Starting a new business often requires substantial capital investment. To support the entrepreneurial journey of micro and small business owners, the Indian government introduced the Pradhan Mantri MUDRA Yojana (PMMY) in 2015. It offers micro-credit without collateral, security, or third-party guarantee, allowing business owners to fuel their ventures seamlessly.
Under this scheme, small businesses and entrepreneurs can secure a loan up to Rs, 10 lakhs. However, to avail of the loan, borrowers must meet the Mudra Yojana loan eligibility criteria depending on the loan category.
In this article, we’ll explore the different loan categories under the PMMY scheme and their eligibility criteria.
Mudra loan categories
The MUDRA loan products are categorized into three segments, each serving different financing needs:
-Shishu:
This category offers loans with a maximum limit of Rs. 50,000 and is specifically designed for start-ups and individual entrepreneurs seeking smaller amounts to kickstart their businesses.
-Kishore:
The Kishore segment provides loans ranging from Rs. 50,001 to Rs. 5 lakhs and caters to the capital needs of upcoming or existing businesses looking to expand their operations.
-Tarun:
Tarun loans range from Rs. 5,00,001 to Rs. 10 lakhs, targeting already established businesses that require higher amounts to manage their cash flow, scale their activities, or meet larger business requirements.
Eligibility criteria for Mudra loans
To be eligible for a Mudra Loan, borrowers must meet the following criteria:
1. Age:
The Mudra Loan age eligibility ranges from 18 years up to65 years. Applicants must fall within this age bracket to be eligible for Mudra loan.
2. Indian citizenship:
The applicant must be an Indian citizen to qualify for a MUDRA loan.
3. Business ownership:
Individuals applying for the loan should own a micro, small-scale, or start-up business. This includes businesses in sectors like retail, manufacturing, services, trading, and agriculture.
4. Category:
While advantageous for SC, ST, or OBC categories, Mudra Yojna Loan eligibility is not exclusive to these groups. Its eligibility extends to individuals from diverse backgrounds.
5. Good credit history:
Having a good credit history, which reflects responsible borrowing and timely repayment of loans, is crucial for Mudra Yojna Loan eligibility.
6. Maximum loan amount:
Under the Mudra loan, borrowers can secure a maximum amount of Rs. 10 lakhs to fund different aspects of their operations.
7. Required documents:
Applicants must produce all essential documents for loan processing, including business registration papers, identity and address proof, income and bank statements, project reports, and any pertinent certificates or permits.
8. Eligible entities:
A Mudra loan can be availed by proprietorship/partnership firms engaged in the following business activities:
-Shopkeeping
-Machine operators
-Small manufacturers and vendors
-Fruits and vegetables seller
-Repair shops
-Truck operator
-Machine operators
-Artisans
-Livestock and poultry, etc.
Lending institutions eligible to offer Mudra loans
The Pradhan Mantri MUDRA Yojana (PMMY) has authorized several types of lending institutions to offer MUDRA loans, ensuring accessibility and availability of credit to a wide range of businesses and entrepreneurs. These lending institutions include:
1. Non-Banking Financial Companies (NBFC):
NBFCs are eligible to offer MUDRA loans, extending credit facilities to micro and small businesses based on their financial viability and creditworthiness.
2. Public and private sector banks:
Both public and private sector banks are authorized to provide MUDRA loans.
3. Micro-Finance Institutions (MFI):
MFIs are an integral part of the MUDRA loan ecosystem, serving as key intermediaries in reaching out to underserved segments of the population.
4. Regional Rural Banks (RRB):
RRBs are financial institutions established to cater to the banking needs of rural areas and promote rural development. They are authorized to offer MUDRA loans, facilitating access to credit for rural entrepreneurs, farmers, and small businesses.
5. Small Finance Banks (SFB):
SFBs play a vital role in extending MUDRA loans to individuals and businesses in need of financial support.
For lending institutions to be eligible to offer MUDRA loans, they must meet specific criteria set by the PMMY. These include:
1. Profit generation requirement:
The lending institution, whether it's a bank or a non-banking financial company (NBFC), must have generated profits in the last two consecutive financial years.
2. Net Performing Assets (NPA) limits:
The net performing assets of Public Sector Banks should not exceed more than 15% of their total assets. Private sector banks are required to maintain their net performing assets below 10% of their total assets. RRBs should keep their net performing assets below 6% of their total assets.
3. Net worth requirement:
The net worth of private and public sector banks should be above Rs. 250 crores. Rural banks must have a net worth above Rs. 50 crores.
A total of 27 public sector banks, 31 regional rural banks, 17 private sector banks, 36 micro-finance institutions, 25 non-banking financial institutions, and 4 cooperative banks have been chosen to offer MUDRA loans. These lending institutions play a crucial role in supporting micro and small businesses across various sectors by providing accessible and affordable credit.
Purpose of Mudra loans
MUDRA loans serve a wide range of purposes for businesses, providing financial support across various sectors:
1. Small-scale business loans:
MUDRA loans cater to shopkeepers, vendors, traders, and individuals engaged in trading activities.
2. Equipment financing:
Businesses in small-scale industries can utilize MUDRA loans to finance the acquisition of machinery, tools, technology, and other equipment.
3. Transport vehicle loans:
MUDRA loans offer financing options for transport vehicles such as trucks, vans, buses, taxis, auto-rickshaws, and other commercial vehicles.
4. Working capital support:
MUDRA loans provide working capital to businesses across sectors.
5. Food-related sectors:
Businesses involved in food-related sectors such as agriculture, animal husbandry, horticulture, aquaculture, and beekeeping can avail of MUDRA loans.
6. Commercial se vehicles:
People using tractors, tillers, two-wheelers, or other vehicles for commercial purposes can avail of the MUDRA loan.
Final thoughts
The PMMY provide businesses with collateral-free loans, making it easier for them to obtain credit.
However, if you are not eligible for a Mudra Loan, you can apply for a small business loan with Tata Capital. For business owners in need of funding, Tata Capital provides an excellent alternative with its reasonable interest rates and flexible repayment plans.
Visit the Tata Capital website or download the mobile app to learn more.
24 April 2024
5 mins read
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