Based on recent Government data, the MSME sector accounts for over 30% of India’s GDP and close to 40% of the total employment. That makes the MSME sector the second biggest employer after the agriculture sector, which employs around 45% of the total workforce.

Recognizing the importance of the sector, the Government launched the MUDRA scheme in April 2015. The MUDRA (Micro Units Development & Refinance Agency) scheme was aimed at addressing the financing needs of the MSME sector by providing easier access to loans. Since then, the scheme has received a huge response, especially from micro-enterprises.

What is the MUDRA scheme?

The MUDRA scheme, also known as the PMMY (Pradhan Mantri MUDRA Yojana), provides much-needed credit to unorganized small and micro enterprises. Under the scheme, loans up to INR 10 Lakhs can be availed by businesses, based on their specific requirements. Read on to know the different offerings under the MUDRA scheme!

Types of loans offered under MUDRA

The three categories under the MUDRA scheme are named ‘Shishu’, ‘Kishore’ and ‘Tarun’. The names of the categories signify the operational stages of the businesses and the number of funds they require for their operations.

1. Shishu

Under the ‘Shishu’ category, the maximum loan that can be availed of is INR 50,000.  If you are thinking of starting or have just started a micro-enterprise, then this category would apply to you.

2. Kishore

The ‘Kishore’ category provides loans ranging from INR 50,000 to INR 5 Lakhs. If you are a small business owner who is looking at a limited expansion to your operations, you could look at applying under this category.

3. Tarun

If you are a business owner looking at raising between INR 5 Lakhs to INR 10 Lakhs, the ‘Tarun’ category under the MUDRA scheme would be useful for you.

Types of Mudra Loans and Loan Limits Under Mudra Yojana

Mudra Loan Scheme has created three products: Shishu, Kishore and Tarun, each representing the life cycle stage at which the business is operating.

• Shishu Mudra Yojana

As the name suggests, ‘Shishu’ is for financing the entrepreneurs who are about to start their businesses or are at their very early stage of operations. The amount of funding that can be raised under this product is from Rs 0-50,000. The maximum tenure of a loan under this stage is 5 years.

• Kishore Mudra Yojana

‘Kishore’ provides funding to existing entrepreneurs who require funds to sustain themselves in the marketplace. Here, the amount of loan that can be availed ranges between Rs 50,001-5,00,000. The tenure of the loan may vary according to the lender.

• Tarun Mudra Yojana

‘Tarun’ offers borrowers a finance facility within the range of Rs 5,00,001-10,00,000. This product is particularly for businesses that are looking towards expanding their operation to a larger scale.

The success of the MUDRA scheme

Since its introduction in 2015, MUDRA loans have provided loans to several small businesses that are otherwise denied credit by many traditional lenders. According to the provisional data from the Government of India’s MUDRA website, over 4.48 crore MUDRA loans have already been sanctioned during this financial year. MUDRA acts as a refinancing entity and the loans are extended through various lending institutions such as NBFCs and Micro Finance Institutions.

MUDRA loans Eligibility

The primary and intended target for the MUDRA scheme is any small and micro-enterprise. Further eligibility for Mudra loan is as given below:

Business Eligibility:

While applying for the loan, the business entity must be at least operational for 2 years. The monthly turnover of the business should be at least INR 2 Lakhs.

Industry Type:

Considering the nature of micro-enterprises, MUDRA loans are available for entities without any sector or industry limitations. You can apply for financing under the scheme for a variety of industries as below:

• Food production / Food processing units
• Agriculture and agri-based businesses
• Transportation sector
• Fruit and vegetable vendors
• Individual artisans
• Repair and technician shops
• Service sector businesses
• Trading businesses
• Textile sector businesses
• Distribution and Retailing
• Travel and tourism-related businesses

Documentation Required

Apart from filling in the application details, the following documentation is required for applying for the MUDRA loan:

Individual Documents:

• PAN card
• Address proof – Either one of - Aadhaar / Passport / Voter ID / Rent agreement
• ITR filings for the past 3 years
• Good CIBIL score

Business Documents:

• PAN card of the Business
• Bank statement of the business for the past 6 months
• Tax filings of the business for the past 2-3 years
• Business registration – Shop & Establishment license (S&E) / Gumasta certificate, Udyam Aadhar, GST certificate

Mudra Loan Calculator

For the ones looking for availing Mudra loans, Mudra Loan Interest Calculator can be used to determine the monthly instalments that need to be paid against the loan amount. This may help you plan your expenses and budget well in advance to not skip any instalment. Using this calculator is very easy. Just enter the loan amount, rate of interest and the tenure of the loan, and there you go! This will give you the exact amount that needs to be paid as Mudra Loan interest rate, your loan EMI and total repayment in the form of principal and interest.

The formula for calculating EMIs for business loan is E = P x r x (1+r)n / (1+r)n-1
where,
E = EMI amount
P = Principal amount
r = Rate of interest (per month)
n = Tenure of the loan (in months)

However, manually calculating EMIs using the above formula is prone to mistakes and time-consuming as well. Therefore, the EMI calculator eases EMI calculation - one just has to enter the loan amount, tenure of loan, and interest rate. Let’s understand with the help of an example:

Loan Amount: Rs 5,00,000
Tenure of Loan: 3 years
Rate of Interest: 10% p.a.
Therefore, tenure in months would be 36 months (3 years*12 months), and the rate of interest per month shall be 0.833% (10%/12months).

EMI using the above formula: E = 5,00,000 x 0.833/100 x (1+0.833/100)36 / [(1+0.833/100)36-1]
Therefore, the EMI will be Rs 16,134.

Activities Covered Under Mudra Loans

• Transport Vehicle

Vehicles used for transportation of goods and passengers are covered here. This includes -
- Auto rickshaws
- Small goods transport vehicles
- Three-wheelers
- E-rickshaws
- Taxis
- Tractors/Tractor Trolleys/Power Tillers
- Two Wheelers used for commercial purposes
*Note that vehicles used only for commercial purposes are allowed under Mudra.

• Social and Personal Services

Personal consumption services, like gyms, parlours, medicine shops, tailoring, dry cleaning shops, etc.

• Food Sector

Basic food services, like food stalls, achaar-papad making, catering services, food preservation, cold storage, etc.

• Textile

Embroidery, apparel designs, handlooms, power looms, knitting, job works, etc.

• Traders and Shopkeepers

Individuals running shops for trading and business purposes

• Equipment Finance Scheme

Setting up of micro-enterprises and purchasing machinery of value up to Rs 10 lakh

In Summary

Mudra loans have emerged as a lifeline for small and micro-entrepreneurs, providing them with the much-needed financial support to nurture and expand their businesses. Contact FlexiLoans right away and avail small business loans online.

PM Mudra Yojana interest rate plays a pivotal role in the affordability of these loans, it's essential to remember that they are subject to various factors, including the lending institution, credit score, and government schemes.

Frequently asked questions