MUDRA Loans

Introduction

Small-scale industries contribute a fair share to the country’s GDP. Any investment made in this sector not only augments wealth but also improves employment in the economy.

Now, for small industries to go to the next level, they need extra capital in their accounts. These types of businesses are significant for overall growth and economic development. The government came forward to support MSMEs by launching multiple schemes, and one of them being MUDRA loans. So, how exactly is this initiative helpful for the MSMEs?

What are MUDRA loans?

MUDRA loans is a credit financing scheme launched by the Government of India to aid and support MSMEs to take their business to the next level. This scheme was launched on April 8th, 2015 to provide loans to businesses who are in need of additional capital. Both profit and non-profit organizations can apply for this loan as per their requirements.

The loan is provided under the scheme called Pradhan Mantri Mudra Yojana. The maximum credit amount granted by the government under MUDRA loans scheme is Rs 10 lakhs. The loan amount can be repaid in 12 months to 5 years, but this tenure can be extended due to certain factors. The interest rate can be either nil or 0.50 percent of the total loan value. There’s a basic or nil processing fee followed by foreclosure charges on the loan amount.

Learning about MUDRA loans

MUDRA loans are similar to other types of loans, where only here, the kind of documents you need to furnish is distinct from the other. These loans are grouped into three, namely, Shishu, Kishor, and Tarun. The respective organization has to put forward the project documents and other related information that reflects the need for the loan.

The documents should contain the details of the company, businesses they are into, project undertaken, expenses and cost involved, expected returns after the project. The best part of this type of loan is that you don’t have to give any collateral or security to the bank or financial institution. Some of the organizations who can apply for a MUDRA loan include entrepreneurs, business owners, startups, etc.

Speaking about the loan value categorical-wise, under Shishu, the maximum credit value is Rs 50,000, under Kishor, the credit limit lies anywhere between Rs 50,001 to Rs 5,00,000, and finally, under Tarun, the credit limit starts from Rs 5,00,001 to Rs 10,00,000.

The list of entities that can grant this type of credit includes public and private banks, RRBs or regional rural banks, co-operative banks, micro finance institutions, non-banking finance companies (NBFC), and foreign banks.

MUDRA Loans used for following purposes

Generally, if it’s a personal loan, it can be used as per the customer’s wish and needs. But this being a business loan, the respective businesses have to present their documents to the financial institution where they are applying for a loan. Here are some of the purposes of taking a MUDRA loan

• Commuting Goods − Companies that are into manufacturing heavy vehicles like cars and bikes require funding to commute them from one place to another as per the requirements. Case-in-point, a car manufacturer got a big order in March 2023, asking them to deliver 1000 cars from India to the USA by April 2023. Now, this order needs a lot of money as it involves exporting to a different country. Taking a MUDRA loan will resolve the commuting needs in this case.

• Personal Services − MUDRA loan is taken to meet other basic expenses as well. Companies who are into these businesses can apply for this loan - parlors, skin care and lifestyle, medical, courier, bike and car repairs, etc.

• Weaving goods − Textile industry is one of those fast-growing sectors that requires proper flow of funds to flourish their business. So, businesses who are into weaving and handloom, tailoring, printing designs on clothes, knitting can avail this loan.

• Agriculture industry − If there’s any sector that’s contributing to the fullest, then it’s going to be Agriculture. All the allied activities, crop production, livestock, dairy, irrigation, and other agricultural-related industries can opt for a MUDRA loan.

Pros of taking a MUDRA loans

MUDRA loan comes with myriad benefits, some of which are drafted below.

• Easy availability − Irrespective of where your business or organization resides, you can get a MUDRA loan without any hassle. Even if it’s an unbanked or underbanked area, you are fully accessible to all the financial services offered under this scheme.

• Considerable loan value − Some organizations require huge loans to fulfill or meet their operational needs. MUDRA loan scheme offers substantial credit, a minimum of Rs 50,000, and a maximum of Rs 10,00,000. Organizations can put these funds to its optimal use to keep their business running at full throttle.

• Less interest rate − In the digital era with plenty of credit options available to pick from, getting a loan is not a difficult task anymore. But the problem lies with paying interest rates, which is not a case with MUDRA loans. This scheme comes with less or minimal interest charges as opposed to other credit modes. Hence, making this credit financing option a popular one among others.

• Better repayment tenure − Generally, long periods are good for loan repayment due to following reasons: doesn’t affect your savings, allows you to allocate your funds to other priority things, aids you to plan your budget right, etc. In MUDRA loans, the loan repayment period is for 5 years, but it can increase accordingly.

• No collateral required − Banks and other financial institutions ask the borrowers to furnish collateral for the loan taken. However, under the MUDRA loan scheme, the borrower doesn’t have to put any security to get the loan.

Conclusion

If a company plans to expand their business, or start a new one, or do some structural changes within, they certainly require huge capital. MUDRA loans, a government scheme particularly designed for small-scale enterprises, offer a credit ranging from Rs 50,000 to Rs 10,00,000. The repayment tenure for this loan ranges from 1-5 years or more. Women entrepreneurs can get this loan at reduced interest rates.

FAQs

Q1)What type of businesses are covered under the MUDRA loan scheme?

Ans)The list of businesses that fall under this MUDRA loan category includes commercial vehicles, transportation, agriculture, retail outlets, traders and business owners, etc.