Shishu Loan of Mudra Yojana
Pradhan Mantri Mudra Yojana sent ripples across India when it was launched back in 2015. The exact date of its launch was April 8, 2015. This year, on April 8, the scheme will turn 2 years old. Under this scheme, the government set up a new institution which became popular as the MUDRA Bank. MUDRA is basically an abbreviation used for Micro Units Development and Refinance Agency.
Immense amount of information can be found about the Mudra Yojana on the internet and hence, we will skip the pain of repeating everything again. We will just say that this scheme was introduced to boost India’s indigenous manufacturing sector that is made up of micro, small and medium enterprises (together known as MSMEs). The primary reason was that these MSMEs actually contribute a significant amount towards India’s GDP and also accounts for a massive portion of Indian exports.
Okay, we are drifting away… coming back to the point. Mudra Yojana was launched to given financial support to the informal manufacturing sector and hence, the concept of MUDRA Bank emerged.
Now, the Mudra Yojana actually offers loans. There are three variants of loans available under Mudra Yojana. These three variants are:
- Shishu Loan
- Kishor Loan
- Tarun Loan
In this article, we will do an in-depth analysis of the first variant, that is, the Shishu Loan. Let us begin…
Shishu Loan – All that you need to know
Shishu loan is designed for those manufacturing businesses that are at their early stages or basically, nascent stage. These businesses don’t have enough funds to properly acquire raw materials even for their miniscule production.
The government wants to support these businesses more than all other businesses and hence, of all loans provided under the Mudra scheme, 60% of the funds go towards the Shishu loan.
In a nut shell, micro enterprises in India actually qualify for Shishu loans.
Here are the salient features of the Shishu loan:
- A maximum of INR 50,000 can be taken out as Shishu loan.
- The loan amount can be repaid back in a period of 5 years.
- Banks do not charge any money for processing Shishu loan.
- The yearly rate of interest that will be charged by banks or lenders will usually vary between 11% to 12%.
The Shishu loan is better than personal loans because:
- Personal loans come with heavy interest rates, which can be as high as 36% per year. The interest rate for Shishu loan is at least 3 times less than that.
- Personal loan providers usually decline to give a loan amount less than INR 1 lakh. This is not the case with Shishu loan. You can ask for any amount which is below INR 50,000.
Applying for Shishu Loan
Now, this is something important. After Prime Minister Narendra Modi actually started the Digital India drive, we can simply assume that application for Shishu loans can be submitted online. However, that is not true. Shishu loan is provided by all participating banks under the Mudra Yojana. It is also provided by non-banking financial companies that have been approved by the government.
Most importantly, Shishu loans are usually targeted for rural micro industries and similar micro industries in urban outfits. The problem is that most of these business owners are not very familiar with internet and hence, putting up the application form online is not really a good option. That’s the reason why, all lending organizations (banks and non-banks) that have tied up with the government under the Mudra Yojana, have actually kept the form offline.
All you have to do is visit a participating lender and ask for an application form for Shishu loan. The lender will hand over the form to you. You then need to fill in the form, attach the necessary documents and submit the same to the lender. Once approved, the loan will be disbursed into your account.
Now the big question…
What documents are required for Shishu Loan?
Different lenders may ask for different documents. However, there is a standard set of documents that almost every lender will ask for. Those documents are listed below:
- A document to prove your address of residence.
- A document to prove your own identity.
- A document to prove the business address.
- Your balance sheet, your sales tax returns and your IT returns for 3 consecutive years.
- A disclosure of business liabilities and business assets (word of advice, don’t keep anything hidden because if you do so, you will get into trouble).
- If your business has a guarantor or a promoter, you should provide the Income Tax Return of that guarantor or promoter. If there are multiple such guarantors / promoters, IT Returns of all of them will be required.
- If your business property (the building or the house) is taken on rent by you, you need to provide rental agreement copy. This is nothing but the agreement you entered into with the property owner.
- Registration forms must be submitted if your business is registered.
- If working capital limits are applicable on your business, you need to provide the projected 2 years’ balance sheet to the lender.
- Similarly, the projected 2 years’ balance sheet is to be provided if your business has liability of term loan to the tune of INR 2 lakhs or more than that amount.
How does the application form for Shishu Loan look like?
Good question! Here is the snapshot of the Shishu Loan application form:
Anything special you need to know about Shishu Loan?
Hell yes! There is something really important that you need to know. Here you go:
- If you have a bank account opened under Pradhan Mantri Jan Dhan Yojana and you are using the overdraft facility under this account to get INR 5,000, it will be recorded as Shishu Loan under Mudra Yojana.
- This Shishu Loan can be used as term loan given to you for helping your business activities. However, you need to make sure that your business is not about generating farm income or it is not an agricultural business.
- You can also use the Shishu Loan as fund-based working capital.
That’s pretty much everything that you need to know about Shishu Loan. In case of questions or confusions, feel free to contact us through our comments section. In case you are not comfortable with us, approach a lender to further details. You will surely get the information you want or need.