Mudra Loan for MSME (Ministry of Micro, Small & Medium Enterprise)
Full from of MSME is Ministry of Micro, Small & Medium Enterprise. The Mudra Loan was put in place to provide added resources to the MSMEs to strengthen their businesses. It was predicted that this would help in generation of employment around the country. Therefore it was rightfully given the slogan ‘Fund the Unfunded’.
What is the need for this scheme?
The small and medium sized businesses could always do with a little more cash or a little more capital in their ventures. To meet this demand, the government has started this loan. It will increase the output of the country as a whole, as well as create more opportunities for the younger generations.
Another issue is that the financial institutions often favor the large scale businesses in terms of loan granting. This is because there is a greater chance of raking in higher returns from the established businesses. On the other hand the small and medium range businesses are in dire need of funds but suffer from a shortage of lenders. To bridge this gap the government has come up with this scheme.
This scheme was launched on 8th April 2015 by the Prime Minister of the country Mr. Narendra Modi. There is no last date for applying to this scheme. The small to medium businesses aka the MSMEs can apply for this scheme any time.
Stages of implementation
Another important thing to learn about this scheme is its stages of implementation. Mainly it will be taking place in these three stages –
- Shishu (maximum amount of loan Rs. 50,000): If you need lesser funds for your business or if your business is still in the nascent stage, then this is the type of loan that you will need.
This is simply because this type of loan needs a meager amount of investment. If your business needs less than Rs. 50,000 then your loan will be of Shishu category.
- Kishor (maximum amount of loan Rs. 5, 00,000): This type of loan is bigger than Shishu stage. Often those who have already ventured into the business and have started making profits take this type of loan.
Usually the businesses that are looking to expand their business take this type of loan. This is for those who have surpassed the initial stage of business handling. The amount of loan usually ranges between %s. 50,001 and Rs. 5 lakh.
- Tarun (maximum amount of loan Rs. 10, 00,000): To take the Tarun loan, your business must meet certain criteria. Usually those who have businesses rising towards large business, take this type of loan.
Salient features of this scheme
- Beneficiaries: It has been predicted that this scheme will benefit over 58 million small and medium businesses across the country. This means that it will directly benefit 120 million people who are employed in these industries.
- Organized management of credit: With this scheme comes the hope of having an organized management of credit facility – a facility the small businesses have been deprived of.
- Budding entrepreneurs: This also means that the budding entrepreneurs will now have a better source of funding – one which will give them much room for return.
- Repayment: The smaller businesses have a smaller scale of repayment. Due to this the financial institutions lose their opportunity cost. Through this scheme, the financial institutions are able to get a better guarantee of return due to the government subsidy.
What about the interest rate?
Interest rate is one thing that is still in the fog with this scheme. One thing we have found out is that the interest rate is actually not fixed.
The interest rate will be decided after checking the type of business you have and the yield it gets. So for this reason different individuals will have different rates of interest laid on them. The banks too, after heavy consideration, decide the interest rates they want to charge.
However, that being said, the government is likely to give some subsidy on whatever the banks charge as interest. But even the subsidy percentage is not decided or declared.
How to apply for Mudra Loan?
- You will have to approach the banks to avail the Mudra Loans. You have to take a copy of your proposed project and discuss your business with the banks to avail the loan.
- Take the acknowledgement slip with you for future reference. Also if your business needs equipment then you can carry your invoice for it.
What is a Mudra Loan Card?
The Mudra card can act as the payment option after you have availed the loan. The amount that you have taken as a loan will be the limit up to which you can use the card. Yes, it can work as an ATM card as well as a credit card. Whatever goes beyond the loan amount will be considered an overdraft on this Mudra card.
Mudra loan eligibility criteria
- Non Farm enterprise: You must not take this loan for agricultural purposes. This type of loan is available only for all “non-farm” enterprises presently.
- MSME: If you have a small or medium sized business or an MSME, then only you can take the Mudra loan from the banks. (It is not for the large-scale businesses).
- Income generating activities: The loan amount is strictly for the activities that will generate some profits and some income, that is, it is solely for business purposes.
- Credit needs up to 10 lakh: As per the implementation criteria that we have already mentioned, the credit need must not exceed Rs. 10 lakh.
This loan comes with a lot of flexibility that will facilitate the small and the medium enterprises to flourish. The next phase of its implementation has already started. You can approach the banks to take loans for the year 2018. This is a futuristic initiative which was started with a vision to reduce unemployment and propel output.