Mudra Loan is a business loan scheme under the Pradhan Mantri Mudra Yojana (PMMY) that provides loans up to Rs. 10 lakh to non-corporate, non-farm small or micro enterprises. The scheme aims to promote entrepreneurship and self-employment among the underprivileged sections of society. The scheme was launched by Prime Minister Narendra Modi on April 8, 2015.
What is the full form of PMMY?
PMMY is an acronym that stands for Pradhan Mantri Mudra Yojana. It is a flagship scheme of the Government of India that provides loans under three categories: Shishu (up to Rs. 50,000), Kishor (Rs. 50,000 to Rs. 5 lakh), and Tarun (Rs. 5 lakh to Rs. 10 lakh). The loans can be used for various purposes such as working capital, machinery, equipment, raw materials, etc.
What is the full form of Mudra?
Mudra is an acronym that stands for micro units development and refinance agency. It is a subsidiary of the Small Industries Development Bank of India (SIDBI) that acts as a refinancing institution for microfinance institutions (MFIs), Non-Banking Financial Companies (NBFCs), banks, and other financial intermediaries that provide loans to small or micro enterprises.
Latest update on Mudra Loan limit
- Increased Tarun Loan Limit: The Union Budget 2024-25 introduces a significant increase in Mudra loan limits under the Tarun category, raising the ceiling from Rs. 10 lakh to Rs. 20 lakh.
- Target Audience: The revised loan limit will benefit those who have previously secured and repaid loans under the Tarun category, as announced by Finance Minister Nirmala Sitharaman.
- Focus on MSMEs: This enhancement reflects the government's strong emphasis on supporting Micro, Small, and Medium Enterprises (MSMEs) and labour-intensive manufacturing sectors.
- Implementation Date: The new Mudra loan limit was officially announced on July 23, 2024, as part of the nine priorities outlined in the Union Budget.
Advantages of Mudra Loan
Some of the advantages of Mudra Loan are:
- Easy and affordable: Mudra Loan does not require any collateral or guarantor and has a low business loan interest rate. The loans can be availed from various banks, NBFCs, MFIs, and other financial institutions. The loan application process is simple and online.
- Flexible and customised: Mudra Loan has three categories - Shishu, Kishore, and Tarun - to suit the different stages and needs of the borrowers. The loan amount ranges from Rs. 50,000 to Rs. 10 lakh. The loan can be used for various purposes such as working capital, machinery, equipment, raw materials, etc.
- Inclusive and empowering: Mudra Loan caters to the marginalised and vulnerable groups such as women, SC/ST, OBC, minorities, rural and urban poor, etc. The scheme helps them to start or expand their own businesses and generate income and employment. The scheme also provides training, mentoring, and credit support to the borrowers.
Disadvantages of Mudra Loan
Some of the disadvantages of Mudra Loan are:
- Limited coverage: Mudra Loan is only available for non-corporate, non-farm small, or micro enterprises. The scheme does not cover medium or large enterprises, corporate entities, or farm-based activities. The scheme also does not cover existing loans or debts of the borrowers.
- High risk of default: Mudra Loan does not have any collateral or guarantor requirement, which makes it risky for the lenders. The borrowers may not have adequate credit history, business plan, or repayment capacity. The scheme also lacks a proper monitoring and recovery mechanism. To mitigate the risk of default, a credit guarantee fund for micro units has been created to provide credit guarantee to the lenders.
- Low awareness and outreach: Mudra Loan is not widely known or accessible to the potential beneficiaries. The scheme faces challenges such as lack of awareness, information asymmetry, procedural delays, documentation hassles, and regional disparities. The scheme also depends on the cooperation and coordination of various stakeholders such as banks, NBFCs, MFIs, SIDBI, Mudra, and the government.
Mudra Loan is a beneficial scheme for aspiring and existing entrepreneurs who want to start or grow their small or micro businesses. The scheme provides easy, affordable, flexible, and customised loans without any collateral or guarantor. The scheme also aims to empower the underprivileged sections of society and creates more employment opportunities.
However, Mudra Loan also has some limitations such as limited coverage, high risk of default, and low awareness and outreach. The scheme does not cater to the needs of medium or large enterprises, corporate entities, or farm-based activities. The scheme also faces challenges such as lack of credit history, business plan, or repayment capacity of the borrowers, and lack of proper monitoring and recovery mechanism of the lenders.
Borrowers who are looking for a higher loan amount, a wider range of business activities, or a more reliable and hassle-free loan process, can opt for Bajaj Finserv Business Loan of up to Rs. 80 lakh* at competitive interest rates. Bajaj Finserv Business Loan is a collateral-free loan that offers flexible repayment options, online account access, and quick approval and disbursal. Bajaj Finserv Business Loan also provides pre-approved offers, customised solutions, and value-added services to the borrowers.
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