We live in a world where we believe and follow that everyone should have access to banking facilities and a right to make their living legally. So, to do this, the government of India introduced the Jan Dhan Yojana to the underprivileged, who can access banking.

We are not here to know the pros and cons of the same and give advice or opinion about this. However, we know that under this program, they launched the Micro Units Development and Refinance Agency, also known as the Mudra Bank. The Mudra Bank specifically addresses the funding needs of micro and small businesses with funding needs up to Rs 10 lakh under its flagship scheme, Mudra Yojana, which is essentially involved in disbursing business loans to small and micro enterprises.

Objectives of Mudra Yojana

The main objective is to extend small business loans to small and micro businesses to help them stand on their own feet by funding up to Rs 10 lakh for new and existing businesses. The other objectives of the Mudra Yojana include

• Regulating the microfinance institutions dealing with businesses such as trading, manufacturing, and services
• Providing priority business loans to SC/ST entrepreneurs
• Providing subsidized business loan interest rates
• Setting guidelines for microfinance institutions to offer a business loan to micro and small businesses in the underprivileged section of the population

Based on the above objectives, the Mudra Yojana encompasses a variety of business loans that businesses can avail of.

Business loan categories

The Mudra Yojana provides three kinds of business loans to needy entrepreneurs with the following loan limits:

• Shishu – Maximum business loan up to Rs 50,000, business loan interest rate at 12% per annum with a five-year repayment period
• Kishore – Business loan between Rs 50,000 and Rs 5 lakh, business loan interest rate, tenure, and other terms decided by the lender
• Tarun –Business loan between Rs 5 lakh and Rs 10 lakh, business loan interest rate, tenure, and other terms decided by the lender

As seen above, entrepreneurs can avail of a business loan per their businesses’ requirements.

Broad policy

Under the broad policy of Mudra Yojana, the program implements the Mudra Yojana through accredited financial institutions comprising 27 Public Sector Banks, 31 Regional Rural Banks, 17 Private Sector Banks, 36 Microfinance Institutions, 25 Non-Banking Financial Institutions, and 4 Cooperative banks.

These lenders disburse 60% of business loans under the Shishu category and 40% under the Kishore and Tarun categories.

4 Types of Funding Support

The Mudra Yojana offers four types of lending support, which include

1. Micro Credit Scheme (MCS)

Microfinance institutions (MFI) offer this scheme for business loans up to Rs 1 lakh. In this scheme, self-help groups (SHG) and joint liability groups (JLG) can participate through individual loans to group members.

2. Refinance Scheme

Commercial banks, regional rural banks, and scheduled cooperative banks registered under Mudra Yojana offer business loans to micro-enterprises up to Rs 10 lakh through refinancing from the Mudra Bank. The loans under this type include term loans and working capital loans.

3. Women enterprise program

Financing banks and microfinance institutions registered under Mudra Yojana can offer a business loan to women entrepreneurs with special terms, including a reduction in interest up to 25 bps.

4. Securitization of the business loan portfolio

Under the Mudra Yojana, banks, NBFCs, and MFIs registered under the Yojana can raise funds for financing microenterprises by participating in the securitization of their business loan assets against microenterprise portfolio, by providing a second loss default guarantee, for credit enhancement, and also participating in the investment of Pass-through Certificate (PTC) either as a senior or junior investor.

As seen above, Mudra Yojana encourages small and micro businesses through various financing options. Some of the companies that can qualify for Mudra loans include

• Transport vehicles – for carrying goods and passengers
• Services – beauty parlors, saloons, boutiques, gymnasium, dry cleaning, tailoring shops, motorcycle and cycle repair shops, pharmacies, DTP, and other services, including catering services, canteens, cold chain, and cold storage units
• Food products sector – production of papad, achaar, jelly, ice cream, sweets, biscuits, bread, and preservation of agricultural produce in rural areas.
• Textile Products Sector – products involving creative activities such as chikan, khadi, zari, dyeing, embroidery, fabric printing, apparel, cotton ginning, knitting, and machine embroidery. Other products, such as bags, accessories for furnishings, and vehicles
• Business loans for Traders and Shopkeepers
• Equipment Finance Scheme for Micro Units
• Activities allied to agriculture–beekeeping, livestock, poultry, dairy, fishery, and agro-processing

Thus, if you are an entrepreneur starting a small or micro business, you can avail of a business loan most suitable for you from an institute like Tata Capital. You can also help with a business loan to grow your small or micro business. The Mudra Yojana is a boon to entrepreneurs from underprivileged society, including women.

Purchasing a house for you and your family is perhaps one of life’s most important financial milestones. It is a big investment, and you need to answer many questions to make the right decisions. Should you buy or build the house? Which area of the city is suitable? What’s your budget? You need to consider many different aspects before making the decision.

Here are a few tips to create a responsible financial plan for owning a house.

1. Create a budget and stick to it

Buying a house may be the most expensive investment you make. As a result, you may want to ensure that you get the best possible property available. Additional facilities like a gym, clubhouse, and swimming pools are attractive options. But they can also increase the overall cost of the property. If these options seem unnecessary, it is better to avoid them.

The first step in buying a home is to identify a realistic price range based on your current financial situation. After that, you should look for the best properties available in this price range.

2. Increase your savings

To fulfill a major financial goal like purchasing a house, you must create a long-term financial plan. And for this, you may have to change a few spending habits without compromising your current lifestyle.

Identify your monthly income, expenses, and savings. How much of your income is used for impulsive/unnecessary costs? By curbing these expenses, you can maximize your savings. You can also consider finding additional earning sources to boost your overall income.

3. Invest appropriately

Increasing your savings is important, but to reach your goal of owning a house in the fastest and most comfortable manner, you need to invest your money. This allows your money to grow at a quicker rate. A savings account, for example, offers modest returns of 3-4% per annum. In comparison, you can earn between 10-15% (sometimes even higher) per annum when you invest in equity mutual funds. This can help you save a much larger amount in a lesser period.

4. Be financially prepared for the down payment

Buying a house through a home loan is probably the most viable option for most people. But even when you take a home loan, a down payment must be made. This is generally around 20% of the total cost. You can save this amount by investing in mutual funds through Systematic Investment Plans (SIPs). For example, by investing Rs 5,000 per month in a SIP, you can earn a corpus of Rs 38 lakh in 20 years, assuming you make a standard return of 10% per annum.

Conclusion

Purchasing a house is a major life goal. That’s why it is very important to make the process as well-planned as possible. Through proper financial planning, it is possible to make your dream of owning a house a reality! There are a lot of different aspects to consider.

Planning is an important part of daily life. But something unexpected happens often, and plans don’t work out. The great Scottish poet Robert Burns once said that the best-laid plans of mice and men often go awry. The same is the case with your finances. You may have grand plans for the future but need a fall-back option. That’s because life takes unexpected twists without warning. So, take some time out and prepare yourself for the unknown.

Prepare yourself for the unexpected.

Proper financial planning is not only about budgeting and investing. It is also about anticipating any emergencies and being prepared for them. Keeping a separate fund to meet such emergencies can safeguard your long-term plan. The extra emergency fund can act as a buffer if things go wrong.

Be proactive

God forbid you to meet with an unfortunate accident; the medical bill is very expensive. In this situation, many people either tend to use up their savings. Another common option is to take a loan. This can be a huge problem, especially if you take a loan from unofficial sources. The high interest rate can eat into your finances pretty quickly.

Instead, it is always better to be proactive and take control of your finances. Create an emergency fund that is to be used specifically for these expenses.

Create an emergency fund.

How much should you save towards this fund? A rule of thumb is three months of income. Whatever your monthly payment is, multiply it by three. For example, earning Rs 50,000 per month, your emergency fund should ideally be around Rs 1.5 lakh. But if your income is irregular (freelancers, for example), saving up to six or even 12 months is better. This can be very useful if you lose your job or plan to quit and look for other options.

Where should you keep it?

Your fund should be easily accessible in case of an emergency. But at the same time, you will not be dipping into these funds regularly. So, investing in an avenue that offers liquidity and good returns is important. In this case, real estate or physical gold investment is out of the question. You should ideally keep the fund where it is safe and quickly accessible. Many prefer savings accounts, but this may not be the best option for inflation. Since the return on these accounts is lower than the inflation rate, you may lose money in the long run. Investing your money in liquid funds is best for safety and good returns. Liquid funds are a type of mutual funds that invest in debt instruments. These funds earn stable returns and are not affected by market interest rates. At the time of redemption, most liquid funds allow you to withdraw around 90% of the amount instantly.

Conclusion

You cannot conjure up an emergency fund overnight. But it is possible to create one gradually, over some time. As an investor, a suitable option is to create a standing instruction for your bank account to transfer a fixed amount of money directly into the fund every month. This way, you can steadily build up a fund that helps you meet your financial needs in emergencies.