MUDRA Yojana and The Rise of Micro-Entrepreneurship

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What is MUDRA Loan Scheme by Govt. of India

As per NSSO survey (2013), there were around 5.77 Crore small/micro units in the country, engaging around 12 Crore people, mostly individual proprietorship/Own Account Enterprises. Over 60% of units were owned by persons belonging to Scheduled Castes, Scheduled Tribes or Other Backward Classes. Most of these units were outside the formal banking system, and hence were forced to borrow from informal sources or use their own limited owned funds. 

With an objective to provide the micro entrepreneurs to access credit from the formal financial system, Prime Minister Shri Narendra Modi has launched Micro Units Development and Refinance Agency (MUDRA) on April 08, 2015. PM Modi has always believed in empowering the people instead of giving them short term benefits which have failed in making an impact in their lives.

As it was rightly said provide man a fish, he eats for one day, teach him fishery he can eat throughout his life.

Prime Minister Narendra Modi outlined his government’s vision of making youths as job creators and not job seekers and as such MUDRA can be regarded as a landmark initiative in the financial inclusive landscape.

Under MUDRA Yojana three categories of interventions has been named which includes,

Shishu category -        Loan upto Rs. 50,000.

Kishore category -      Loan from Rs. 50,000 to Rs. 500,000.

Tarun category -         Loan above Rs. 500,000 and below Rs. 10,00,000.

MUDRA would also adopt a credit plus approach and take up interventions which may include:

  • Supporting financial literacy;
  • Promotion and support of grass root Institutions;
  • Developing a framework for Small business finance entities;
  • Working with credit bureaus & rating agencies.

Some important features of the scheme are:

  • Eligible borrowers- Individuals, Proprietary concerns, Partnership Firms, Private Ltd. Companies, Public Companies or any other legal forms are eligible to avail MUDRA. The applicant should not be defaulter to any bank or financial institution and should have a satisfactory credit track record. The individual borrowers may be required to possess the necessary skills/experience/knowledge to undertake the proposed activity. The need for educational qualification, if any, needs to be assessed based on the nature of the proposed activity, and its requirement.
  • Margin/Promoters Contribution Margin- Promoters contribution is as per the policy framework of the bank, based on overall guidelines of RBI in this regard. Banks may not insist for margin for Shishu loans.
  • Interest rate- Interest rates are charged as per the policy decision of the bank. However, the interest rate charged to ultimate borrowers shall be reasonable. Scheduled Commercial Banks, RRBs and Cooperative Banks wishing to avail of refinance from MUDRA will have to peg their interest rates, as advised by MUDRA Ltd., from time to time.

Rate of Interest Charged,

Shishu: The rate of interest charged under this scheme by the banks is around 10% to 12%. And public sectors banks are charging at lower rate.

Kishor: The rate of interest is from14%to 17% varying from bank to bank.

Tarun: The rate of interest starts at 16%.

  • Upfront fee/Processing charges- Banks may charge upfront fee as per their internal guidelines. The upfront fee/processing charges for Shishu loans are waived by most banks.
  • Security-
  1. First charge on all assets created out of the loan extended to the borrower and the assets which are directly associated with the business/project for which credit has been extended.
  2. Banks are mandated not to accept collateral security in the case of loans upto Rs. 10 lakh extended to units in the Micro Small Enterprises (MSE) Sector. Banks are required to encourage their branch level functionaries to avail of the Credit Guarantee Scheme cover, wherever felt desirable.
  • Tenor of Assistance- Tenor of assistance is based on the economic life of the assets created and also the cash flow generated. However, MUDRA’s refinance assistance will be for a maximum tenor of 36 months.
  • Repayment-

Term Loan : To be repaid in suitable installments with suitable moratorium period as per cash flow of the business.

OD & CC Limit : Repayable on demand. Renewal and Annual Review will be conducted as per internal guidelines of the Bank.

  • Availability of the loan - MUDRA loan is available at all bank branches across the country. MUDRA loan is also issued by NBFCs/MFIs who are engaged in financing for micro enterprises in small business activities.

The MUDRA loans are provided for income generating small business activity viz.

  • Transport Vehicles-

Purchase of transport vehicles for goods and personal transport such as auto rickshaw, small goods transport vehicle, 3 wheelers, e-rickshaw, passenger cars, taxis, etc.

  • Community, Social & Personal Service Activities-

Saloons, beauty parlours, gymnasium, boutiques, tailoring shops, dry cleaning, cycle and motorcycle repair shops, DTP and Photocopying Facilities, Medicine shops, Courier Agents, etc.

  • Food Products Sector-

Activities such as papad making, achaar making, jam/jelly making, agricultural produce preservation at rural level, sweet shops, small service food stalls and day to day catering/canteen services, cold chain vehicles, cold storages, ice making units, ice cream making units, biscuit, bread and bun making etc.

  • Textile Products Sector/Activity-

Handloom, powerloom, Khadi activity, chikan work, zari and zardozi work, traditional embroidery and hand work, traditional dyeing and printing, apparel design, knitting, cotton ginning, computerized embroidery, stitching and other textile non garment products such as bags, vehicle accessories, furnishing accessories, etc.

  • Business loans for Traders and Shopkeepers-

Financial support for lending to individuals for running their shops/trading & business activities/service enterprises and non-farm income generating activities with beneficiary loan size of upto Rs. 10 lakhs per enterprise / borrower.

  • Equipment Finance Scheme for Micro Units-

Setting up micro enterprises by purchasing necessary machinery/equipments with per beneficiary loan size of upto Rs. 10 lakhs.

  • Activities allied to agriculture-

E.g. pisciculture, bee keeping, poultry, livestock, rearing, grading, sorting, aggregation agro industries, diary, fishery, agri clinics and agribusiness centres, food &agro-processing, etc. (excluding crop loans, land improvement such as canal, irrigation and wells) and services supporting these, which promote livelihood or are income generating shall be eligible for coverage.

Performance of MUDRA scheme:

F.Y. 2015-16

  • Financing for New entrepreneurs- MUDRA loan is meant for ‘funding the unfunded’. It is available for both new units and expansion of existing units. Out of 3.49 Crore accounts financed during the year, 1.25 Crore accounts were for new entrepreneurs, which work out to 36% of the total accounts financed. Total amount disbursed was Rs. 58,908 Crore.
  • Financing for Women- Providing financial support to women entrepreneurs was, one of the main objectives of MUDRA. Totally 2.76 Crore women were financed out of the total number of 3.49 Crore accounts, which is a whopping 79% of the total accounts financed. Total amount disbursed was Rs. 63,190 Crore.
  • Financing for Minorities- 88 lakhs accounts were financed for the minorities, which works out to 12% of the total accounts financed. Total amount disbursed was Rs. 13,566 Crore.
  • Financing to weaker sections- 84 Crore accounts financed were for SC/ST/OBC categories, which is nearly 53% of the total accounts financed. Total amount disbursed was Rs. 29,762 Crore.

F.Y. 2016-17

  • Financing for New entrepreneurs- Out of 3.97 Crore accounts financed during the year, 1 Crore accounts were for new entrepreneurs, which work out to 25% of the total accounts financed. Total amount disbursed was Rs. 69,974 Crore.
  • Financing for Women- Over 2.91 Crore women were financed out of the total number of 3.97 Crore accounts, which is a whopping 73% of the total accounts financed. Total amount disbursed was Rs. 78,249.77 Crore.
  • Financing for Minorities- 54 lakhs accounts were financed for the minorities, which works out to 13% of the total accounts financed. Total amount disbursed was Rs. 19,474 Crore.
  • Financing to weaker sections- Over 2.25 Crore accounts were for SC/ST/OBC categories, which is nearly 57% of the total accounts financed. Total amount disbursed was Rs. 66,280 Crore.

For the FY 2017-18, a target of Rs. 2.44 lakh Crore for Mudra Loans, was announced in the Union Budget which would include a special focus within the scheme on convergence with other government schemes, deepening connect with borrowers and meeting credit requirements of trainees completing skilling courses as well. Upto 17th November, 2017 a total of 2.22 Crore accounts have been sanctioned loan and Rs. 1,05,013.30 Crore have been disbursed.

MUDRA Yojana is massively successful in Employment Generation-

The Modi government has addressed with MUDRA Yojana, one of the most critical problem country is facing today, jobs. According to a report, Mudra Yojana which provides access to credit from formal financial institutions to small entrepreneurs or business units has generated 5.5 Crore jobs in a span of just 2 years of its launch. These include 3,77,53,217 direct jobs and 1,67,26,545 indirect jobs. Further, total number of incremental direct jobs created due to MUDRA in the first two years (April 2015 to March 2017) stood at 1,16,96,576. It also led to the generation of 51,46,494 indirect jobs, says the report.

Category wise employment generation:

Category

Direct jobs created

Amount disbursed (Rs. In Cr)

Shishu

3,02,63,088

1,62,595.82

Kishore

58,19,486

1,01,690.63

Tarun

16,70,643

77,724.46

Source: Skoch Report

The figures clearly indicate that the scheme has outreached the small size entrepreneurs very well and has been successful in achieving the main motto of the scheme– comprehensive economic and social development.

Mudra Yojana has been making a positive impact in the lives of the beneficiaries & empowering the people, particularly women at large. Few of the success stories of those who benefitted by this scheme are known in the video links mentioned below:

https://twitter.com/BJP4India/status/934319467680579585

https://twitter.com/BJP4India/status/933885646346731520

https://twitter.com/BJP4India/status/933608377086754816

Source: Mudra.org.in pib.nic.in

Image Credits: Enterprise Tiger

 

Haritha Varanasi @csharitha

Author: Haritha is a qualified Company Secretary working in An organisation of repute. 

Views presented here are of the Author.

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