Everything You Need to Know About MUDRA loan

India’s SME and MSME sectors form the backbone of the nation’s manufacturing industry. With over 63.05 million micro, 0.33 million small, and 5,000 medium-scale industries around the country, this sector contributes to nearly 6.11% of India’s manufacturing sector’s GDP and 24.63% of the service sector’s GDP.

SME and MSME industries also account for nearly 33.4% of India’s manufacturing output, further being one of India’s largest employment generating sectors.

However, despite the enormous contribution towards India’s economy, MSME and SME sectors often suffer from a recurrent shortage of financing. More than 20% of all MSMEs operate from the country’s rural areas, making it even more difficult for financiers to address and extend monetary assistance.

To address this issue, the Government of India introduced several policies, offering training, financial assistance (in the form of different types of credits), and better market exposure. One such initiative was the establishment of the Micro Units Development and Refinance Agency Ltd. in 2015 with financing enabled via the Mudra loan.

Credit facility under Micro Units Development and Refinance Agency

Micro Units Development and Refinance Agency Ltd., or MUDRA, is a Non-Banking Financial Company that supports SME and MSME development across India. Businesses that fall under this category can avail refinancing (as MUDRA loan) under Pradhan Mantri MUDRA Yojana from this organisation.

MUDRA offers credits of up to Rs.10 lakh to MSMEs and SMEs without any collateral. These business loans are disbursed via various financial institutions that associate with the Government body.

Sole proprietorships, partnership firms, private, and public limited companies all are eligible to apply for a MUDRA loan. The credit is extended in three different categories, depending on an applicant’s establishment and overall credit liability.

  1. Startups and new businesses can avail loans of up to Rs.50,000. These are classified as Shishu loans.
  2. Existing enterprises can secure funding of up to Rs.5,00,000 for business expansion, purchasing equipment, raw materials, etc. under Kishor category.
  3. Loans of up to Rs.10,00,000 can be availed under Tarun category by well-established enterprises to fulfil their expansion financing needs.

Credits like MUDRA loan are necessary for India’s manufacturing and service industry as they can help small businesses collect the necessary overheads and organise business finance. Companies can avail such a credit to fund various income-generating activities, including –

  1. Procurement of commercial transport vehicles can be funded with the help of this type of credit.
  2. Businesses can also avail a loan to establish shops or set up their own trading businesses (and similar non-farm income-generating activities).
  3. Businesses handling food or food-grade products, poultry, livestock, dairy, etc. can also avail a MUDRA loan, so do agribusiness centres that require additional financial assistance.

Other than these, businesses can also boost their working capital through financing under MUDRA to extend community, social, and personal services.

Application for credit under Mudra

Companies can apply for loans under the MUDRA scheme from any of the leading financial institutions across India. The process is fairly straightforward. After filling up the application form, one needs to provide his/her personal and business details. After successful verification, the credit will be disbursed to the recipient’s account.

Companies can also apply for business loan from commercial lenders, especially if they require a larger corpus to fund organisational growth. Various financial institutions like Bajaj Finserv offer such credits to eligible borrowers.

The lender even provides pre-approved offers to existing customers to simplify and speed up the application process. These offers are available on various financial products, including business loans, personal loans, credits cards, etc. You can check your pre-approved offer online by sharing only some essential details.

A combined effort of the private and public sector is more than likely to mitigate the financial crunch that India’s SMEs and MSMEs experience. The provision of various types of credit can be significantly beneficial, offering businesses the flexibility to choose an advance according to their financial requirements, revenue targets, and repayment capability. It can push towards building a successful business brand, as well as secure means to generate better revenue in the long run.