Micro-Units Development and Refinance Agency (MUDRA) was set up in April 2015 to help and support small and micro business units under the Pradhan Mantri Mudra Yojana (PMMY). The Mudra scheme was launched with a budget of Rs. 20,000 crores. Also known as Mudra Loan Yojana or Mudra Bank Scheme, the credit products offered by MUDRA are more commonly known as Mudra loans.
These Mudra loans are divided into three types based on the needs of businesses in the Micro, Small and Medium Enterprises (MSME) segment. Each Mudra loan has a specified loan amount, application procedure and interest rates. The Mudra loan eligibility criteria and application procedure are also slightly different for different banks. You must get the application form from the bank of your choice and inquire about eligibility criteria to make sure that you follow the procedure properly and have better chances of getting a loan approval.
Mudra Loan Eligibility Criteria
The banks that offer Mudra loans choose the candidates carefully and approve loans for businesses that have a lot of potential for growth and can provide employment opportunities to others in the future. In fact, the Mudra loan scheme was launched to provide proper financial aid to small scale business owners. This is one of the crucial steps taken by the government to ensure that small business owners do not have to rely on personal networks and private lenders since they often charge unreasonable interest rates and put up unfair terms and conditions.
These small business owners can easily avail the Mudra loan from a government recognized financial institution at a low interest rate. Another benefit is that borrowers do not need collateral / security or any third party guarantee to apply for a Mudra loan. This initiative will help strengthen the MSME sector and enable it to become a key contributor to the GDP growth, in addition to providing employment opportunities to thousands of people across India.
A few conditions that a small business must satisfy to meet the Mudra loan eligibility criteria are listed here:
- Activities: PMMY has an illustrative list of activities that can be covered under Mudra loans. Micro, small and medium businesses in these sectors meet the Mudra loan eligibility requirements and can apply for Mudra loans.
Sector
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Activities Covered Under Mudra Loans
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Agriculture
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Start, establish or expand an agriculture-allied business such as an apiary, a poultry farm, a pisciculture business, a dairy farm, a livestock farm, etc.
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Food
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Purchase of machinery or set up of business in making papad, jam and jellies, biscuit and bread, or selling of fruits and vegetables, etc.
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Service
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Set up a salon, boutique, chemist shop, dry cleaning, photocopying facility, etc.
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Textile
| Artisans who want to start, establish or expand a business in chikan work, zari work, embroidery, stitching, knitting, etc. |
| Transport |
Purchase of vehicles for carriage of passengers or goods such as e-rickshaw, small goods transport vehicle, taxi, autorickshaw, etc.
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The maximum amount that business owners can apply for under a Mudra loan is Rs. 10 lakhs. A start-up can only apply for a loan of up to Rs. 50,000 (Shishu loan). A business that needs capital to establish itself is eligible for a loan of Rs. 50,000 to Rs. 5 lakh (Kishor loan) while an established business that need capital for expansion can apply for a Mudra loan of Rs. 5 lakh to Rs. 10 lakhs (Tarun loan). Businesses that meet Mudra loan eligibility requirements cannot apply for a loan amount exceeding Rs. 10 lakhs.
Types of Mudra Loans
Mudra loans are divided into three categories to cater to different funding requirements of micro business units at different stages of development. The Mudra loan eligibility criteria for each are briefly discussed here:
- Shishu Loan: The Shishu loan is the child category of the Mudra loan and is perfectly suited for small start-ups. A micro business owner can apply for a loan of amount up to Rs. 50,000. The shishu loan can help a business owners get a small capital to get started in the MSME sector. A potential borrower must present his or her business idea along with the mudra application form to apply for the loan.
- Kishor Loan: The Kishor loan in the Mudra loan category is best suited for small business owners who have already started a business and need capital to establish it as a larger enterprise. The business owners can apply for a loan amount starting from Rs. 50,000 up to Rs. 5 lakh under this category. The borrowers must fill the Mudra loan application form and also present the relevant documents to showcase the current position of their enterprise to meet the Mudra loan eligibility requirements.
- Tarun Loan: The Tarun loan is targeted towards small businesses that have been established for some time and need capital for expansion, as well as micro units that need funds for the purpose of set up. The business owners can apply for a loan of Rs. 5 lakh to Rs. 10 lakh. The borrowers must fill the Mudra loan application form and present documents to showcase the latest position of the enterprise along with ID proofs to match the lending institution’s Mudra loan eligibility criteria.
The loan amount is fixed for each category of Mudra loans, however, there can be a slight variation in the interest rates of different banks.
Documents Required for MUDRA Loan
The general documents required for MUDRA loans along with the application form are:
- Identity Proof – Any of: Driving License, Voter ID Card, PAN card, Passport, Aadhaar card, any Photo ID issued by any government authority or signature identification of proprietor or partner from the present banker
- Proof of Residence – Any of: Recent telephone bill (dated within last 3 months), recent electricity bill (dated within last 3 months), passport, recent tax receipt of the property, voter ID card, Aadhaar card, Recent bank statement that is duly attested by the bank officials
- 2 Recent passport-size photos of the loan applicant
- Identity proof and address proof of the business establishment – Copies of most recent business license or registration certificate of the business. Other documents containing the owner’s name and the business address also could be furnished for this
- Rental agreement if business establishment is in a rented facility/premise
- Clearance certificate from pollution control board, in case applicable
- Small Scale Industry (SSI) registration from Ministry of Micro, Small and Medium Enterprises is required for certain businesses
- For the loan amount above 2 lakhs, audited balance sheets of the units for the most recent three years is required along with the returns of income tax or sales tax
- For all loan amounts above 2 lakhs, the projected balance sheets for the next 2 years for working capital limits and projected loan period for term loans to be furnished
- For a company, need the memorandum as well as the Articles of Association
- For a partnership business, partnership deed is required
- Guarantors and Promoters need to furnish assets and liabilities statements as well as the latest income tax return
- For the properties offered as ‘Primary’, the copies of Title deeds or lease deeds has to be furnished
- Furnish pertaining documents in case applicant belongs to SC/ ST/ or any other special category and intends to avail loan under those categories
Specific Documents Required for MUDRA Bank Loan:
Apart from the general guideline for MUDRA loan documents, there are a certain specific set of documents for specific purposes. These are:
(1) For applying a vehicle loan under MUDRA loan, the following documentation is to be submitted:
- Duly filled Application Form of Pradhan Mantri Mudra Yojana
- Duly filled application form for vehicle loan
- Borrower’s passport size photos – 2 photos
- Address Proof
- Identity Proof
- Income Proof
- Bank statement for most recent past six months
(2) For applying a business instalment loan, under PMMY scheme, the following MUDRA loan documents are required:
- Duly filled Application Form of Pradhan Mantri Mudra Yojana
- Duly filled application form of Business Instalment loan
- Address Proof
- Photo ID Proof
- Proof for the establishment
- Proof of ownership of office and/ or residence
- Proof of business continuity
- Trade references
- Proof of qualification
- Bank statement for most recent past six months
(3) For applying business loans, for group and for rural business credits, the following documents are needed:
- Duly filled Application Form of Pradhan Mantri Mudra Yojana
- Duly filled application form of Business Instalment loan
- Duly filled application form for Rural Business credit
- Address Proof
- Photo ID Proof
- Age proof
- Proof of ownership of office or residence
- Continuity of business proof
- Bank statement for past 12 months
- Income tax return documents for most recent 2 years
Various loans come under business loan category. For example, raising the working capital, equipment financing for micro units. Vehicle loans for personal and business use vehicles like auto rickshaw, vehicles for small goods transport, taxis etc. Food products sectors like setting up small eateries and sweet shops, cold storage, ice making etc. Agriculture and related business including pisciculture, livestock, poultry. Textile sectors like handloom, power loom and hand-made textile products and so on. Hence, based on the type of business, required documentation needs to be furnished along with the standard set of MUDRA loan documents.
Types of Loans Provided under MUDRA Loan are:
- Car Loan
- Commercial Vehicle Loan
- Loan for two-wheelers
- Loan for the requirements of Working capital
- Overdraft facility for small business and rural businesses
- Loan for business space renovation
- Loan for purchasing machineries and plants
- Loans for Agriculture related Activities
Types of Business Segments who can avail MUDRA Loan
- Self-proprietor business
- Partnership business
- Service sector firms
- Small Industries
- Small manufacturing units
- Machine operators
- Repair shops
- Truck operators
- Food processors
- Fruit and vegetable vendors
- Food service businesses
Categories of MUDRA loan Available
Based on the growth phase and development stage of the business as well as the funding requirement, MUDRA loans are available in three categories as follows.
(1) Shishu Category – Under this category, loan is given to those who are just initiating their business and looking for financing. Maximum loan amount of Rs. 50000 rupees is given under this category. Interest rate being 10% to 12% annually with up to 5 years of repayment period.
(2) Kishore Category – Under this category, loans are offered when the business already started but not established yet. The loan amount offered under this category ranges from Rs. 50000 to Rs. 5 lakhs. Rate of interest varies based on the lending institution. The business scheme as well as the credit history of the applicant plays an important role to determine the interest rate. Repayment period decided by the bank.
(3) Tarun Category – This category of MUDRA loan is offered when the business is established and there might be need of fund for expansion and to procure assets, etc. The loan amount is between 5 lakhs and 10 lakhs. Interest rate and the repayment period is based on the scheme and the credit history of the applicant.
Frequently Asked Questions (FAQs) About Mudra Loans
Q. How do I apply for a Mudra Loan?
A. Mudra loan has a simple application procedure even though the exact procedure varies from one bank to another. Since all the banks and financial institutions cannot offer Mudra loans, you must first check if the nearest bank is eligible to offer Mudra loans. Once you find the right bank, you must inquire about their application procedure and mudra loan eligibility criteria before you fill the mudra loan application form.
Q. Which banks offer Mudra Loans?
A. Currently, there are more than 98 financial institutions comprising of 27 Public Sector Banks, 27 Regional Rural Banks, 17 Private Sector Banks, 2 Foreign Banks, and 25 Micro Finance Institutions (MFI) that provide Mudra loans to business owners. You must check with the nearest bank to find out if they offer Mudra loans and their specific Mudra loan eligibility requirements, if any.
Q. Do I need to have an account in the same bank to get a mudra loan?
A. No, it is not mandatory to apply for a mudra loan from a bank where you hold an account. However, having a bank account in the same bank might improve your chances of getting a mudra loan approval.
Q. I want to start a business, which Mudra loan should I apply for?
A. The Shishu loan is the best option for start-ups. All you need to do is present your business idea along with the application form and relevant documents to meet the mudra loan eligibility requirements and apply for the loan.
Q. What are the documents that I need to apply for a Mudra loan?
A. You need to go to the bank of your choice that offers mudra loan to get the application form. Here are the documents that you need to provide if you apply for a mudra loan and want to meet all Mudra loan eligibility prerequisites.
- Proof of Identity of the applicant
- Proof of Residence of the applicant
- Proof of belonging to a special category such as SC, ST, OBC, Minority, etc.
- Proof of Identity, Address, Licences of the Enterprise (if any)
- Quotation of items to be purchased for business use (if any)
- 2 recent passport size photographs
Q. What is a Mudra Card?
A. Once you have been granted a mudra loan, you will receive a card known as the Mudra Card. The Mudra card, sometimes called the Mudra loan card, is similar to a credit card and has the credit limit set at 10% of the loan amount you have been granted. Some banks have also launched mudra cards that you can use to withdraw money from ATMs as well. The maximum withdrawal limit for a day is set at Rs. 25,000.
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