Mudra Loan derives its name from Micro Units Development and Refinance Agency Ltd. (MUDRA), a government unit which provides unsecured loans of upto Rs. 10 Lacs from small businesses to micro enterprises through Pradhan Mantri Mudra Yojana (PMMY).
MUDRA offer this loan with the help of banks/FIs, in order to encourage self-employment in the country and generate income.
The interest rates under mudra loans ranges from 11.20% to 19.50% with tenure upto 5 years long and is linked to mclr rates defined by RBI from time-to-time. Moreover, a micro business eligible under Shishu or Kishore categories, are free from loan processing charges. Whereas, micro businesses eligible under Tarun category will have to pay certain processing charges on loan.
Unlike regular business loans where a borrower has to pay processing charges to the bank/FI in order to process the funds, under Mudra loans, a borrower can avail funds without the need of paying any processing charges. However, business enterprises eligible under Tarun category will have to pay an upfront processing fee of 0.50% of the loan amount.
An eligible beneficiary doesn’t need to offer any collateral security in order to access the funds unlike regular business loans. Hence, even a business which doesn’t have any collateral to offer, can avail funds as long as it satisfies the eligibility criteria of mudra loans.
Unlike regular business loans where banks and FIs tends to have a minimum loan amount criteria, which eventually leads to applying for a higher amount than required or look for some other funding source, Mudra loan doesn’t have any minimum loan amount criteria. Hence, borrower can even apply for amount as low as Rs. 5,000.
An eligible beneficiary is defined as a small business or micro enterprise generating income either through manufacturing, trading or service sectors, including enterprises involved in allied agricultural activities.
Whereas enterprises involved in farming activities such as crop cultivation, farming of fruits and flowers are excluded from the benefits under Mudra Loans.
The various types of businesses eligible under Mudra Loan are as follows:
Transportation business are defined as businesses involved in local transportation activities such as auto rickshaw, delivery of goods, limousine, taxis and moving vans, or travel and tourism related businesses such as minibuses and passenger cars etc.
Service based businesses includes small businesses acting as service providers be it consumer or industrial such as software development companies, hotels, pubs and restaurants, newspaper printing press, gyms and sports clubs, clinics, hospitals, medical shops, spas, accountancy and law, confectionary shops, boutiques, coaching institutes, and cleaning services etc.
Production Businesses includes small business or enterprise unite involved in production of consumer products like furniture, utensils, edible products like packaged food items, household tools and electronic products, disposable items, and industrial products such as car parts, industrial tools and equipments, handlooms, etc.
Allied-Agricultural businesses are defined as businesses involved into activities that are not directly related to agricultural such as pottery, nursery of plants, shopkeeping, carpentry, diary plantation, poultry farming, bee keeping and fish farming etc.
Under Mudra Yojana, an eligible beneficiary can apply for finance under one of the three different categories – Shishu, Kishor and Tarun based of the current growth of a business and need of finance.
Under Shishu category of the Mudra Loan, an eligible beneficiary can avail funds upto Rs. 50,000 either to establish the business, or to kick-start the business operations. The beneficiaries categorized under Shishu are mainly individuals with startups and extremely small businesses.
Under Kishore category, an eligible individual or entreprise can avail funds as high as Rs. 5 Lacs to manage their day-to-day business functions. The beneficiaries categorized under Kishore is rather functional for quite a time and comparatively large in size as compared to shishu category.
Under Tarun category, an individual or business enterprise can avail funds as high as Rs. 10 Lacs for the operational needs of the business. The beneficiaries categorized under Tarun category are running the business operations for longer time and comparatively bigger in size as compared to kishore category.
Eligibility under Tarun Category:
|Banks/FIs||Annual Interest Rates|
|HDFC Bank||12.75% - 20.00%|
|Tata Capital||13.49% - 19.50%|
|IDBI Bank||12.75% - 13.75%|
|HDB Financial Services||15.95% - 18.95%|
|Indian Bank||12.65% - 13.65%|
|Standard Chartered Bank||12.50% - 17.00%|
|ICICI Bank||11.49% - 17.50%|
|Citibank||12.75% - 15.75%|
|Capital First (IDFC First)||13.00% - 20.00%|
|Bank of India||12.70% - 14.70%|
|Kotak Mahindra Bank||11.50% - 18.00%|
|IndusInd Bank||12.99% - 18.25%|
|Fullerton India||19.50% - 37.00%|
|Bank of Baroda||14.15%|
|Karur Vysya Bank||13.90% - 16.40%|
|OBC||11.20% - 12.95%|
|UCO Bank||14.10% - 15.10%|
|Central Bank of India||12.70%|
|Bank of Maharashtra||15.20%|
|Aditya Birla Finance||14.00%|
|Tamilnad Mercantile Bank||14.40% - 16.40%|
|South Indian Bank||14.80%|
The finance aid to the beneficiary business is offered through four different schemes designed to cater different types of beneficiaries. The schemes are named and defined as follows:
Micro credit scheme is designed to cater individuals with finance needs of upto Rs. 1 Lac only, to carry out select micro enterprise activities. The funds are offered through micro financial institutions enrolled with MUDRA Ltd.
Under Refinance Scheme for Banks, MUDRA provide business loan of upto Rs. 10 lacs to eligible borrowers with the help of Commercial Banks, Regional Rural Banks and Scheduled Cooperative Banks. The funds are offered as term loan and working capital loans and distributed with the help of the enrolled bank within the three business categories – Shishu, Kishore, and Tarun.
Under this scheme, the financial aid is offered only to female individuals to set-up their business unit with concession in interest rates of upto 0.25%. This scheme is engaged in order to encourage women empowerment and help female entrepreneurs grow.
Under this scheme, the loan is offered through banks and micro financiers where the assets created out of loan amount are securitized against portfolio of the applicant micro enterprise. It works as a second loss default guarantee for the loan, and helps in enhancement of credit limit.
Mudra loans can be applied through online as well offline application methods. Online application methods are comparatively easier to follow since borrower doesn’t need to go through the hustle to visit a branch.