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
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.
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.
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.
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.
