Which MUDRA loan type should I choose?

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Launched in 2015, the Pradhan Mantri Mudra Yojana (PMMY) provides loan upto Rs. 10 Lakhs to small and micro enterprises. These small or micro enterprises are non-farm and non-corporate in nature. The loans provided under the Pradhan Mantri Mudra Yojana are called Mudra loans

MUDRA stands for Micro Units Development and Refinance Agency. MUDRA is an NBFC which supports the development of the micro enterprise sector in the country. The Pradhan Mantri MUDRA Yojana has three categories- “Shishu”, “Kishore” and “Tarun”. These categories are made to reflect the broad stages of a business and hence grant loans according to the needs of the enterprises.

The focus area of the government since a long time has been the micro and small enterprises and therefore the priority is given more to the “Shishu” loans for disbursal. The “Kishore” and “Tarun” category of loans follow it in priority. The products under the Pradhan Mantri MUDRA Yojana are designed to cater to requirements of various sectors or business activities and also to startups. 

The maximum amount which can be availed as loan under this scheme is Rs. 10 lakhs and there is no minimum amount which can be availed as loan under this scheme.  There are two kinds of funding support which can be availed under MUDRA loans:-

  1. Loans for the maximum amount of Rs. 1 lakh under Micro Credit Scheme (MCS) through multilateral financial institutions: The Micro Credit Scheme is mainly provided by the Micro Finance Institutions (MFIs). Under this, upto Rs. 1 lakh is credited for different small businesses and micro enterprises. The loans are given by Micro Finance Institutions (MFIs) to individual entrepreneurs and to small businesses which generate specific incomes. The delivery model in this case is through Self Help Groups (SHGs), Joint Lending Groups (JLGs) or individuals. 
  2. Refinance scheme for RRBs/ NBFCs/ Small Finance Banks/ Commercial Banks: The Pradhan Mantri MUDRA Yojana (PMMY) also provides refinance facility to small finance banks, regional rural banks, commercial banks, and non-banking financial companies. The maximum amount for which refinance is available is the same as the maximum loan amount that can be disbursed under the MUDRA yojana i.e., Rs. 10 lakhs. In compliance to the notified requirements, eligible banks or NBFCs can avail loans under the three categories- Shishu, Kishore and Tarun. Additional facilities can be extended by financing banks or Micro Finance Institutions to encourage women entrepreneurs. These facilities entail reduced interest rates upto 25 basis points to the NBFCs/ MFIs that provide loans to women entrepreneurs. 

Read: How to Start a Successful Moving Company Business

Types of MUDRA loans

MUDRA is an NBFC which provides refinance support to MFIs/ RRBs/ commercial banks. The maximum amount of MUDRA loans given are upto Rs.10 lakh. MUDRA offerings include a bouquet of products:-

  1. Technology enabler
  2. Refinance for micro units to RRBs/ commercial banks/ small finance banks/ micro finance institutions
  3. Credit Guarantee for MUDRA loan (through NCGTC)
  4. Development and promotional support

Under the refinance category for micro units to lending entities, mudra loans are given under following categories:-

  1. Shishu- upto Rs.50,000 
  2. Kishore- Rs. 50,000 to Rs. 5 lakhs
  3. Tarun- Rs. 5 lakhs to Rs. 10 lakhs
MUDRA loan uptoUpto Rs. 50,000Rs. 50,000-Rs. 5 lakhsRs. 5 lakh-Rs. 10 lakhs
MUDRA loan forFor small businesses or as seed capital or for day-to-day expensesFor investing in purchasing machinery or equipmentTo expand established enterprises or businesses

What is the eligibility criteria for MUDRA loans?

MUDRA loans can be availed by individuals who have their own business i.e. for entrepreneurs and they can be working in any of the sectors- manufacturing, trading or services. Public sector banks, regional rural banks, private sector banks, small finance banks, etc. can be approached to avail MUDRA loans. Any applicant who is above 18 yrs. of age can apply for MUDRA loans. 

Read: How to Start a Successful Moving Company Business

Documents required for MUDRA loan

The documents required to avail MUDRA loans are:

  • Identity card- Voter card, Aadhaar card, Passport, Driving license
  • Address proof- Voter card, Aadhaar card, Passport, Electricity bill, telephone bill
  • Two passport size photographs
  • Duly filled application form 
  • Any other specifications mentioned in the application form

About MUDRA card

When a loan is taken under the MUDRA loan account, a MUDRA debit card is issued to the loanee. MUDRA card facilitates multiple withdrawals. This facilitates efficient management of the working capital limit and keeps the interest burden to a minimum. Another added benefit of the MUDRA card is that it helps in maintaining digital credit history for the borrower. The MUDRA card can be used throughout the country to make withdrawals from any ATM and can also be used to make transactions through a ‘point of sale’ machine. 

Read: Four Ways to Fund Your New Startup

Purpose of MUDRA loans

MUDRA loans are given for a variety of purposes which can vary from employment generation to income generation to expansion of business activities. 

  • MUDRA cards for working capital loans
  • Loans for transport vehicle (commercial vehicles only)
  • Loans for non-farm allied agricultural activities such as fisheries, horticulture and pisciculture. 
  • Loans to procure two-wheelers or tractors for commercial purposes only
  • Loans to micro units for equipment finance
  • Loans to traders, shopkeepers, vendors, and service sector activities

List of activities covered under MUDRA loans

Business loans for shopkeepers and tradersUpto Rs.10 lakh can be facilitated to shopkeepers and traders as financial support for running their business activities and shops. 
Community, personal service and social activities-Services such as dry cleaning, salons, beauty parlours, gymnasiums, tailoring shops, medical shops, courier services,  boutiques etc. can avail loans under the MUDRA yojana
Transport vehicle procurement-MUDRA loans are also provided for purchase of transport vehicles such as commercial taxis, small goods transport vehicles, e-rickshaws, three wheelers, trucks, tractors, power tillers, trolleys etc. 
Textile product sector or activities-Products used in the textile sector such as powerloom machines, handloom machines, khadi works, zari and zardozi machinery, traditional embroidery machines, computerized embroidery machines, apparel designing machines, knitting machines, traditional dyeing and printing machines, cotton ginning machines etc 
Food product sector MUDRA loan can be availed for jam/jelly making machine, achaar making machine, papad making machine, small service food stalls, day to day catering service, cold chain storages, cold chain vehicles, ice cream making units, ice making units, agri produce preservation units, biscuit, bread and bun making units.
Equipment procurement for micro unitsFor procuring equipment or machinery for micro units, MUDRA loan can be availed. 
Allied agri activitiesAgri allied activities such as pisciculture, horticulture, poultry, live-stock rearing, dairy, fishery food and agro-processing and agri-clinics and agribusiness centres are provided loan under MUDRA yojana. 

MUDRA loans are highly beneficial for the micro and small businesses. These loans are even more relevant and necessary in the times of a dwindling economic scenario as it is becoming difficult to keep the businesses up and running. The Shishu, Kishore, and Tarun loans are designed to cater to the varying needs of businesses.

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