How many times is it that when we have thought of taking a loan, we have had to rethink because of the minimum amount involved or the huge amount of collateral or security that had to be deposited?
One solution to these problems is the Mudra (Micro Units Development and Refinance Agency) Loan. You can read on to know more about this loan.
On 8th April 2015, the Government of India launched the Pradhan Mantri MUDRA Yojana (PMMY) to help various non-farm small/micro enterprises and non-corporate enterprises with their funding needs. The scheme was introduced to extend loans of up to Rs. 10 lakhs to these organizations. These loans are known as MUDRA loan. The loans can be availed from any NBFCs, MFIs, Commercial Banks, Small Finance Banks, and RRBs.
MUDRA or Micro Units Development and Refinance Agency is a refinancing institution formed with the main purpose of extending loans. It was initially formed as a wholly-owned subsidiary of SIDBI (Small Industries Development Bank of India) as a refinancing company with a paid-up capital of Rs. 750 crores and authorized capital of Rs. 1000 crores.
Now, let us have a look at all that is there to know about the Mudra loan.
There are three types of loans offered under this scheme, and the names of the different loans offered are suggestive of different stages of development that the micro-enterprises may need loans at. The three categories of loans are:
1. Sishu Mudra Loan- This is for those budding entrepreneurs who are just starting off with their business or are in the process of planning for it. The maximum amount sanctioned under this loan is Rs. 50,000. This loan is to finance the necessary Machinery and equipment that may be required or any other resources that may be essential for carrying on the business idea. In order to avail of this loan, the borrower must present valid details of suppliers and any other mudra loan documents that may be necessary.
2. Kishor Mudra Loan- This category sanctions a loan in the range of Rs. 50,001-Rs. 5 lakhs. This category is for those who are in need of funds so that they can expand their business into some new geography or some new line. The Mudra loan documents necessary for this loan to be sanctioned are income statements, bank statements, the balance sheet of previous years, as well as an estimate of the balance sheet of next year and the viability of their business idea or project.
3. Tarun Mudra Loan- This loan is offered to those who want resources in excess of Rs. 5 lakhs. However, the maximum amount that can be availed is Rs. 10 lakhs. This loan is primarily for those enterprises or individuals who are looking to diversify their business or who are aiming at further growth of their business. All the requirements for Kishor Loan are also applicable to the Tarun Loan.
Mudra also has two different types of funding schemes. They are:
1) Micro Credit Scheme (MCS)-
This is for loans up to Rs. 1 lakh finance through MFIs. These are for small/micro enterprises or individuals for various business generating activities.
2) Refinance Scheme for Commercial Banks / RRBs / NBFCs-
This has a maximum limit of Rs. 10 lakhs. The refinancing scheme is available for term loans and also working capital loans. Sometimes, special services can also be provided to women entrepreneurs so as to encourage them. These facilities include providing them a discount or reduction on their loan.
Under the Mudra loan, a special thing is the facility of the Mudra card. This is a debit card that is given to the borrower and is issued against the loan amount. It is issued for the working capital part of the loan so that the borrowers can make use of several withdrawals. Also, as the world is going digital, having a debit card can also help the lending institutions to track the transactions and history of interest payments.
Now that we have seen what Mudra loan is, we should also see how it may apply to us and how we can make use of this scheme
There are various reasons for providing such loans to enterprises and individuals. The non-corporate micro sector is one of the largest in India, after the agricultural sector. This sector leads to a lot of income generation and also provides a lot of employment for the people. So, it becomes necessary for the government to introduce such schemes in order to promote and uplift such sectors. The Mudra loan eligibility criteria are for:
1. Working Capital Loans - The Mudra scheme provides loans not only for the purchase of fixed assets but also for maintaining the working capital of the company. In order to fund the working capital needs, the enterprises can use a debit card known as the Mudra Card.
2. Transport Vehicle Loans - Three-wheelers, two-wheelers, auto-rickshaws, and other vehicles used for commercial use are covered under this scheme.
3. Equipment and Machinery that are required by micro-enterprises are also covered under this scheme.
4. Agricultural activities - This includes activities like poultry, fishing, dairy, agri-clinics, etc.
5. Loans for traders, vendors, shopkeepers, and small business owners are also included.
6. Food Products Sector - This sector includes activities like jelly or jam making. This would also include small bakeries or individuals who run small businesses of bread, snacks, pickles, etc.
7. Textile Producers and traders like khaki, wool, silk, etc. handicrafts businesses and those who trade in these services can also take advantage of the Mudra loan scheme.
8. Other businesses in the community like gyms, parlors, boutiques, book shops, printing shops, mobile repair shops, etc. are also included in this scheme.
As already mentioned, in order to avail of the MUDRA loan, borrowers can approach the institutions that are eligible to partner with Mudra. Loans can be availed from RRBs, MFIs, NBFCs, Commercial Banks, and Small Finance Banks. Since the loans can be availed from any of these institutions, it becomes quite convenient and easy for potential borrowers. Also, the processing time for the loan is approximately 24 hours. This is an added advantage for those who want to apply for the loan. While applying for the loan, the lender may ask for certain documents as well.
The documents required for the Mudra loan are:
Official documents of the company which include its license, certificate, registration forms, and ID, and any other relevant documents that may be required to prove its existence.
Documents for Proof of Identity and Proof of Address, which include Aadhar card / Voter’s ID card / Passport / Driving License, Bank Statement, etc. Along with this, the applicant would also need to submit their passport-sized photographs.
Proof of belonging to a special category (if any), such as SC, ST, OBC, Minority, etc.
For any new business, it is also necessary to show documents detailing the entire business plan, including the list of suppliers and procurement of equipment details. Also, the viability of the business idea needs to be shown. So, the estimated plans for the coming years needs to be shown along with documents mentioning the process by which the enterprise would repay the loan. This is especially the case with Shishu Loans.
For an enterprise that is established and is in the developmental stage, it is important to show the historical documents. It includes the bank statements and income statements of previous years. Along with that, the Balance Sheet of the previous two years and the forecast for next year’s Balance Sheet is also required. This is for Kishor and Tarun Loans.
There are a lot of benefits that come along with availing a Mudra loan. These advantages are:
1. One of the major benefits of this scheme is that it requires no collateral or security that has to be deposited. Also, there are no processing fees involved.
2. Another advantage of this loan is that there is no minimum amount involved. With no specific amount, borrowers can access this loan according to their personal needs.
3. The loan can be in the form of term loans, overdraft facility, cards (Mudra Card), letters of credit, and bank guarantees. Due to this, the loan terms are really flexible and convenient for the borrowers.
4. It can be used for any type of funded or non-funded use.
5. The payment has a reasonable tenure of 5 years.
6. There is also the facility of additional discounts or a reduced amount of interest on loans for women business owners and entrepreneurs. This really encourages women business owners as there is an ease of availability involved, which is a major advantage.
As the world is struggling with Coronavirus Pandemic, many countries have implemented strict lockdowns. Due to these lockdowns, many businesses have been impacted, and it is the small and micro business enterprises that have taken a major hit. So, in order to provide some relief to the organizations and individuals, the government introduced various schemes. One of the schemes introduced was for the Mudra loan borrowers. A subsidy of 2% would be given on interest to the small borrowers or the Shishu Loan borrowers. This subsidy would be provided to those whose loans were outstanding till 31st March 2020 and were not included in the NPAs. This scheme would not only help the business owners in reducing their costs but would also help in the revival of the economy and keeping it somewhat stable in such uncertain times.
The Mudra loan scheme has been in effect for around 5 years. This scheme was ambitious, to say the least, and it aimed to touch and impact the lives of several people. Was it successful in doing so, though? Even though the scheme has a lot of advantages, there are some flaws present that work against it.
The scheme’s major purpose is to provide collateral-free loans. However, this is one disadvantage for the lenders. Many enterprises and individuals who want to borrow do not have a proper business plan, and hence they are not able to repay their loans. Due to this, by the end of 2019, the NPAs accounting for the MUDRA scheme was around 3%. Also, many borrowers try to take advantage of the fewer restrictions present in this scheme.
However, such schemes are really necessary for promoting the government campaigns of ‘Start-Up India’ and Make in India People need to be made aware of such schemes, and also, they have to be made easily available. It makes the process of starting one’s business a little easier. Also, now with the spread of Coronavirus Pandemic and many businesses and industries facing serious turmoil, such schemes become all the more important, don’t you think? Let us know in the comments below what you think of the success of the Mudra loan scheme and whether it has really been helpful for Indian enterprises.