Mudra is a novel institution set up by Government of India to provide financial assistance to non-corporate small business sector. It has been identified by the Government, that lack of financial assistance is the main barrier for the growth of small business in the country. To mitigate this barrier, this scheme was launched by Prime Minister Sri Narendra Modi on April 8, 2015.
Purpose of Mudra Loan
Mudra loan is given for various income and employment generating activities with a fund requirement up-to Rs. 10.00 lakhs. This loan is provided either as term loan or working capital loan by public/private sector banks and state and urban co-operative banks.
- For setting up beauty parlours, bakery, tailoring unit, provision stores, automobile service centre, computer assembly, manufacturing paper napkins and paper plates etc.
- For purchase of goods transport vehicle, auto rickshaw, taxi etc.
- For setting food stalls, catering units, pappad, jelly and jam making, ice cream parlour etc.
- Chikan work, zari work, power loom and handloom activities, traditional dyeing and printing, apparel designing, embroidery and handwork etc.
- Agriculture allied activities like dairy, fishery, bee-keeping, pisciculture, livestock, poultry etc
Categories of Mudra Loans
Mudra loan under Mudra Yojana by Modi is offered under three categories:
• Shishu covers loans up-to Rs. 50,000/-
• Kishor covers loans above Rs. 50,000/- to Rs. 5,00,000/-
• Tarun covers loans above Rs. 5,00,000/- up-to Rs. 10,00,000/-
The categorization is mainly to signify the stage of development and provide reference for the next stage of development.
The maximum loan under Mudra Scheme is Rs. 10,00,000/-
National Institute of Micro Small and Medium Enterprise will prepare project profiles for micro units. These project profiles will give an insight to the prospective entrepreneur as to what business plan to adopt. For instance, the project profile could be regarding manufacturing of paper napkins, paper plates, bakery products, provision stores etc.
After deciding about the business, the entrepreneur can choose from the three categories Shishu, Kishor or Tarun as per the requirement of funds. Then the entrepreneur has to approach the nearest public or private sector bank to avail loan under Prime Minister Mudra Yojana.
Asset based lending approach is adopted under traditional financing. For this collateral security is insisted for any loan granted. Micro units will not be able to provide any security. Hence loans up-to Rs. 10.00 lakhs under mudra scheme have been made collateral-free as per RBI norms
To mitigate the risk involved in such collateral free lending, credit guarantee product is provided by Mudra. Loans up-to Rs.10.00 lakhs per unit/borrower will be covered under Credit Guarantee Fund for Micro Units (CGMFU) and the scheme has been notified by Government of India vide its notification dated 18th April 2016. All mudra loans sanctioned since 8th April 2015 will be covered under this scheme. This guarantee scheme is managed by National Credit Guarantee Trustee Company Ltd., an agency promoted by Government of India.
The Mudra Card
The Mudra Card is a debit card issued for the working capital portion under the mudra loan. This card enables withdrawal of cash through ATMs and for payments through any ‘point of sale’. Working capital limit can be managed efficiently by making multiple withdrawals and credit through Mudra card thus keeping the interest burden to a minimum. Mudra transactions will be digitised by using mudra card which creates a credit history for the borrower. Ru-pay branding has been given to Mudra card with which credit history of the borrower can be tracked.
Funding Support From Mudra
There are four types of funding support from Mudra:
- Micro Credit Scheme for loans up-to Rs 1.00 lakh through Micro Finance Institutions.
- Refinance Scheme for Commercial Banks/Regional Rural Banks and Credit Co-operative Banks
- Women Entrepreneur Programme.
- Securitization of loan portfolio.
The Mudra loan must be repaid within five years.
#1. Micro Credit Scheme:
Micro Credit Scheme is through Micro Finance Institutions. MFIs have to enrol with Mudra complying to the requirements as stipulated by Mudra. Loan up-to Rs. 1.00 lakh to individuals for micro enterprise activities for income generation through Self Help Groups/Joint Liability Groups.
#2. Refinance Scheme:
Commercial Banks/Regional Rural Banks and Credit Co-operative Banks who have enrolled with Mudra by complying to the requirements as stipulated by Mudra can avail refinance support from Mudra for funding micro enterprise activities. Refinance for working capital and term loan upto Rs. 10.00 lakhs per unit can be availed.
#3. Women Entrepreneur Programme
An interest reduction of 25bps is offered to women entrepreneurs in a bid to encourage women entrepreneurship. Interest reduction to the extent of 25 bps is offered to Micro financial institutions, Self Help Groups and Joint Liability Groups who are lending to women entrepreneurs.
#4. Securitization of loan portfolio
Banks/Micro Financial Institutions/Non- Banking Financial Companies raise funds for lending to micro enterprise activities by securitization of Mudra their loan assets against micro enterprise portfolio.supports such asset securitization by offering second loss default guarantee.
Eligibility Criteria for Mudra Loan
All micro units with a fund requirement up-to Rs. 10.00 lakhs are eligible for funding under Mudra Yojana by Modi.
If the eligibility criteria is fulfilled and the business plan finalised one can Apply for Small Business Loan under mudra scheme by approaching any private/public sector bank by submitting the following documents:
- Fully filled application
- Proof of identity
- Address proof
- Recent photograph
- Proof of address of the business enterprise along with relevant licence and certificates
- Quotation of machinery.
- Any other documents as required by individual bank must be submitted.
On having a savings bank account with HDFC bank one can Apply for HDFC Business Loan. One can also approach HDFC bank for loan under Mudra Yojana by Modi. The advantage of applying for business loan at HDFC bank is fast processing and easy documentation.