MUDRA Loan Subsidy Program: A Guide to Pradhan Mantri Mudra Yojana Scheme

Is the struggle to access credit holding back your business's growth? The Pradhan Mantri MUDRA Yojana (PMMY) offers a convenient solution! This government-backed scheme extends credit facilities to micro/small enterprises, fostering economic development. Learn about MUDRA loan subsidy benefits, PMMY's eligibility criteria, and apply now to unlock your business's highest potential!

What is the Pradhan Mantri Mudra Yojana?

Pradhan Mantri Mudra Yojana (PMMY) is a Government of India scheme providing loans to non-corporate and non-agricultural small businesses. MUDRA loans provided under this scheme are business loans of up to ₹20 Lakh by banks, Non-Banking Financial Companies (NBFCs) and small finance banks. Under this scheme, registered lenders can provide 4 categories of loans, namely, Shishu, Kishore, Tarun and TarunPlus, each with different loan terms.

What Are the Benefits of Opting for a MUDRA Loan?

The MUDRA loan offers simplified access to credit for both micro and small enterprises, enabling entrepreneurs to start/expand their businesses. With a requirement for minimal documentation and flexible repayment terms, the loan option empowers businesses to thrive and contribute to economic growth as a whole.

MUDRA loan offers several benefits to small and medium businesses:

• It is collateral-free.

• It can be utilised for a variety of purposes.

• No processing charges.

• Credit facilities extended to small and micro enterprises.

• Available for both fund and non-fund-based requirements.

• No minimum loan amount requirement.

What Are the MUDRA Loan Interest Rates and Limits?

The MUDRA loan interest rates vary for different categories. For instance, Shishu Loans offer the lowest rates, followed by Kishore Loans, Tarun Loans and TarunPlus Loans (for ones who've successfully repaid loans in the Tarun category). These interest rates are typically favourable and set to support overall business growth. But they are subject to lender variation, so it's advisable to check with the bank first. 

Here are the four categories of loans available under Pradhan Mantri Mudra Yojana (PMMY):

1. Shishu Loans

Typically, the interest rates for Shishu Loans are the most favourable among the three categories, starting as low as 1% per month or even less. However, it is advisable to verify the specific rate with the lending institution at the time of borrowing.

2. Kishore Loans

Interest rates for Kishore Loans under the Pradhan Mantri Mudra Yojana (PMMY) are generally competitive and may vary, ranging from approximately 1% to 1.25% per month.

3. Tarun Loans

Compared to Shishu and Kishore Loans, Tarun Loans typically carry slightly higher interest rates, which can range from approximately 1.25% to 1.50% per month.

4. TarunPlus Loans

TarunPlus loans of the Pradhan Mantri MUDRA Yojana (PMMY) scheme offer loans to entrepreneurs who have successfully repaid previous loans in the Tarun category. The interest rates for TarunPlus loans vary as per the lender/the eligible borrower's credit profile, typically ranging between 11% and 16% p.a. 

It is crucial to acknowledge that Mudra Loan interest rates are subject to fluctuations and government regulations. Therefore, when applying for one, it is advisable to verify the current rates with the respective banks. The following institutions offer this loan under the PMMY scheme:

• Non-Banking Financial Companies

• Private Sector Banks

• Regional Rural Banks (RRBs)

• Co-operative Banks

• Public Sector Banks

What Loan Amounts Are Offered Under the Mudra Yojana Schemes?

As per the MUDRA motto, the mission is to "create an inclusive, sustainable and value-based entrepreneurial culture, in collaboration with our partner institutions in achieving economic success and financial security." Under PMMY, MUDRA has created 4 products or schemes: Shishu, Kishore, Tarun and TarunPlus. These schemes cater to the growth and funding needs of micro units and entrepreneurs. The loan amounts offered are as follows:

• Shishu: Up to ₹50,000/-

• Kishore: Above ₹50,000/- and up to ₹5 Lakh

• Tarun: Above ₹5 Lakh and up to ₹10 Lakh

• TarunPlus: Above ₹10 Lakh and up to ₹20 Lakh

Also Read: Top 10 Government Schemes for MSME Financing in India

What Are the Factors Affecting MUDRA Interest Rate? 

Mudra loans offer a lifeline to small businesses in India, but the interest rate you receive can vary. Here is a breakdown of the key factors that influence MUDRA loan interest rates:

1. Borrower's Credit Risk

Your credit history plays a significant role in determining interest rates and other loan terms. A high credit score demonstrates your creditworthiness and translates into a lower interest rate. Conversely, a lower credit score might lead to a higher rate.

2. Loan Amount

Generally, smaller loan amounts (offered under the Shishu category) might come with slightly higher interest rates compared to larger loans (Kishore and Tarun categories). This is because smaller loans pose a higher risk for lenders due to administrative costs.

3. Repayment Period

Opting for a shorter repayment term allows you to avail a lower interest rate as the lender's risk exposure is reduced. On the other hand, longer repayment periods might come with a slightly higher interest rate.

4. Government Initiatives

Government programs and subsidies can sometimes affect MUDRA loan interest rates. For example, specific schemes might offer temporary interest rate reductions for certain sectors.

5. Market Conditions

Economic conditions can affect interest rates. During periods of high inflation, lenders might offer slightly higher interest rates to offset their borrowing costs.

6. Business Type

The nature of your business can also influence the interest rate. Low-risk businesses like stationery shops might receive lower rates compared to high-risk ventures like restaurants.

7. Lender Policies

Different lending institutions (banks, NBFCs, etc.) have their internal policies and risk assessment models that can influence the interest rate offered.

What Are the Tips to Get a MUDRA Loan at Affordable Interest Rates?

If you’re thinking of applying for the MUDRA loan, go in with boosted creditworthiness, no loan defaults and proper research conducted beforehand. Here are some tips to secure an MUDRA loan at affordable interest rates:

1. Improve Creditworthiness

Applicants with a strong credit history and demonstrated repayment capability are more likely to receive favourable interest rates.

2. Have No Loan Defaults

Applicants with no history of previous loan defaults typically have an advantage in securing lower interest rates.

3. Business Nature

Understand that the nature and type of your business can influence the interest rates offered. Businesses with lower risk profiles typically qualify for loans at lower interest rates.

4. Higher Annual Turnover

Higher annual turnover and business volume often lead to lower interest rates being offered.

5. Research and Compare Offers

Explore and compare loan offers from different Banks/NBFCs providing Mudra loans to find the most competitive rate.

6. Income and Loan Amount

Your income, desired loan amount, and chosen repayment tenure play a role in determining the interest rates.

What is the MUDRA Loan Subsidy Eligibility?

If you possess the necessary skills, meet the age criteria and showcase a good credit history, you’ll be eligible for the MUDRA loan. The eligibility criteria for MUDRA loans are tailored for small businesses in the non-corporate, non-farm sector:

• Possession of Necessary Skills: Applicants should possess the requisite skills or talent to initiate or expand a business venture.

• Income-Generating Activities: The business unit or individual must be involved in activities that generate income.

• Age Requirement: Entrepreneurs must be aged between 18 and 65 years to qualify for a PMMY loan.

• Good Credit History: Applicants are required to demonstrate a good credit history.

• Activities Covered: Manufacturing, trading, service-related, and allied agricultural activities since April 1, 2016.

• Absence of Default: The applicant should not have any history of default with any financial institution.

What Are the Documents Required to Apply for the MUDRA Loan?

Have the government-issued ID, necessary business address proof and bank statements to ensure a smooth application experience. The Pradhan Mantri MUDRA Yojana Scheme streamlines the loan application process for small businesses. 

Here is a breakdown of the documents you will typically need:

• Government-Issued ID: Aadhaar card, PAN card, Voter ID card, or driving license.

• Business Address Proof: Utility bill (electricity, water) or rental agreement to verify your business location.

• Bank Statements: Bank statements for the past 6 months.

• Completed Application Form: Fill out the application form accurately and attach recent passport-sized photographs.

• Bank/NBFC Specific Requirements: Certain financial institutions might have additional requirements for MUDRA loans. It is best to check with your chosen lender for their specific documentation needs.

• Category Proof (Optional): If you belong to a special category like OBC/ST/SC/Minority, present a relevant certificate to potentially avail any applicable benefits.

What Are the Steps for MUDRA Loan Subsidy Apply Online?

The Pradhan Mantri MUDRA Yojana Scheme empowers small businesses in India with access to loans up to ₹10 Lakh.  All you have to do is have the necessary documents in hand and choose a suitable lender. Here is a breakdown of the application process to help you navigate it smoothly:

Step 1: Gather Your Documents

Before applying, ensure you have all the necessary ID proof documents, such as the voter ID card, PAN card, Aadhaar card, and driving license, along with address proofs such as a utility bill and rental agreement.

Also, if your business is registered, locate your incorporation certificate and provide your address proof and other financial documents.

Step 2:Choose Your Lender

Various financial institutions across India offer MUDRA loans. Research and compare options to find a lender with competitive interest rates and terms that suit your business needs.

Step 3: Complete the Application Form

Visit your chosen lender's branch or access their online application portal. Carefully fill out the MUDRA loan application form, ensuring all information is accurate and complete. Attach the required documents as instructed.

To Conclude

The Pradhan Mantri MUDRA Yojana serves as a blessing for aspiring and existing small and medium-sized businesses in India. If you are facing a financial crisis with your business and are unable to get funds to keep it running, apply for a MUDRA Loan and avail funds according to your needs. By understanding the scheme's benefits, loan categories, eligibility criteria, and application process, you can leverage this initiative to fuel your entrepreneurial dreams. With a good credit profile, you can also avail up to ₹1 Crore funds for your business with Poonawalla Fincorp’s Business Loan option. Explore more on the official website.

FAQs

What is a MUDRA Loan?

Mudra stands for Micro Units Development and Refinance Agency. It is an Indian Government initiative to provide financial assistance to micro and small enterprises.

Why has MUDRA been set up?

MUDRA addresses small businesses' financial needs and promotes entrepreneurship, particularly among underserved segments of society.

What are the roles and responsibilities of MUDRA?

MUDRA's primary role is to provide refinance and credit support to financial institutions for extending loans to micro and small enterprises. It also promotes entrepreneurship development and facilitates the growth of small businesses through various schemes and initiatives.

What is the maximum loan amount I can get under PMMY?

The maximum amount you can get as a loan under PMMY is ₹20 lakh (TarunPlus category). However, you need to have successfully repaid the previous Tarun loan to be eligible for this.

Do I have to pledge collateral to get a MUDRA loan?

No, you don't have to pledge collateral to get a MUDRA loan. These loans are collateral-free options, so you don't have to provide any property/asset as security.

Is there a Mudra loan subsidy for ladies?

Women entrepreneurs can also benefit from the MUDRA loan schemes just like other applicants, with specific lenders offering concessions like lower interest rates/priority processing. However, separate subsidies do not apply; women-friendly provisions are in place.