For a developing country like India, small and medium businesses hold an important position. They not only help in generating employment but also bring development in rural areas, remove regional imbalances and consequently improve the financial status of people. With over 63.4 million MSMEs (Micro, Small and Medium Enterprises) spread across the length and breadth of the country, a formal banking support system was set up in 2015.
The then Finance Minister Mr Arun Jaitley announced the formation of MUDRA bank in the Union Budget for the financial year 2015-16. The main goal behind the set-up was to empower small entrepreneurs and businesses.
Understanding Mudra Loan
Ever since its launch, the Mudra loan facility has indeed empowered millions of businesses and helped entrepreneurs all through the country under one financial framework. There has been a steady rise in new businesses and start-ups, making India one of the world’s largest start-up ecosystems.
Schemes like Mudra loans have helped companies to raise funds without going through time-consuming and tedious formalities. Let us take a look at the main features of the PMMY, or the Pradhan Mantri Mudra Yojna, that makes it a step in the right direction.
- The Mudra loan offers loans up to INR 10 lakhs, depending on the size and value of your business. The three types of Mudra loans are:
| Type of Loan | Loan Amount | Suitable for |
| Shishu Loan | Up to ₹50,000 | Startups in the teething stage |
| Kishore Loan | ₹50,000 to ₹5 lakhs | Businesses that need capital for their growth and expansion |
| Tarun Loan | ₹5 lakhs to ₹10 lakhs | Established businesses that need capital for further expansion |
- The eligibility criteria are simple. You should be an aspiring entrepreneur in the age group of 18 to 65 years.
- Traders, vendors, and shopkeepers can easily get the required loan.
- No third-party security/ collateral is required to take a loan.
- Urban, as well as rural entrepreneurs, are eligible for the loan.
What Makes Mudra Loan a Great Option for Entrepreneurs?
While there are a number of schemes that offer finance to MSMEs, let us take a look at what makes Mudra Loan a rather well-suited option.
1. Empowering Small Firms
The Mudra loan has acted as an empowering tool that has helped millions of businesses all over the country. So far, over ₹19 trillion has been provided.
2. Loan For Every Need
As the loan amount can go up to ₹10 lakhs, a small or medium business can make use of the available amount to further develop and expand the business. Depending on your needs you can opt for a Shishu, Kishore or Tarun loan option.
3. Collateral-Free Loan
Another striking benefit of the Mudra loan is that no collateral is to be pledged when you require a loan. You can avail a loan without the risk of losing your home/property.
4. Easy and Quick Loan Disbursal
Most banks and non-banking financial companies that offer Mudra loans have been instructed to follow a very simple and hassle-free procedure for loan disbursal. Taking an HDFC Mudra loan or ICICI Bank Mudra loan, ensures that you do not have to get into lengthy paperwork to get the required help.
5. Freedom to Use the Funds
When you opt for a Mudra loan, you are allowed the freedom to use the funds for a number of purposes. You can use the money to buy machinery or raw materials, brand promotion as well as geographical expansion of your business.
6. No Need for Middlemen
The introduction of the Mudra loan has been able to eradicate the need for middlemen. An entrepreneur no longer needs to fall into the never-ending cycle of repayment with unauthorised financers.
7. Affordable Rate of Interest
Under the Mudra loan, you can get the required amount at a reasonable interest rate. In most cases, the interest rate ranges from 8.40% to 12.45%.
8. Flexibility of Tenure
Depending on your needs and budget, you can choose a repayment tenure that can be as high as 7 years. This flexibility of loan repayment thus allows you to pick a tenure in which you feel you would be able to pay off the loan instalment easily. You can also choose a shorter term if you are in a position to pay the amount earlier.
9. Big Boon for Women Entrepreneurs
Almost 70% of the loans disbursed have been received by women entrepreneurs. The easy availability of loans makes it easier for women to make their own economic decisions and thus empowers them.
To conclude
The MSME sector, which contributes to almost 40% of the country’s GDP, creates manifold sources of earning and employment. Despite their immense contribution, for most MSMEs, arranging finances for their business was never easy. Unlike bigger companies and industries, they were unable to manage secured credit. This shortage of credit was a major block for most budding entrepreneurs.
Thankfully, post the launch of the Mudra loan, there is positivity among small businesses. As financial aid can now reach the most remote corners of the country, there’s no dream too big.
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