Understanding MUDRA Loan: Eligibility, Categories, and Types

PMMY(Pradhan Mantri MUDRA Yojana) has introduced the Micro Units Development and Refinance Agency (MUDRA), an NBFC that has emerged as the major funding source for micro and small enterprises. MUDRA loans are now at the forefront as they have emerged as an easy and affordable source of funds for business ventures in trading, manufacturing, and service sectors and for entrepreneurs involved in agriculture operations.

MUDRA was established to facilitate funds to the micro-enterprise sector through RRBs, commercial banks, MFIs, small finance banks, NBFCs, etc. The loans can be availed at participating bank branches or NBFC by filling MUDRA form for an amount up to Rs. 10 lakh. For the same, MUDRA has launched the MUDRA Card through which Working Capital Demand Loans can be availed, cash withdrawal at any ATM is allowed and purchases can be made through POS machines which again helps fund small businesses.

Interest Rates Implied in Mudra Loan

Interest Rates of PMMY loans are not set by MUDRA. Instead lending institutions have the freedom by the agency for setting interest rates of MUDRA loans. Thereby, interested buyers who want to acquire a MUDRA loan should connect with the involved bank/NBFC/MFIs for their MUDRA loan interest rates.

Categories of Mudra Loan Scheme

Loan Amount

Based on the stage of business development, MUDRA loans are categorized as ‘Shishu’, ‘Kishore’, and ‘Tarun’

Category	Loan Amount
15 days- 29 days	3.00%
30 days- 45 days	3.50%
46 days- 60 days	4.25%

* Budget 2024 has proposed to increase the Mudra Loan Limit to Rs 20 Lakh for entrepreneurs who have rapid previous loans under the ‘Tarun’ category.

Need of Collateral

There is no need for collateral to be acquired when disbursing loans and these loans are covered under the Credit Guarantee Fund for Micro Units (CGFMU) operated by National Credit Guarantee Trustee Company Limited (NCGTC).

How About Repayment Tenure

Loans refinanced through the PMMY scheme do not have any repayment tenure as specified by MUDRA. The agency has allowed lending institutions that offer MUDRA loans to freely determine the terms of their loans following both their policies and the guidelines established by the RBI.

Types of Mudra Loan Facility

1. Term Loan

For example – a business might take a term loan to buy some machinery with a repayment time of over 5 years.

2. Overdraft

For example – a business might take an overdraft to fill money flow gaps to pay suppliers while waiting for customer payments.

3. Cash Credit(CC)

For example – A business can avail cash credit facility for fulfilling capital needs, such as buying raw materials or managing day-to-day funds.

Fees and Charges

Lending institutions offering MUDRA loans may decide to charge an upfront fee per their corporate policies. But for loans falling within the Shishu category, the majority of lenders do not levy an upfront fee or processing fees.

Key Highlights of Mudra Loan –

• Government-Backed Scheme
• Three Types of Loans
• Wide Eligibility Criteria
• No Collateral Required
• Low-Interest Rates
• Easy Application Process
• Flexible Repayment Terms
• Supports Diverse Business Needs
• Promotion of Financial Inclusion
• Rapid Disbursement
• Assistance for Rural and Urban Areas
• Encourages Entrepreneurship
• Government Support for Entrepreneurs

How To Register For PM MUDRA Yojana

To obtain a loan under PMMY, potential borrowers for business loans should approach specific Public and Private Sector Commercial Banks, Cooperative Banks, Regional Rural Banks (RRBs), Micro Finance Institutions, Foreign Banks, and Non-Banking Finance Companies.
People can also apply online for MUDRA loans using the www.udyamimitra.in Udyami Mitra portal.

MUDRA Loan Eligibility

Micro Businesses in the manufacturing, service, processing, or trading sectors—including those connected to agriculture—are eligible for MUDRA loans. The potential borrower must have a good credit history and not be in arrears with any bank or other financial institution.

The evaluation of an applicant’s educational background, if any, is contingent upon the proposed activity’s specifics and prerequisites. In addition, it can be necessary for applicants to possess the expertise, abilities, or information needed to complete the suggested task.

Eligible borrowers of PMMY

• Individuals
• Proprietary concern
• Partnership Firm
• Private Ltd. Company
• Public Company
• Any other legal forms

Approved Uses for MUDRA Loan Funds

Transport Vehicle

Acquisition of vehicles, such as autorickshaws, taxis, e-rickshaws, three-wheelers, and small goods transport vehicles, for the movement of passengers and commodities.

Two-wheelers, power tillers, tractor trolleys, and tractors used only for commercial purposes

Community and Social Support Services

Salons, fitness centres, boutiques, DTP and photocopying services, dry cleaners, tailors, pharmacies, beauty salons, bike and motorbike repair shops, courier services, etc.

Food Products Sector

Agricultural produce preservation at the rural level, achaar making, cold storages, small service food stalls and daily catering/canteen services, cold chain trucks, ice making units, sweet shops, and the production of papads, biscuits, bread, buns, jam, and jelly.

Textile Products Sector/Activity

Clothing design, knitting, cotton ginning, stitching, chikan work, computerized embroidery, traditional dyeing and printing, zari and zardozi work, power loom, khadi activity, and other textile non-garment products like bags, furniture accessories, and car accessories, among others.

Business Financing for Traders and Store Owners

• Loans to people so they can operate their stores
• Trade, commerce, and service-related enterprises
• Non-farm revenue-generating ventures involving recipients

Capital Assistance for Micro Unit Equipment

Individuals establishing microbusinesses by investing in the necessary machinery or equipment, according to each recipient

Agriculture-Associated Services

Agriculture-related services that support the aforementioned activities that generate money or support livelihood include pisciculture, poultry, livestock-rearing, beekeeping, aggregation of agro-industries, food & agro-processing, dairy, fisheries, grading, sorting, agri-clinics, and agribusiness centers. Crop loans and land rehabilitation projects like irrigation, canals, and wells are not considered part of the agriculturally related activities.

MUDRA Card

The MUDRA Card is a RuPay debit card that provides an overdraft option as a working capital loan. Multiple withdrawals and credits are permitted with the card, digitizing transactions and building the borrower’s credit history. The MUDRA card is issued concerning the MUDRA loan account and can be used to make purchases at any Point of Sale (POS) machine or to withdraw cash from ATMs or micro ATMs nationwide. The borrower may pay back the loan at any moment, provided they have extra money.

Documents Needed to Secure a PM MUDRA Loan

• Identity Proof: A self-attested copy of a driver’s license, passport, PAN card, voter ID card, Aadhaar card, or other official government photo ID.
• Residence Proof: The most recent phone bill, a property tax receipt that is no more than two months old, a voter’s ID card, an electricity bill, an Aadhar card, a domicile certificate, the owner’s or partners’ passbook, the most recent bank account statement certified by bank officials, a passport, certificate from a local panchayat, government agency, or municipality.
• Two copies of the applicant’s most recent photo, no more than six months old.
• Estimate for machinery or other goods that need to be bought
• The supplier’s name or the cost and specifications of the equipment and/or goods to be bought
• Proof of the Business Enterprise’s Identity and Address: Copies of any necessary licenses, registration certificates, or other documentation attesting to the business enterprise’s ownership, address, and identity, if any
• Verification of status, such as SC, OBC, minority, etc.

Documents for Securing a Kishor and Tarun Loan

Identity Proof: a self-certified copy of a driver’s license, passport, voter ID card, PAN card, or Aadhar card

Residence Proof: Owner’s/partners’/directors’ passport, the most recent phone bill, the property tax receipt (not more than two months old), the voter ID card, the electricity bill, and the Aadhar card

Proof of Minority, OBC, ST, and SC

Proof of Identity and Address of the Business Enterprise: Copies of registration certificates, pertinent licenses, and other papers attesting to the business unit’s identity, ownership, and address

Account statement from the current banker, if any, for the previous six months

The latest two years’ worth of unit balance sheets, including any applicable income tax or sales tax returns, etc. (Applicable for all cases from Rs. 2 lakhs and upwards)

Projected balance sheets for the period of the loan in the case of a term loan, and a year in the case of working capital limits (applicable for all instances from Rs. 2 lakhs and upwards)

Sales made throughout the current fiscal year through the application filing date

Proposal report detailing the technical and financial feasibility of the suggested proposal

Partner/company/articles and memorandum of association of the partnership deed, etc.

If there’s no assurance from a third party, the applicant’s asset and liabilities statement, which includes directors and partners, might be consulted to determine net worth.

Two copies of the directors, proprietors, and partners