What is Mudra Loan? - A Complete Guide

12 Aug 2022

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In its bid to make an ‘Atmanirbhar Bharat’, the Modi Government has introduced several schemes and campaigns. The Make in India campaign is one of the most popular ones, aimed at promoting the growth of homegrown companies. Thus was born the Pradhan Mantri MUDRA Yojana. Launched in 2015, this scheme has proven to be extremely successful. Over the past 6 years since its establishment, the PMMY scheme has offered INR 15.52 Lakh Crore to over 29.55 crore loan applicants. The scheme provides a level playing field to all sections of society. Here, we talk about the MUDRA Loan scheme and its features.

What is MUDRA Loan?

Micro-Units Development and Refinance Agency (MUDRA) is a scheme offered under the Pradhan Mantri MUDRA Yojana (PMMY). Launched in 2015, the scheme allows you to avail of business loans of up to INR 10,00,000 based on the different categories of MUDRA Loan schemes. All public sector banks, regional rural banks, co-operative banks, private sector banks, micro finance institutions, non-banking finance companies (NBFC), and foreign banks can lend up to INR 10 Lakhs to small borrowers for non-farming businesses.

Types of MUDRA Loans

The government has categorised the Mudra loans into three types based on the funding needs of the micro-unit or the entrepreneur. The loans are categorised as under:

MUDRA Shishu Loan

Under the MUDRA Shishu Loan, you can avail up to INR 50,000 for non-farming ventures. Shishu Loan serves well for newer enterprises for purchasing small-scale machinery or financing other operational costs. Existing businesses, too, can avail of the loan for smaller expenses such as renovation or expansion of the establishment. Micro-industries, self-proprietors, commercial vehicle owners, fruit and vegetable vendors, etc., are eligible applicants for the MUDRA Shishu Loan. Salient features include repayment tenure of up to 7 years, no minimum loan amount, no collateral and zero processing charges.

MUDRA Kishor Loan

The loan amount offered by the MUDRA scheme under the Kishor Loan category ranges from INR 50,000 to INR 5,00,000. Businesses can take advantage of the higher loan amount to finance their daily operations, buy heavy machinery and commercial transport vehicles, etc. Personal service providers like local grocers, salons, courier agents, pharmacists, and tailoring shops, too, are eligible to apply for Kishor Loans.

MUDRA Tarun Loan

The Tarun Loan category of MUDRA Loan offers loan amounts starting from INR 5 Lakhs to INR 10 Lakhs, with a 3 to 5 year repayment period. The loan can be availed by aspiring as well as by established businesses. Newer businesses like start-ups may require a high amount of working capital. Older companies can use the loan to revamp or fund office expansion, make the necessary operational purchases, etc.

List of Business Activities Covered Under MUDRA Loans

Transport Vehicles

You can buy vehicles for transporting goods, and passengers, purchase tractors, two-wheelers, trolleys and tillers for commercial use.

Community, Social and Personal Services

You can avail of loans for community businesses such as tailor shops, dry cleaning, cycle and motorcycle repair shops, pharmacies, photocopying facilities, gymnasiums, salons, courier services, etc.

Food Producing Sectors

Small-scale food productions such as pickle or papad making, home baking, agricultural produce preservation at the rural level, small food stalls, sweet shops, catering, canteen services, cold storage, ice producing micro-units, ice-cream making units, bakery producing units etc., are eligible for MUDRA Loans.

Textile Production

You can avail of MUDRA Loans for handloom, power loom, chikan work, khadi activity, zari and zardozi work, embroidery and handwork, computerised embroidery, dyeing and printing, clothes designing, cotton ginning, knitting, vehicle and furnishing accessories, and so on.

Traders and Shopkeepers

MUDRA Loans provide financial support with a loan size of up to INR 10 Lakhs to shop owners, traders, small enterprise owners and individuals who run non-farm income-generating businesses.

Equipment Finance Scheme for Micro Units

You can avail of MUDRA Loans of up to INR 10 Lakhs for purchasing necessary machinery for setting up micro-enterprises.

Agriculture-allied Activities

Pisciculture (fish farming), apiculture (beekeeping), poultry, livestock, dairy, etc., are activities that are allied to agriculture and are eligible for MUDRA Loans. Producing crops, irrigation, wells etc., do not qualify for such loans.

Benefits of MUDRA Loan

Following are the benefits of MUDRA Loan:

• Accessibility:

Whether you reside in rural or urban areas, you can utilise the banking and financial services under the PMMY scheme. Individuals from the remotest areas, where basic banking facilities are unavailable, can receive financial aid.

• No lower limit on the business size:

Small and micro businesses, along with startups, can achieve financial support.

• Higher Loan Amounts:

MUDRA Loans range up to INR 10,00,000; that way, you can also avail of smaller loan amounts for smaller businesses while having the freedom to access higher loan amounts if required.

• No Collateral Needed:

Unlike private business loans, you need not pledge collateral for availing MUDRA Loans.

• Credit Guarantee:

The Government has created the 'Credit Guarantee Fund for Micro Units' or CGFMU Funds to combat the issues associated with non-collateral requirement, thus providing a sense of comfort to lending institutions.

• Initial funding to start a new business:

Individuals who wish to create a second income with low-cost businesses can benefit from the scheme. Micro-credit scheme offers credits of up to INR 1 Lakh enabling you to start a new business on the side.

• Affordable Interest Rates:

The MUDRA schemes come with affordable interest rates to enable flexible and pocket friendly repayment of loans.

• Extended Repayment Tenure:

Borrowers can repay the loan comfortably in substantially longer repayment tenures lasting up to 7 years.

• Promote local Indian businesses:

The MUDRA Loan scheme allows the ‘Make In India’ campaign to offer investments opportunities for upcoming start-ups, thereby boosting India’s infrastructure.

• MUDRA Card:

MUDRA Loan applicants are provided with a Mudra Card – a type of debit card that applicants can utilise to fund the working capital requirements. Applicants can make online transactions as well as ATM and Point-of-Sale (PoS) transactions.

Eligibility Criteria & Documents Required

You can apply for a MUDRA Loan if you are:

  • An Indian citizen 
  • In the age group of 18 and maximum 65 years(at the time of final EMI repayment)
  • Planning to start a business in non-agricultural activities requiring a loan amount less than INR 10 Lakhs.

Following is the list of documents you need to present when applying for a MUDRA Loan:

  • Duly filled Mudra Loan application form. 
  • Identity proof documents like Aadhaar/PAN/Driving License/Passport/Voter ID/ Government-issued photo ID of all applicants (in case of joint loans).
  • Residence proof documents like latest utility bill/ Aadhaar/Voter ID/Passports/bank account statement of all applicants (in case of joint loans).
  • Business ID and Address proof documents (Licenses/Registration Certificates/Deed Copy, etc.).
  • Latest photographs of the applicant/s.
  • Proof of minority, if any.
  • Proof of loan requirement, i.e., equipment quotations, vendor details, etc.

How to Apply for a Mudra Loan?

You can apply for a Mudra Loan both online and offline at nationalised and Private sector banks. You simply need to fill a form (available on the bank’s website or their nearest branch) and provide details about the applicable Mudra Loan category under which you need the loan, information about your business enterprise and the funds required under the loan. The bank verifies your loan application. Once it is verified, the bank credits the funds into your brand new Mudra Loan account, with which it also provides a Mudra Debit Card.

Why Opt for Mudra Loan from Bank of Baroda?

Bank of Baroda is a public sector undertaking (PSU) bank serving Indians for over a century and offers loans to borrowers under the MUDRA scheme. Here is why you should opt for Mudra Loan from Bank of Baroda:

  • No processing charges or collateral: Bank of Baroda charges zero processing fees for the MUDRA Loan scheme. Moreover, you are not required to pledge any collateral.
  • No minimum loan amount: There is no lower limit on the amount you can borrow under the scheme.
  • Longer repayment tenure: Bank of Baroda offers repayment tenures of up to 7 years with moratorium provisions subject to eligibility. Working capital loan borrowers can avail a 1-year repayment period.
  • No pre-closure charges: You can repay the loan before the end of your repayment tenure without paying any pre-closure charges.

To know more about the MUDRA Loan scheme offered by Bank of Baroda get in touch with us today. You can visit the nearest Bank of Baroda branch or call us up on 1800 5700.

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Benefits of Personal Loan To Raise Funds

There are times in everyone’s life when there is a sudden need for money. The immediate choice is generally to use a credit card or to borrow money from friends or family members.
With net-banking now in place and more lenders chasing fewer borrowers, raising money through other sources is now possible at a faster pace.
Gold loans are normally a preferred and cheaper source of the loan, where banks and gold loan companies process the papers fast to give the borrowers the money he or she needs. However, personal loan are now being offered at a faster speed too. There are lenders who advertise that they will disburse the loan within a day. 
Under such circumstances, it is always better to go in for a personal loan rather than using your credit card to meet any emergency need. Firstly, because the personal loan is far cheaper than any credit card loan and secondly because the personal loan can be of a bigger size than what the credit card can offer.
But before one takes a personal loan it is important to have a good CIBIL score. With a CIBIL score of over 750, a person can be choosey in picking up the personal loan with the lowest interest rates. A person with a lower score may still get a personal loan but the interest rates may be higher.
The biggest advantage of a personal loan from the point of view of the borrower is that it is an unsecured loan. The borrower need not pledge or mortgage any of his assets to raise funds.
For an entrepreneur, a personal loan can act as a stop-gap arrangement till he is able to raise money from other sources to meet his urgent business requirements.
Like any loans, personal loans need to be repaid periodically in equated monthly installments (EMI). These loans can run from a short tenure of one year to a four-years loan. These days there are lenders who offer personal loans for a period of seven years also.
While taking a personal loan is easy, it should be taken only in case of emergency. Personal loans, being unsecured are costly. It would be foolish to buy an asset with a personal loan, especially when there are financial products available these days to buy a mobile or any other household equipment.
One should avoid using personal loans to repay loans that are cheaper in cost. But they can be used to repay higher cost loans like credit card bills or something similar.
If one is using personal loan to meet the operating expenses of the house then he or she is falling in a debt trap. One loan will lead to another and before the person understands it, he would have fallen in a debt trap. Rather than using the personal loan as a saviour to come out of the debt trap the person would have fallen in it using personal loans. Personal loans should be used only for intermittent emergencies.

Benefits of A Joint Home Loan

A home is a special place where we go to feel safe and comfortable. It is also the place where we spend some of the best moments of our lives with our loved ones. Almost everyone wants to be able to buy their own home at some point. However, sometimes prices of property make that dream a difficult one indeed. Fortunately, home loans step in to save the day. A home loan helps you easily afford to buy the house or apartment you want. You can even apply for a joint home loan in order to improve your eligibility for home financing.

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