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How to Get Loan from MUDRA Bank?

The Beginning of MUDRA

Prime Minister Sri. Narendra Modi Launching Mudra Bank

Honourable Finance Minister, Shri Arun Jaitley, in his budget speech for FY 2015-16, announced the plan to establish MUDRA, the acronym for Micro Units Development and Refinance Agency, to cater to the resource needs of micro and small business enterprises (MSE). With an amount of Rs.20,000 crore, the PMMY, Pradhan Mantri Mudra Yojana, was officially launched by the Honourable Prime Minister Narendra Modi on April 8, 2015.

About MUDRA briefly

The MUDRA initiative came as the answer to the prayers of the 5.77 crore MSE spread across the country. With an ambitious disbursement target of Rs.100,000 crore for the first year of operation (FY 2015-16), MUDRA could be a game changer that would spur new business ventures, foster development and accelerate growth of MSE.

Who are Eligible for MUDRA loans?

All Indian citizens who are competent to contract are, prima facie, eligible for a MUDRA loan. Your financial requirement should be for setting up, developing or expanding a business enterprise engaged in a non-farm income generating activity. The maximum fund based credit facility that would be sanctioned is limited to Rs.10.00 lakh. All such loans would be categorized as PMMY loans.

Eligible Activities

Manufacturing, trading, processing or providing of services in rural or urban areas

What are the Loans Available?

MUDRA has three product offerings - Shishu, Kishor and Tarun.

Shishu Loans

Ceiling limit on such loans is Rs.50,000/-. Shishu loans are intended for start up of micro enterprises. A minimum of 60% of the loans sanctioned under PMMY will be in the Shishu category.

Kishor Loans

Loan requirements in the band above Rs.50,000/- and upto Rs.5.00 lakh would be sanctioned as Kishor loans. These loans are intended to finance the development of MSE after the initial operations have stabilised and the MSE have reached break-even.

Tarun Loans

Tarun loans are targeted at MSE that need finance to accelerate their growth. These loans would be in the range above Rs.5.00 lakh upto the overall ceiling of Rs.10.00 lakh

Not more than 40% of the loans sanctioned under the PMMY will be in the Kishor and Tarun category.

Schematic Approach

Within the superstructure of Shishu, Kishor and Tarun, MUDRA plans to unveil an array of schemes – sector/activity specific, Mahila Udyam Nidhi (a sharp focus women-centric scheme), an equipment finance scheme for purchase of machinery on stand-alone basis, business loans for shopkeepers, and a micro credit scheme (MCS). While these are on the anvil, MUDRA will not let documented schemes become a limitation in supporting the MSE. Flexibility and innovation will be the approach and the overall philosophy is that ‘no project should be denied financing only because it does not fit within the parameters of a scheme’. Financing of commercial and passenger vehicles, community, social and personal service related activities, beauty parlours, computerized embroidey, etc; are all on its radar.

Channel Partner Banks and Institutions

Funds for the loans will be provided by MUDRA through a refinance facility. For the Borrowers, the contact for sanction of loans will have to be established with any branch of one of 27 Public Sector Banks, 17 Private Sector Banks, 31 Regional Rural Banks, 10 Co-operative Banks, 26 Non-Banking Finance Companies (NBFC) or 43 Micro Finance Institutions (MFI). For the list of institutions, visit www.mudra.org.in and click on “Shortlisted for partnering MUDRA” under the “Offerings” tab.

Business Plan

Before you approach a lender, you will need to draw up a business plan. The business plan should clearly spell out how the finance will be used, the professional qualifications and/or work experience of the entrepreneur, the market for the product or service. You may not need a professional to write a business plan. Visit www.mudra.org.in and click on “Project Profiles” below the “Document” button. You will find 27 project profiles compiled by the National Institute of Micro, Small and Medium Enterprises (NI-MSE), an organisation that reports to the Ministry of MSME, Government of India. These project profiles could be used as a guide for preparing your business plan. Depending upon the quantum of loan that you propose to seek, make an application for Shishu, Kishor or Tarun loan.

Loan Application Form

MSE have traditionally experienced constraints in accessing the formal banking channels for finance because of complex, elaborate and divergent procedures. MUDRA has simplified the process by releasing a common application form for sanction of credit facilities under the PMMY. You can download the common application form here

MUDRA Card

The PMMY envisages sanction of loans to finance capital expenditure and for working capital. If working capital facility is sanctioned, the release will be through issue of a MUDRA Card. The features of the MUDRA card are brought out below.

The MUDRA Card will be issued by the lending institution either directly or in association with a card issuing bank;
It will be issued as a Ru-Pay debit card;
MUDRA card holders will be able to withdraw cash from an Automated Teller Machine (ATM) or swipe it to purchase goods from an establishment that has a point of sale (POS) machine;
The card makes it easy for MSE to finance their business needs without having to repeatedly approach the lending bank for release of funds or issue cheques to customers.

Important Features

Sanction of the loan is the discretion of the lender. It means that the applicant will have to satisfy the lender about compliance with the eligibility criteria of the lender and that the proposal is financially viable and technically feasible;
The applicant should not be a defaulter to any bank/financial institution;
No loan processing fee would be charged to the applicants;
No collateral security is to be insisted upon by the lending bank;
The maximum period that will be allowed for repayment of a term loan will be 5 years;

Guarantee for Loans

The Reserve Bank of India has instructed Banks not to accept collateral security for loans upto Rs.10.00 lakh from MSE units. Banks have also been called upon to urge their branches to cover such loans under the guarantee scheme of the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE).

On January 6, 2016, the Union Cabinet approved establishing of a credit guarantee fund for loans sanctioned under MUDRA. This decision is a measure to reduce the risks of banks in the event of default by Borrowers in fulfilling their debt servicing obligations. Tentatively, it is planned that the fund corpus will be Rs.3,000 crore; that is expected to be adequate to cover loans of Rs.100,000 crore, with guarantee cover ceiling pegged at 50% of the loan.

Conversion to Bank

The Union Cabinet has also approved the conversion of MUDRA Limited (Pradhan Mantri Micro Units Development and Refinance Agency Limited) into a bank. The organisation will be christened SIDBI Bank in its new avatar and will be a wholly owned subsidiary of the existing Small Industries Development Bank of India (SIDBI). The new bank will be engaged in refinance operations. The loans sanctioned by primary lenders under the PMMY will be refinanced by the bank. This will ensure that dearth of resources with the primary lenders will not be an obstacle for the acceleration of fund disbursements under the PMMY.

MUDRA Report Card

Number of loans sanctioned under the PMMY – 2,703,29,542;
Amount of loans sanctioned – Rs.105,494.01 crore;
Amount of loans disbursed – Rs. 101,679.76 crore.

(Source: www.mudra.org.in accessed on February 28, 2016)

Help for Borrowers

MUDRA has made arrangements to provide help and support to Borrowers under the PMMY. Nodal Officers of banks or of MUDRA can be contacted for any assistance. Their contact details can be accessed at www.mudra.org.in by clicking on the tab for “Contact Us”.

What Lies Ahead

The India development story is often connected to its demographic dividend. But the discussion is confined to growth through exploitation of this advantage by considering the population as a work force for global enterprises. MUDRA has the opportunity to catalyze the demographic dividend into an entrepreneurial force that would not only challenge established players in the business arena but become an engine for generating employment opportunities.

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