (MUDRA Ltd.), its goal is to provide financial assistance to eligible borrowers so as to acquire capital assets, working capital, or marketing-related requirements. Mudra loans are available for various agro-based industries in India and agriculture-allied activities. It is worth noting that this support is not intended for personal consumption/use and direct farming (crop loans and land improvement). Mudra Loan can be availed through different lending institutions, including NBFCs, MFIs, Small Finance Banks, RRBs, and Commercial Banks.

What are the Different Categories of Mudra Loan?

Mudra Loan offers financial assistance amounting to up to Rs. 20 lakhs across the following categories:

• Shishu: Loans up to Rs. 50,000
• Kishore: Loans from Rs. 50,001 to Rs. 5 lakhs
• Tarun: Loans from Rs. 5,00,001 to Rs. 10 lakhs
• Tarun Plus: Loans from Rs. 10,00,001 to Rs. 20 lakhs

What are the Key Features of Mudra Loan?

• The nature of financial assistance includes Term Loan, Overdraft Limit, Working Capital Loans, and Composite Loans to acquire capital assets.
• Margin/Promoters Contribution is based on the bank’s policy framework, which is drawn up in accordance with RBI guidelines.
• Interest rates are subject to the bank's policy decision. MUDRA Ltd. can advise Cooperative Banks, RRBs, and Scheduled Commercial Banks on pegging their interest rates.
• The upfront fee/processing charges can be charged by banks based on their internal guidelines. Most banks waive these charges for Shishu loans.   
• Other notable features include no collateral required, no minimum loan amount, and a repayment period ranging from 1 to 7 years, depending on the lender.

What are the Main Benefits of a Mudra Loan?

• PMMY makes financial support accessible to a wide range of businesses, even for individuals from the remotest areas.
• This scheme is not limited to the business size, as startups, small, and micro businesses all can avail financial support.
• It also offers higher loan amounts up to Rs. 20 lakhs, while offering the freedom to choose lesser amounts for smaller businesses.
• There is no collateral need from the borrower under this scheme, as the Credit Guarantee Fund for Micro Units (CGFMU) covers the loan sanctioned.

Eligibility Criteria for Mudra Loans

The eligible borrowers for Mudra Loan include:

• Individuals
• Public Company
• Private Ltd. Company
• Partnership Firm
• Proprietary concern
• Any other legal forms

Additionally, the applicant is required to have a satisfactory credit history with no defaults to any financial institution. They can be required to have the necessary knowledge, skills, or experience to run the proposed business activity.

What Documents are Required for a Mudra Loan?

Some of the general documents needed for a Mudra Loan are:

• Identity Proof: Passport, Driving License, Voter’s ID, PAN card, or Aadhaar card
• Address Proof: Voter’s ID, Aadhaar Card, Passport, Driving License, or recent utility bills
• Business Proof: Establishment certificate, business address proof, or ownership documents
• Other Documents: Income certificates, bank statements, IT returns, or cast certificate (for reserved categories)

How to Apply for a Mudra Loan?

• Visit any eligible lending institution to apply for a Mudra Loan offline.
• After filling out the Mudra Loan application form, submit it along with the required documents.
• Check and complete additional procedures or formalities for loan approval.
• Upon verification, you will receive loan approval.
• Funds will be disbursed to the bank account provided by the applicant.

Also, Mudra Loans can be availed by filing loan applications online through the Udyami Mitra portal.

How Mudra Loans Impact Indian Agriculture?

Even though PMMY is non-farm by design, this scheme covers a wide range of agriculture-allied enterprises that are as important as crop production. Some examples of allied activities are Beekeeping, Poultry farming, Pisciculture, Livestock rearing, Agri-clinics, and agribusiness centres. Additionally, certain agricultural activities are not covered by PMMY, including land improvements such as wells, irrigation, and canals, as well as crop loans.  

Mudra Loans provides increased access to credit that too without collateral, which is a blessing for small and marginal farmers. It encourages people to take up agriculture-related businesses, leading to job creation and self-employment in rural areas. Mudra Loans can be used to purchase modern equipment that can improve agricultural practices. Additionally, they incorporate informal agricultural activities into the formal financial system. Overall, Mudra Loans contribute to the overall economy while ensuring economic empowerment. 

Mudra Loans are highly beneficial for micro and small businesses in India. These loans offer a variety of benefits, like easy access to funds, job creation, and promotion of entrepreneurship. It also supports agriculture-allied enterprises that play a huge role in supporting Indian agriculture. Mudra Loans are transforming livelihoods by bridging the credit gap for small entrepreneurs.