About MUDRA Loan

The formation of the Mudra Scheme was announced in the year 2015 as financial aid for small and micro-enterprises. It was formally registered under the Companies Act 2013 and operates as a Non-Banking Finance Institution. Mudra functions under the guidelines that are provided by the Reserve Bank of India (RBI) like all banks and non-banking financial companies (NBFCs).

However, Mudra does not lend any money directly. It has collaborated with several banks, MFIs and NBFCs across the country in order to provide financial support to any micro and small enterprise in the country. The role of Mudra is to ensure that easy finance options are provided to these businesses across various segments including, retail, manufacturing, and service segments.

Why Should You Opt for Mudra Loans?

The non-corporate sector forms a major part of the country's economy. It provides employment to several individuals with different skillsets. The idea behind the formation of the Mudra Scheme is to develop this sector in the country and provide financial support as well as refinancing.

Opting for a Mudra Loan is one of the best options available to anyone who is planning to establish a new business or expanding an existing one in the above-mentioned sectors. In addition to affordable interest rates, this loan plan also provides you with simple repayment terms that ensure that you are able to make timely repayments and also maintain a good credit score.

Mudra Loans are available for diverse business purposes such as the purchase of new equipment and even carrying out any civil work if needed.

Here are some reasons to opt for a Mudra Loan:

  • You get easy access to financing
  • You are able to bridge any infrastructure gaps that may be holding you back
  • Mudra also provides several skill building and knowledge sharing programs that allow you to hire the best employees and team.
  • It is available to both existing as well as brand new business enterprises in the aforementioned sectors.
  • These loans are available in all banks and NBFCs across the country

Features and Benefits of Mudra Loans

Mudra Loans come with some of the most beneficial features as mentioned below:

  • Sizeable loan quantum: With Mudra Loans, you do not have any cap on the minimum amount that you can borrow. These loans help you avail financing of up to 10 Lakhs. The amount provided is based on the project report and the details of the project provided by the borrower at the time of application. This loan amount can be used for any purchases or expenses incurred on your business and cannot be used for any consumption or personal use.
  • Lowest interest rates: To provide businesses with an affordable finance option, the lowest interest rates are provided under the Mudra scheme. Since the goal of this scheme is to reach various sectors and provide finance to individuals from various social backgrounds, this is one of the most important features. The loans are linked to MCLR and vary from one bank to the other.
  • Margin on loan: The margin or the promoter's contribution is subject to the discretion of the lending institution. While some of them may do away with the margin entirely, others require a very minimal contribution from the promoter. With most banks, there is no margin required for Mudra Loans up to 50,000. For all MFIs, there is a cap on the margin that they can request from the borrowers. For any MFI where the loan portfolio is over 100 Crores, the margin is currently capped at 10%. For MFIs with a lower loan profile, the current margin is 12% or 2.75 times the regular base rate of the five major banks commercially, whichever amount is lesser.  
  • Collateral: This is the best feature of this loan that makes it one of the easiest and most reliable finance options. All loans under the Mudra scheme are subject to credit guarantees. This means that the borrower is not required to provide any collateral in the form of any assets as per the quantum of the loan. Primary security may be required by some banks. This is in the form of hypothecation of the assets acquired using this scheme. They may also require a promoter's guarantee. However, no third party guarantee is required on these loans.
  • Repayment tenure: These loans offer decent repayment tenure of 7 years on the loan. The actual repayment tenure on loan that you take is as per the loan agreement between you and the lending institution. The borrower can choose a convenient repayment schedule as per the equated monthly instalment (EMI) payable each month. In addition to a flexible repayment period, these loans also give you the advantage of a moratorium period or holiday period. This is the period after which you will have to start paying the EMIs.
  • Working capital and term loan: You have the advantage of both working capitals and term loans with this scheme. The working capital is provided in the form of a Mudra Card, which is a debit card. You can use this card at any ATM across the country in order to withdraw cash. You also have the option of using it with a POS machine to make any purchases. This is a great option to have the necessary funds on the go on a daily basis. In addition to this, you are able to control the usage and manage your working capital better.
  • Processing fees and other charges: The processing fees and charges are as per the policies of the bank that you are borrowing your loan from. In most cases, the processing fees are waived off for loan amounts up to 50,000. Documentation charges, late payment charges, etc., are also subject to the internal guidelines of the bank.
  • Available pan India: As per the RBI guidelines, all banks, NBFCs, and MFIs have been suggested to provide these loans as a financing option for small and micro business enterprises. This makes it easily available in rural, semi-urban, urban, and even metro sectors of the country.
  • Microfinance option available: A micro or small enterprise also has a microfinance option available through MFIs. These are loans of up to 1 Lakh that can be availed by individual entrepreneurs. They need to have a certain income-generating non-corporate business in order to avail this facility.
  • Developmental and promotional activities: The lack of skilled labor is one of the biggest non-financial challenges faced by the non-corporate sector. To help bridge this gap, several skill building programs and promotional programs are carried out through Mudra at various levels. They have collaborated with organisations like the National Skill Development Corporation in order to facilitate these programs. They have also partnered with the National Rural/ Urban Livelihood Mission in order to help individuals from very economically poor backgrounds seek better employment options by enhancing their skills. They also provide business and finance literacy for those who have entrepreneurial ventures.
  • Subsidies offered: Mudra encourages entrepreneurship among women. For this reason they offer a subsidy of 0.25% on the bps for women borrowing under the mudra scheme. There may be additional facilities provided by the bank for women entrepreneurs, too.

Mudra Loan Interest Rates

For any non-corporate business enterprise, having easy access to finances is extremely critical. Looking for immediate finance from any informal source comes at a very high cost. The goal of Mudra is to rationalise these costs.

While announcing Mudra schemes, the Government of India also made provisions for a certain refinance corpus especially for Mudra which would be allocated by the RBI. This facility was provided to make up for the shortfall in lending to priority sectors. This refinance option makes it very easy for the loan interest rates to be reduced and made affordable for the final borrower. Since the refinance option reduces the borrowing costs incurred by the lending institution, it makes it possible for the final borrower to enjoy the benefits.

The interest rates charged on loan are as per the bank that you apply for the loan with. However, there is a cap on the interest that the banks can charge when providing Mudra Loans. There is a minimum and maximum cap on the interest charged by banks. The lowest interest rate is capped at 1 year MCLR or the Base Rate (whichever rate the bank applies). The maximum cap is 3.50% above the refinance rate. In case of the NBFCs, the rate of interest is capped at 6% above the Mudra Finance Rate.

These measures taken have a positive effect on the pricing of all Mudra Loans provided. Businesses from the micro and small sector have the option of an affordable interest rate and better accessibility to credit.

Interest Rates of Top 5 Banks Offering Mudra Loans

As mentioned before, Mudra Loans are available through partner banks and NBFCs.

Here are the interest rates offered top five Mudra Loan banks:

Name of the Bank Interest Rate

Syndicate Bank

  • For loans up to 1 Lakh: 1 year MCLR
  • For loans above 1 Lakh up to 10 Lakhs: 1 year MCLR + 1% for one year and 1 year MCLR + 1.25% for above one year

Canara Bank

1 year MCLR + 1.55% to 1 year MCLR + 2.80%

UCO Bank

1 year MCLR + 0.15%

Bank of Baroda

Loan amount

Micro Enterprises

Small Enterprises

Up to 50,000

MCLR + SP

(MCLR+SP) + 0.5%

50,000 to 2 Lakhs

(MCLR+SP) + 0.5%

(MCLR+SP) + 0.7%

Above 2 Lakhs

(MCLR+SP) + 0.7%

(MCLR+SP) + 0.85%

Punjab National Bank

  • Up to 50,000: 1 year MCLR
  • Above 50,000: 1 year MCLR + 1.25%

Types of Mudra Loans

There are three types of Mudra Loans based on the quantum of loan provided:

  • Shishu: Up to 50,000
  • Kishore: 50,001 - 5,00,000
  • Tarun: 5,00,001 - 10,00,000

Mudra Loan Eligibility

The eligibility criteria for Mudra Loans are as follows:

  • The individual should be a resident of India
  • This loan is only extended to non-corporate businesses
  • It can be availed by small and micro industries

Documents Required for Mudra Loans

Make sure that you complete the documentation correctly in order to prevent any chances of rejection of your loan application. With Mudra Loans, most banks provide a detailed checklist. However, here is a list of documents that you need to submit.

For Loans Up to 2 Lakhs

Type of Document

Details

Identity Proof

Self-certified copy of Driving license/ Voter's ID/ PAN Card/ Passport/ Photo IDs authorised by the government of India.

Address Proof

Phone bills/ Electricity bill/ Property Tax Receipt/ Voter's ID Card/ Aadhaar Card/ Passport of the individual/ Certificate authorised by the government of India and issued by Government Authority.

Income Proof

Statement of accounts

Expenses

Quotation of any machinery required or purchases to be made.

Proof of Business

Partnership deed, leave and license agreement of the shop, registration, etc.

Additional Documents

  • 2 recent passport-sized photos
  • SC/ST/OBC proof if needed

Additional Documents for Loans Above 2 Lakhs

Business Profile

  • Invoices or quotations of equipment or items that need to be purchased and estimation of any civil work if applicable.
  • Projected balance sheet for any start-up or existing unit for one year to obtain working capital and as per the term of the loan in case of term loan.
  • Last two years of unaudited balance sheets of the existing unit with IT or sales tax returns.
  • Articles of association for the company, such as the partnership deed.
  • Asset and liability statement from the borrower.
  • Sales achieved in the present financial year until the date of application submission.

Although these are the general loan documents required, the bank may request additional documents that must be duly submitted by the applicant as per the format requested.

Why Apply for Mudra Loans on MyMoneyMantra?

If you are looking for a faster and simpler option to apply for a Mudra Loan or any other Business Loan, MyMoneyMantra is the best option available to you.

Here are some benefits that you will enjoy when you choose MyMoneyMantra as your channel to apply for any loan:

  • End to end service: When you choose MyMoneyMantra as your channel to apply for a loan, the only thing that you need to do is submit a request for a loan application. Following this, you will receive complete assistance for all the processes. The documents are collected from you at your doorstep. Once these documents are verified, they are submitted to the bank. MyMoneyMantra has also put several systems in place to ensure faster loan disbursement.
  • Access to various institutions: MyMoneyMantra is a single portal that gives you access to more than 90 NBFCs and Banks. This means that you do not have to visit individual websites in order to learn more about the loans. They make sure that all products have a detailed description, along with the features offered. This helps you compare different loans and credit options before choosing one that suits your needs the best. This information is available to you on the go, making MyMoneyMantra the most convenient option available as well.
  • Testimony of happy customers: MyMoneyMantra has provided ideal finance solutions to almost 40 million customers all over the country. This strong customer base is a testimony to the fact that they offer products that are not only reliable but also effective.
  • You can apply from any part of the country: MyMoneyMantra is an online portal which means that you can log in anytime in order to apply for a loan. Most processes are online, making it very easily accessible. In addition to this, you have the advantage of a reach of over 500 cities across India. So, no matter which part of the country you are currently in, you can make the most of the services offered by MyMoneyMantra. You can also get in touch with more than 2,500 relationship managers who will provide you with any information that you need with respect to the loans.
  • The loan plans are customised: Once you log in and select the type of loan that you want to apply for, MyMoneyMantra will ask your for details like you gender, name, income, etc. Based on this information, the best loan plans and quotations will be provided as per your requirement. This also ensures that you are able to repay these loans without any hassles.
  • Better financial planning: MyMoneyMantra is dedicated to being your financial partner no matter what your requirement is. For this, you have the option of interacting with a board of financial advisors who can help you plan your finances much better. They offer you with the best credit solutions when needed. In addition to this, MyMoneyMantra also gives you the benefit of free financial tools like EMI Calculator.

How to Calculate Mudra Loan EMI?

Making sure that you know what your EMI towards the loan will be is crucial. That helps you decide if, in fact, a loan is suitable for you or not. Once you know the EMI that is payable towards your loan, you will be able to manage your monthly finances a lot better as well.

After you have calculated the EMI, deduct all the regular expenses from the income. This will give you an idea of the actual EMI that you can afford to pay. If the EMI calculated is too high, you can make changes in your monthly budget accordingly. You also have the option of increasing the repayment tenure or negotiating the interest charged to make the loan more affordable. There are two options available to calculate your EMI:

Using the formula

The standard formula, [P x R x (1+R)^N]/[(1+R)^N-1] is used by all lending organizations in order to calculate the EMI. Here, P is the loan amount provided, R is the final rate of interest, and N is the tenure of repayment.

MyMoneyMantra EMI Calculator

This free online tool gives you the edge and advantage of banking technology to check your EMI easily. The tool also applies the same formula mentioned above. However, it helps you avoid long calculations and is more convenient to use. All you have to do is enter the loan amount, the tenure, and the rate of interest. Based on this, the EMI is calculated instantly and displayed on the screen.

Mudra Loan - Customer Care

You have two national toll-free numbers to get all the information that you need on Mudra Loans as mentioned below:

  • 1800-180-1111
  • 1800-11-0001

FAQs - Mudra Loan

What exactly is a Mudra Loan?

MUDRA stands for Micro Units Development and Refinance Agency Limited. This is an NBFC that was set up by the government of India in order to provided credit and refinancing options for small and micro-enterprises. Mudra does not offer any loans directly but partners with Last Mile Finance Institutions to provide loans to those who require it.

From where can I avail a Mudra Loan?

Mudra Loans are available in all banks, microfinance institutions, and NBFCs across the country.

How does Mudra ensure the lowest interest rates?

Mudra provides refinancing to banks, NBFCs, and MFIs as per the RBI guidelines. This makes it possible for these institutions to reduce the borrowing costs and provide the loans at the most affordable rates of interest. Mudra has provided caps on the lowest and highest interest chargeable by these organisations.

What sectors can get loans through Mudra?

Mudra provides loans to any NCSB or Non Corporate Small Business. This includes several proprietorship and partnership firms. The loans are extended to new businesses as well as existing ones. Whether it is manufacturing, service or retail units, Mudra loans are applicable to them.

How is the implementation of Mudra Loans monitored?

Mudra Loans are monitored both at the state level and the national level. At the state level, these loans are monitored by SLBC. MUDRA or the Department of Financial Services monitors the implementation of these loans at a national level. There is a portal that has also been developed to ensure that these loans are implemented correctly. Through this portal, banks and other lending institutions are required to feed in all the details of their achievements. The data provided is consolidated and a review report is prepared accordingly.

Why is no collateral required for these loans?

As per the recommendations of the RBI, banks and lending institutions cannot seek any collateral against loans offered to the micro and small sectors up to loan amounts of 10 Lakhs.  These loans are covered under the Credit Guarantee Schemes for Micro Small Enterprise. However, the bank may seek primary security in the form of hypothecation of assets generated from the loan provided and a guarantee from the promoters.

How does the Mudra Card work?

For any business to function smoothly and carry out daily operations, regular cash inflow is a must. Mudra facilitates this by providing working capitals to small and micro-enterprises. This working capital is provided in the form of a Mudra debit card. This can be used for making transactions on POS machines and to withdraw cash from any ATM in the country.

What is the grievance redressal process for Mudra Loans?

You can contact the customer care number provided above for any information on Mudra Loans. However, in case of any dispute or grievance, it is best to make use of the standard grievance redressal policy of the bank that you have availed your loan from. You also have the option of contacting higher authorities such as the regional or zonal officer of the bank in order to register any complaints with respect to your Mudra Loan.

Is ITR mandatory for these loans?

No. Income Tax Returns are not mandatory for you to apply for a Mudra Loan. However, for loans above 2 Lakhs, the bank may request ITR to understand the income of the individual.

What is the turnaround time of these loans?

Turnaround time depends upon the bank that you borrow form. On an average, the loan takes 7 to 10 days to be sanctioned and disbursed.

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