According to reports, the unorganised sector employs over 12 crore people in India. Most of which are employed by small-scale companies or MSMEs. Despite this, small-scale companies find it difficult to find credit for their business in the finance market. The PM Mudra scheme was devised to solve this impending issue.
Arun Jaitley, India’s erstwhile Finance Minister, declared the formation of the MUDRA bank during the Union Budget Session of the Financial Year 2015-16, intending to empower small-scale businesses and entrepreneurs. Prime Minister Narendra Modi then launched the scheme on 8th April 2015. The MUDRA scheme has several provisions for financing all the different kinds of small and medium-scale businesses in India with a focus on supporting the ones that banks or NBFCs are currently unable to support.
The MUDRA schemes are basically refinancing facilities offered to banks and other recognised microfinance organisations. This scheme is a subsidiary owned by SIDBI that provides banks and other microfinance institutions the provision to refinance the loans given to small-scale businesses with a vision to support the micro-sized industries in the country.
This scheme is valid across all states in India and is designed to support small-scale entrepreneurs avoid the dangers of cumbersome and unfair money-lending cycles and the innate debt traps that come with it. This scheme encourages the banks to increasingly finance the MSME sector and bring about abundant business prospects for small-scale entrepreneurs that are profitable in the long run. This loan is helping around 1.5 crore entrepreneurs to find financial sustenance across the nation today.
The MUDRA scheme allows banks to provide loans to MSME industries without demanding collateral security. The PM Mudra scheme also does not have a fixed interest rate on the loans offered. The range of interest charged varies from 1-7% on the base rate, although it might be higher in some cases depending upon the nature of the business, the entrepreneur profile, and the risks involved.
Financial Institutions such as Commercial Banks, Cooperative Banks, RRBS, NBFC, and MFI are eligible to offer this loan of up to INR 10 lakh to each qualifying enterprise. The interested parties can also approach their nearby financial institution or apply for loans offered under the MUDRA scheme online.
The PM MUDRA scheme is a major refinance facility to support banks and NBFCs with higher funds for lending. It is also quite beneficial for rural locales since the loan facilities remain scanty in such regions. Moreover, there are three categories of MUDRA scheme loans: the Shishu Loan of up to INR 50,000, the Kishore Loan of up to 5 lakhs, and the Tarun Loan of up to INR 10 lakhs.
There are different schemes under different categories available under the MUDRA Yojana, and not all are ubiquitous and applicable. Hence, it is paramount to know the basic categories that loan under this scheme offer.
A few of the significant categories of this MUDRA scheme have been discussed in the points below:
a. Micro-credit scheme: This enables micro-enterprises, self-help groups, and joint-liability groups to avail of loans of up to INR 1 lakh from microfinance institutions.
b. Women Enterprise Programme: This scheme, also known as Mahila Udyami Yojana, offers concessions of up to 0.25% on loans given to women business owners.
c. Refinance for Banks: This allows banks to refinance loans of up to INR 10 lakhs provided to entities with proper MSME registration.
d. MUDRA Card Overdraft: This allows an entrepreneur with the MUDRA Card to have over-draft facilities in addition to their normal banking services. This is a cash credit mechanism for seamless and quick capital financing.
e. Credit Guarantee Fund: This fund was introduced by the Central Government of India to increase the accessibility and ease of lending loans to micro-sized businesses in various industries.
f. Equipment Finance Scheme: This scheme allows for capital financing for purchasing equipment, empowering small businesses to buy and update their machinery regularly.
The MUDRA Yojana loans provided under the leadership of the Prime Minister of India have several benefits or advantages to offer over the other MSME financing schemes available in the market today.
Some of these integral benefits of the all-encompassing PM MUDRA scheme are listed in the paragraphs below:
a. No Collateral Security: The borrowers do not need to furnish any form of collateral to procure these loans. Hence, you don't need to risk your personal or business property in order to secure some funds.
b. Easily Available: This loan is easily available to entrepreneurs trying to set up micro-sized enterprises anywhere in India and in almost every industry domain.
c. Defaulting Procedure: In case of defaulting the loan legally, due to unforeseen circumstances or for losses due to natural causes, the government bears the responsibility to repay the loan.
d. Quick Capital: The loans under the MUDRA scheme are available to micro-sized enterprises in a quick, effortless manner. Loans of up to 10 lakh can be easily availed in this process.
e. Empowering Women: Women entrepreneurs have added special concessional benefits to the loans offered under the MUDRA scheme.
f. Rural Empowerment: The MUDRA Yojana loans are equally available to small-scale businesses in both rural and urban areas. Besides, rural locales benefit more from such loans due to greater accessibility.
g.Flexible Repayments: Although you can choose to repay the loan in a shorter period, the time frame of loan repayment can also be extended for a period of up to 7 years.
h. Multiple Credit Possibilities: The MUDRA scheme offers multiple opportunities to expand your micro-unit enterprise with facilities like cash credit, equipment financing, etc.
i. MUDRA Card: You can also apply for a MUDRA card that provides instant and seamless access to funds and overdraft facilities.
Micro-finance is an essential tool for the economic development of countries such as India. And the PM MUDRA scheme has a major role in this regard. This endeavour by the Indian Central Government increases the availability and accessibility of long-term and short-term financing schemes among deserving small-scale enterprises throughout rural and urban India.
This scheme provides more opportunities for income generation to businesses in the lower rungs of the pyramid. It also uplifts the overall national GDP per capita and the level of employment in our nation quite considerably. This innovative scheme is undertaken by the SIDBI, which also aims to impart financial education to entrepreneurs to empower them financially and socio-economically. The MUDRA scheme is easily available via banks, NBFCs, MFIs and other similar financial institutions.
There are 3 categories of loans available under the MUDRA Yojana. These MUDRA scheme loans include the Shishu Loan of upto INR 50,000, the Kishore Loan of upto INR 5 lakhs, and the Tarun Loan of upto INR 10 lakhs.
Any individuals, proprietary concern, partnership firm, a private company, or a public company can avail of loans under the MUDRA scheme. Besides, the applicant should not be a defaulter in any bank or financial institution and have a satisfactory credit score. Individual borrowers may also be required to possess the necessary skills or experience to undertake the business activity before securing this loan.