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MUDRA Bank or Micro Units Development and Refinance Agency Bank, is a new initiative by the Government of India set up for the development of micro units and refinance of MFIs. This bank has been conceptualized in order to encourage entrepreneurship, by offering funds to the non-corporate small business sector. The MUDRA Yojana was announced by the Finance Minister during FY2016’s Union Budget. According to this scheme, the loan under Pradhan Mantri Mudra Yojana (PMMY) can be availed by any Indian citizen, with a credit requirement of Rs 10 lakh and has a business plan for a non-farm sector income generating activity such as trading, manufacturing, service sector, or processing. A Bank, MFI (Micro Finance Institution), or NBFC (Non-Banking Finance Company) can be approached for availing of MUDRA loans.
What are Micro Units?
Micro Units Development and Refinance Agency Bank has been set up by the Indian Government to fulfil all the funding needs of the non-corporate small business. The responsibility of Micro Units Development and Refinance Agency Bank is to prepare and launch the policy guidelines and registration and regulation of Micro Finance Institution entities. They are also responsible to run a credit guarantee scheme and create a good architecture to serve micro business by offering financial assistance.
Pradhan Mantri Mudra Yojana is a new scheme under Micro Units Development and Refinance Agency for developing and refinancing activities that are relating to micro units. This scheme was announced while presenting the budget for the 2016 financial year. The main purpose of this loan is to provide funds to non-corporate small business sectors.
The products initially being launched are as under:
Sector/activity specific schemes, such as schemes for business activities in Land Transport, Community, Social & Personal Services, Food Product and Textile Product sectors. Schemes would similarly be added for other sectors / activities.
1. Micro Credit Scheme (MCS)
2. Refinance Scheme for Regional Rural Banks (RRBs) / Scheduled Co-operative Banks
3. Mahila Uddyami Scheme
4. Business Loan for Traders & Shopkeepers
5. Missing Middle Credit Scheme – Equipment Finance for Micro Units
Eligibility criteria to avail Mudra Loan (Pradhan Mantri Mudra Yojana)
The borrowers must be from the following Non-corporate Small Business Segment:
The following are the features of Mudra Loans:
1. Brief background for introduction of MUDRA Loan Scheme by Govt. of India
As per NSSO survey (2013), there are around 5.77 crore small/micro units in the country, engaging around 12 crore people, mostly individual proprietorship/Own Account Enterprises. Over 60% of units are owned by persons belonging to Scheduled Caste, Scheduled Tribe or Other Backward Classes. Most of these units are outside the formal banking system, and hence are forced to borrow from informal sources or use their limited owned funds. MUDRA Loan Scheme has been proposed to bridge this gap. MUDRA Loan Scheme will aim to increase the confidence of the aspiring young person to become first generation entrepreneurs as also of existing small businesses to expand their activities.
2. Brief details of the Product
MUDRA loans are extended by banks, NBFCs, MFIs and other eligible financial intermediaries as notified by MUDRA Ltd. The Pradhan Mantri MUDRA Yojana (PMMY) announced by the Hon’ble Prime Minister on 8th April 2015, envisages providing MUDRA loan, upto ` 10 lakh, to income generating micro enterprises engaged in manufacturing, trading and services sectors. The overdraft amount of ` 5000 sanctioned under PMJDY has been also classified as MUDRA loans under Prime Minister MUDRA Yojana (PMMY). The MUDRA loans are extended under following three categories:
More focus would be given to Shishu. Accordingly, all advances granted on or after 8th April 2015 falling under the above category are classified as MUDRA loans under the PMMY. The application forms for such loans shall also carry the name “Pradhan Mantri MUDRA Yojana”.
3. Eligible borrowers
The applicant should not be defaulter to any bank or financial institution and should have a satisfactory credit track record. The individual borrowers may be required to possess the necessary skills/experience/ knowledge to undertake the proposed activity. The need for educational qualification, if any, needs to be assessed based on the nature of the proposed activity, and its requirement.
4. Purpose of Assistance/Nature of assistance.
Need based term loan/OD limit/composite loan to eligible borrowers for acquiring capital assets and/or working capital/marketing related requirements. The MUDRA loans are provided for income generating small business activity in manufacturing, processing, and service sector or trading. The Project cost is decided based on business plan and the investment proposed. MUDRA loan is not for consumption/personal needs. For the purpose of working capital limit, MUDRA has launched a new product called “MUDRA Card”, which is a Debit card issued on RuPay platform, and provides hassle free credit in a flexible manner.
5. Amount of assistance
Upto to 10 lakh in three categories viz. Shishu, Kishore and Tarun.
6. Margin/Promoters Contribution Margin/Promoters
Contribution is as per the policy framework of the bank, based on overall guidelines of RBI in this regard. Banks may not insist for margin for Shishu loans.
7. Interest rate Interest rates are to be charged as per the policy decision of the bank.
However, the interest rate charged to ultimate borrowers shall be reasonable. Scheduled Commercial Banks, RRBs and Cooperative Banks wishing to avail of refinance from MUDRA will have to peg their interest rates, as advised by MUDRA Ltd., from time to time.
8. Upfront fee/Processing charges.
Banks may consider charging of upfront fee as per their internal guidelines. The upfront fee/processing charges for Shishu loans are waived by most banks.
A. First charge on all assets created out of the loan extended to the borrower and the assets which are directly associated with the business/project for which credit has been extended.
B. DPN (wherever applicable).
C. CGTMSE (wherever felt desirable)/MUDRA Guarantee cover (as and when introduced).
In terms of RBI guidelines issued vide Master Circular on lending to MSME Sector (para 4.2) dated July 01, 2014, in respect of loans upto ` 10 lakh, banks are mandated not to accept collateral security in the case of loans upto ` 10 lakh extended to units in the Micro Small Enterprises (MSE) Sector. Banks are required to encourage their branch level functionaries to avail of the Credit Guarantee Scheme cover, wherever felt desirable.
10. Tenor of Assistance
Based on the economic life of the assets created and also the cash flow generated. However, MUDRA’s refinance assistance will be for a maximum tenor of 36 months which will also be aligned to terms of allotment of MUDRA funds by RBI from time to time.
11. Repayment Term Loan
To be repaid in suitable installments with suitable moratorium period as per cash flow of the business. OD & CC Limit: Repayable on demand. Renewal and annual review as per internal guidelines of the bank.
12. Availability of the loan
Mudra loan under PMMY is available at all bank branches across the country. Mudra loan is also issued by NBFCs / MFIs who are engaged in financing for micro enterprises in small business activities.
The following are the offerings of MUDRA loans:
Mudra Shishu Yojana
Banks offer loans up to Rs 50,000 under the Mudra Shishu Yojana. Being a basic scheme, a nominal interest rate of around 10% to 12% is charged for the loan.
Mudra Kishor Yojana
A loan amount of Rs 5,00,000 is offered under Mudra Kishor Yojana. Categorized as unsecured loan and being a middle scheme the rate of interest ranges from 14% to 17% depending on the bank, where loan is availed.
Mudra Tarun Yojana
The last scheme offered is the Mudra Tarun Yojana, where a loan amount of Rs 5,00,001 to Rs 10,00,000 can be availed. An unsecured loan, this comes with an interest rate of 16% and may vary according to the bank approached.
This was all about the industries covered by the MUDRA Bank and interest rates offered on the loan scheme. In order to avail a loan, all essential details should be furnished to the bank for a seamless procedure.
Product of MUDRA
Micro Units Development and Refinance Agency Ltd. [MUDRA] is an NBFC supporting development of micro enterprise sector in the country. MUDRA provides refinance support to Banks / MFIs for lending to micro units having loan requirement upto 10 lakh. MUDRA provides refinance to micro business under the Scheme of Pradhan Mantri MUDRA Yojana. The other products are for development support to the sector. The bouquet of offerings of MUDRA is depicted below. The offerings are being targeted across the spectrum of beneficiary segments.
Portfolio Credit Guarantee
Traditional financing in Indian context adopts an Asset Based lending approach with emphasis on collaterals. Micro units, most of the times, are unable to provide the comfort of collaterals. Hence MUDRA loans i.e. loans upto 10 lakh, have been made collateral free, as per the RBI norms in this regard.
To mitigate the issue of collaterals, MUDRA is offering a Credit Guarantee Product. MUDRA Credit Guarantee is extended by creation of a Fund called “Credit Guarantee Fund for Micro Units” [CGFMU] and the scheme has been notified by GoI vide its notification dated April 18, 2016. Accordingly, all eligible micro loans sanctioned since April 08, 2015 is covered under the Scheme. The Scheme is being managed by National Credit Guarantee Trustee Company Ltd. [NCGTC], an agency promoted by the GOI.
Further, given the context of the industry /segment, since the individual loan sizes would expectedly be small and number of loans will be large, Mudra Credit Guarantee scheme provide a Portfolio Guarantee. Under this, Credit Guarantee or Risk Sharing is provided for a portfolio of homogenous loans instead of a Scheme for individual loan – by – loan guarantee. This is expected to create administrative efficiencies and increase receptiveness for the Credit Guarantee product. The Guarantee product is one of the key interventions proposed with the objective of bringing down the cost of funds for the end beneficiary to improve its creditworthiness.
MUDRA Card is an innovative product which provides working capital facility as a cash credit arrangement. MUDRA Card is a debit card issued against the MUDRA loan account, for working capital portion of the loan. The borrower can make use of MUDRA Card in multiple withdrawal and credit, so as to manage the working capital limit in a most efficient manner and keep the interest burden minimum. MUDRA Card will also help in digitalization of MUDRA transactions and creating credit history for the borrower.
National Payment Corporation of India (NPCI) has given RuPay branding to MUDRA Card and also separate BIN / IIN for the same, by which credit history can be tracked.
MUDRA Card can be operated across the country for withdrawal of cash from any ATM / micro ATM and also make payment through any ‘Point of Sale’ machines.
The design of the MUDRA card as approved by DFS, GoI and NPCI is given below. Banks can customize the same by incorporating their logo and name.
Funding based on Stages of Growth of a Micro unit
MUDRA has classified the borrowers into three segments: the starters, the mid-stage finance seekers and the next level growth seekers. To address the three segments, it has launched three loan instruments:
The following are the purposes of Mudra Loan:
Primary Duties of MUDRA Loans:
The MUDRA Bank would primarily be responsible for –
Purpose of MUDRA loan
Mudra loan is extended for a variety of purposes which provide income generation and employment creation. The loans are extended mainly for:
Following is an illustrative list of the activities that can be covered under MUDRA loans:
Purchase of transport vehicles for goods and personal transport such as auto rickshaw, small goods transport vehicle, 3 wheelers, e-rickshaw, passenger cars, taxis, etc.
Community, Social & Personal Service Activities
Saloons, beauty parlours, gymnasium, boutiques, tailoring shops, dry cleaning, cycle and motorcycle repair shop, DTP and Photocopying Facilities, Medicine Shops, Courier Agents, etc.
Food Products Sector
Activities such as papad making, achaar making, jam / jelly making, agricultural produce preservation at rural level, sweet shops, small service food stalls and day to day catering / canteen services, cold chain vehicles, cold storages, ice making units, ice cream making units, biscuit, bread and bun making, etc.
Textile Products Sector / Activity
Handloom, powerloom, khadi activity, chikan work, zari and zardozi work, traditional embroidery and hand work, traditional dyeing and printing, apparel design, knitting, cotton ginning, computerized embroidery, stitching and other textile non garment products such as bags, vehicle accessories, furnishing accessories, etc.
Business loans for Traders and Shopkeepers
Financial support for on lending to individuals for running their shops / trading & business activities / service enterprises and non-farm income generating activities with beneficiary loan size of upto 10 lakh per enterprise / borrower.
Equipment Finance Scheme for Micro Units
Setting up micro enterprises by purchasing necessary machinery/equipments with per beneficiary loan size of upto 10 lakh.
Activities allied to agriculture
‘Activities allied to agriculture’, e.g. pisciculture, bee keeping, poultry, livestock, rearing, grading, sorting, aggregation agro industries, diary, fishery, agriclinics and agribusiness centres, food & agro-processing, etc.(excluding crop loans, land improvement such as canal, irrigation and wells) and services supporting these, which promote livelihood or are income generating shall be eligible for coverage under PMMY in 2016-17.
The following are the types of support given by MUDRA:
Micro Credit Scheme:
Micro Credit Scheme is offered mainly through Micro Finance Institutions (MFIs), which deliver the credit upto Rs.1 lakh, for various micro enterprise activities. Although, the mode of delivery may be through groups like SHGs/JLGs, the loans are given to the individuals for specific income generating micro enterprise activity. The MFIs for availing financial support need to enroll with MUDRA by complying with some of the requirements as notified by MUDRA, from time to time.
Refinance Scheme for Banks
Different banks like Commercial Banks, Regional Rural Banks and Scheduled Cooperative Banks are eligible to avail of refinance support from MUDRA for financing micro enterprise activities. The refinance is available for term loan and working capital loans, upto an amount of 10 lakh per unit. The eligible banks, which have enrolled with MUDRA by complying to the requirements as notified, can avail of refinance from MUDRA for the loan issued under Shishu, Kishor and Tarun categories.
Women Enterprise Programme
In order to encourage women entrepreneurs the financing banks / MFIs may consider extending additional facilities, including interest reduction on their loan. At present, MUDRA extends a reduction of 25bps in its interest rates to MFIs / NBFCs, who are providing loans to women entrepreneurs.
Securitization of loan portfolio
MUDRA also supports Banks / NBFCs / MFIs for raising funds for financing micro enterprises by participating in securitization of their loan assets against micro enterprise portfolio, by providing second loss default guarantee, for credit enhancement and also participating in investment of Pass through Certificate (PTCs) either as Senior or junior investor.
To maximize coverage of beneficiaries and tailor products to meet requirements of specific business activities, sector / activity focused schemes would be rolled out. To begin with, based on higher concentration of businesses in certain activities / sectors, schemes are proposed for:
1. Land Transport Sector / Activity – Which will inter alia support units for purchase of transport vehicles for goods and personal transport such as auto rickshaw, small goods transport vehicle, 3 wheelers, e-rickshaw, passenger cars, taxis, etc.
2. Community, Social & Personal Service Activities – Such as saloons, beauty parlours, gymnasium, boutiques, tailoring shops, dry cleaning, cycle and motorcycle repair shop, DTP and Photocopying Facilities, Medicine Shops, Courier Agents, etc.
3. Food Products Sector – Support would be available for undertaking activities such as papad making, achaar making, jam / jelly making, agricultural produce preservation at rural level, sweet shops, small service food stalls and day to day catering / canteen services, cold chain vehicles, cold storages, ice making units, ice cream making units, biscuit, bread and bun making, etc.
4. Textile Products Sector / Activity – To provide support for undertaking activities such as handloom, powerloom, chikan work, zari and zardozi work, traditional embroidery and hand work, traditional dyeing and printing, apparel design, knitting, cotton ginning, computerized embroidery, stitching and other textile non garment products such as bags, vehicle accessories, furnishing accessories, etc.
Application process to avail Mudra Loan
To apply for Mudra Loan for all the categories, you will have to go through the following process:
Documents required for Mudra Loan
If the borrower wishes to take a vehicle loan under the Pradhan Mantri Mudra Yojana (Mudra Loan), he must submit the following documents:
If the borrower wishes to take a business instalment loan under the Pradhan Mantri Mudra Yojana, he must submit the following documents:
If the borrower wishes to take a Business Loans group and rural business credit under the Pradhan Mantri Mudra Yojana, he must submit the following documents:
Pradhan Mantri Mudra Yojana (Mudra Loan) Application form
The following details will have to be filled in the Pradhan Mantri Mudra Yojana (Mudra Loan Bank) application form:
1.Enterprise name and category has to be mentioned for office use.
3. Information about the proprietor:
4. Names of associate concerns:
5. Existing banking or credit facilities
The following details must be filled:
6. Credit facilities proposed and the amount and the purpose and the details of the security offered must be mentioned in rupees.
7. In case of working capital, the actual sales and projected sales information has to be clearly mentioned.
8. In case of Term Loan requirement, the details of the machinery or equipment have to be provided. The details of the type of the machinery, purpose, supplier name, and cost of machine, contribution made by promoter and the loan required must be filled in.
9. The past performance and future estimates of sales, profit and capital must be mentioned.
10. Statutory obligations’ status has to be mentioned. The statutory obligations are:
11. The final part is the declaration, which requires you to pin up 3 passport sized photographs and the signature of the proprietor, partner or director, whose photographs have been affixed.
12. The borrower will get an acknowledgement slip that includes the following: