Know All About Pradhan Mantri Mudra Yojana Scheme

Pradhan Mantri Mudra Yojana (PMMY) was launched on 8 April 2015 to provide loans to small businesses. With the launch of the scheme, a public sector financial institution named Micro Units Development and Refinance Agency Bank (or MUDRA Bank) was also launched. It provides loans at low rates to micro-finance institutions and non-banking financial institutions, which then provide credit to The Micro Small Medium Enterprises.

With an intention to “fund the unfunded”, the government took such an initiative to formulate financial systems and extend affordable credit to small businesses. Borrowers under the scheme are eligible for loans up to Rs 10 lakhs from any Public Sector Bank, Regional Rural Bank, Cooperative Bank, Private Sector Bank, Foreign Bank, Micro Finance Institution and Non Banking Finance Company.

What do MUDRA banks do

The government created the Micro Units Development and Refinance Agency (MUDRA) Bank under a statutory enactment. This bank regulates and refinances all Micro-finance Institutions (MFI), which are involved in lending to micro/small businesses that engage in manufacturing, trading, and service activities.

The MUDRA Bank would primarily be responsible for :

• Laying down policy guidelines for micro and small enterprise financing business
• Accreditation  and rating of MFI entities
• Development of standardised set of covenants governing last mile lending to micro/small enterprises
• Promoting right technology solutions for the last mile
• Formulating and running Credit Guarantee scheme for providing guarantees to the loans which are being extended to micro enterprises

Government allocated a sum of Rs 20,000 crores to the  MUDRA Banks from the money available from shortfalls of Priority Sector Lending to create a Refinance Fund to provide refinance to the Last Mile Financiers. A further Rs 3,000 crore would be provided to the MUDRA Bank from the budget for the creation of a Credit Guarantee corpus to guarantee loans being provided to micro enterprises.

Taking the measures above would contribute to increasing access to finance for the unbanked, as well as reducing the cost of finance from the last mile financiers to the micro/small enterprises, most of which are in the informal sector.

What the Scheme is about

MUDRA was formed as a wholly owned subsidiary of the Small Industries Development Bank of India (SIDBI) with 100 percent of the capital coming from that institution. At present, MUDRA has an authorised capital of 1000 crores and a paid-up capital of 750 crores, fully subscribed by SIDBI.

A major objective of this agency is to develop and refinance all sectors of micro-enterprises by supporting financial institutions that lend to micro and small businesses engaged in manufacturing, trading and service activities. As a part of its micro finance support to the micro enterprise sector, MUDRA collaborates with Banks, MFIs and other lending institutions at state and regional levels.

Who all are covered?

According to the NSSO survey of 2013, there are about 5.77 crore (57.6 million) small businesses that are struggling in India. Of these, only 4 percent receive funding through banks. They are often unable to meet eligibility requirements, or they do not have anything to offer as a guarantee. Moreover, they face challenges such as the crude documentation process, high interest rates, and other similar issues.  Even if they obtain the loan, they must repay the sanctioned amount in a short period. Through this MUDRA loan program, small businesses will not only receive loans, but will have a comparatively long time to repay it.

The plan will implement sector and activity-specific schemes in order to maximise beneficiary coverage and meet business activity-specific needs. Below are some sectors and activity mentioned for which the scheme is proposed:

• Land Transport Sector / Activity - to purchase transport vehicles for goods and personal transport such as auto rickshaw, small goods transport vehicle, 3 wheelers, e-rickshaw, passenger cars, taxis, etc.
• Community, Social & Personal Service Activities - These include salons, beauty parlours, gyms, boutiques, tailoring shops, dry cleaning, cycle & motorcycle repair shops, photocopying services, medicine shops, courier service providers, etc.
• Food Products Sector - Home-based business activities such as papad making, achaar making, jam / jelly making, agricultural produce preservation at rural level, sweet shops, small service food stalls and day to day catering / canteen services, cold chain vehicles, cold storages, ice making units, ice cream making units, biscuit, bread and bun making, etc.
• Textile Products Sector / Activity - Activities such as handloom, powerloom, chikan work, zari and zardozi work, traditional embroidery and hand work, traditional dyeing and printing, apparel design, knitting, cotton ginning, computerised embroidery, stitching and other textile non garment products such as bags, vehicle accessories, furnishing accessories, etc.
• Activities related to agriculture - pisci-culture, bee keeping, poultry, livestock, rearing, grading, sorting, aggregation agro industries, dairy, fishery, agriclinics and agribusiness centres, food & agro-processing, etc. (excluding crop loans, land improvement such as canal, irrigation and wells).

What is Eligibility?

Below are the eligibility criteria and loan products, which fall under the MUDRA Loan category:

• Citizen of India who has a credit need of up to Rs 10 lakh for a business plan in non-farm income generating activities such as manufacturing, processing, trading or service sector
• A borrower may have to follow the usual terms and conditions of the lending agency in order to apply for a PMMY loan.
• Lending rates are determined by RBI guidelines that are periodically released in this regard.

There are three loan schemes depending on the requirements of the businesses.

1. Shishu (Loans up to Rs. 50,000): This stage is for entrepreneurs who are in the early stages of their business or require less funding to get started.

2. Kishor (up to Rs. 5, 00,000): This is a category of entrepreneurs that belong to either that  have already started their business and are seeking additional funds for expansion.

3. The Tarun scheme (covering loans upto Rs. 10, 00,000) gives entrepreneurs the opportunity to borrow upto Rs.10 lakhs if they meet the required eligibility conditions. This is the highest level of amount that an entrepreneur could apply for a start-up loan.

How to Apply

The Pradhan Mantri Mudra Yojana (PMMY) provides up to 10 lakhs of loans to small and micro enterprises that are not corporations or farms. Such loans come under the MUDRA Loans category of PMMY. Commercial Banks, Regional Rural Banks, cooperative banks, Micro Finance Institutions, and Non-bank Financial Companies give the loans. Borrowers can seek loans from any of the above-mentioned institutions or apply online at the official site.

Eligible beneficiaries can apply for Mudra Loan online on Udyamimitra Portal. There are also some toll free numbers like 1800 180 1111/1800 11 0001 given by the government for better assistance. The loans under MUDRA scheme can be availed only through banks and lending institutions which include:

• Public Sector Banks
• Private Sector Banks
• State operated cooperative banks
• Rural banks from regional sector
• Institutions offering micro finance
• Financial companies other than banks