The Government of India launched a flagship scheme called Prime Minister Mudra Yojana (PMMY) on 8th April 2015 in order to boost the economy. This scheme helps bring affordable loans to the non-corporate, non-farm micro and small enterprises to fund their needs. Another goal of this scheme was to bring the target audience into the recognised financial fold, i.e. Financial Inclusion.

MUDRA (Micro Units Development and Refinance Agency Limited) is a refinancing group providing loans up to Rs ten lakhs to the eligible enterprises at lower interest rates. This has been achieved through the Commercial Banks, RRBS, Cooperative Banks, NBFC and MFI.

To access the loans, the borrowers need to approach the nearby branches of all the participating lending institutions and apply for loans under the MUDRA scheme. This scheme can also be availed online.

Significance Of MUDRA

As per the data, there are estimated to be around ten crores non-corporate micro-enterprises which form the largest economic sector of the country after agriculture, impacting the lives of 50 crore Indians and generating a bulk of employment opportunities.

These Micro Enterprises include the enterprises specialised in manufacturing, trading, processing and services and are deemed to be the economic bulwark of the country.

The MUDRA scheme aims to be an engine of transformation, which makes the micro-enterprises of this nation a potent instrument of employment and GDP growth.

Structure Of MUDRA

MUDRA is a wholly-owned subsidiary of SIDBI (Small Industries Development Bank of India). It has an authorised capital of Rs.1000 crores and a paid-up capital of Rs.750 crores with the prime responsibility to develop and refinance micro-enterprises.

There is no doubt that the thrust on Micro Finance can engineer an economic development methodology meeting the objective of provision of loans, but also the other factors including financial literacy, employment generation as well as social support to the lowest strata of the society with ample opportunities to sustain life.

Key benefits Of MUDRA Loan

Following points highlights the key benefits of the loans disbursed under the MUDRA ambit:

• These loans are targeted to a specific audience of Micro and small enterprises which are the income generators.
• The most important part of this loan-based scheme is that the borrowers are not required to provide any collateral to avail of Mudra Loan.
• There are zero hidden charges.
• There are two different categories in the loans provided under the MUDRA loans, funded and non-funded category, which induces an element of flexibility in the usage of funds.

MUDRA Loan Details

The categories in which the MUDRA loans have been divided includes the Shishu, Kishor and Tarun loans and the name of the type of loan facilities is suggestive of the developmental phases of an enterprise.

1. Sishu: This category of loan is meant for the entrepreneurs looking to start a new business or are already in the process of establishing a new one. The maximum loan sanctioned under this category is only Rs.50000.
2. Kishor: This category of loan is targeted towards entrepreneurs who are looking to expand the business but are still not very big with the help of fresh funds with loans sanctioned in the range of Rs.50001 to Rs.5 lakhs.
3. Tarun: The third type of loan under PMMY has requirements that are more stringent than the other two loans, and involves the disbursal of the highest amounts, i.e. in the range of Rs.500001 to Rs.10 lakhs. This category is for entrepreneurs who are well to do and have already established themselves in the business. They need this loan in order for further growth or diversification.

Eligibility For MUDRA Loan Application

Entities must be able to meet the following requirements in order to be eligible for the MUDRA loan facility:

• The Enterprise must be non-corporate as well as non-farm.
• They must be income generators through various methods such as manufacturing, trading and services.
• The requirement of credit must be below Rs.10 lakhs.
• In order to prevent scams, the enterprise must be engaged in allied agriculture services from 1st April 2016.

FAQs

Q1. Is the MUDRA loan application form available online?

Q2. Which all documents are required to avail MUDRA loan?

Q3. What is a MUDRA card?

Q4. What collaborations are aligned with PMMY?

Q5. What is the regular repayment term for MUDRA loans?

MCQs

1. What is the maximum loan amount under the MUDRA scheme?

A) Rs. 50,000

B) Rs. 5 Lakhs

C) Rs. 10 Lakhs

D) Rs. 1 Crore

2. Which of the following is the main aim of MUDRA loans?

A) To promote corporate enterprises

B) To provide loans to small businesses

C) To fund educational institutions

D) To support large industries

3. What is the Shishu loan category under the MUDRA scheme?

A) Loan up to Rs. 5 Lakhs

B) Loan up to Rs. 50,000

C) Loan up to Rs. 10 Lakhs

D) Loan above Rs. 10 Lakhs

4. Which of the following is a participating financial institution in the MUDRA scheme?

A) ICICI Bank

B) HDFC Bank

C) SIDBI

D) All of the above

5. What is the primary goal of MUDRA?

A) To reduce tax rates

B) To provide financial inclusion for small businesses

C) To fund large corporations

D) To support education loans

GS Mains Questions and Model Answers

Q1: Analyze the significance of MUDRA Yojana in promoting financial inclusion in India.

Answer: The MUDRA Yojana has played a crucial role in promoting financial inclusion, particularly for micro and small enterprises (MSEs) that are often excluded from traditional banking systems. By providing affordable loans up to Rs. 10 Lakhs, MUDRA has empowered entrepreneurs, especially in rural and semi-urban areas. This has not only boosted their economic participation but also helped in the generation of employment, thereby contributing to the nation's GDP growth. The collateral-free loan system further eliminates barriers to credit, and the categorization of loans (Shishu, Kishor, Tarun) caters to businesses at different stages of development, fostering growth across the entrepreneurial spectrum.

Q2: Discuss the role of MUDRA Yojana in the context of MSME development in India.

Answer: The MUDRA Yojana has significantly contributed to the growth and development of Micro, Small, and Medium Enterprises (MSMEs) in India. MSMEs are the backbone of India's economy, contributing to employment and industrial output. MUDRA has facilitated access to finance for these enterprises, which traditionally faced challenges in securing loans from formal financial institutions. With the introduction of this scheme, the MSMEs have been able to expand their operations, increase productivity, and contribute more to the economy. The availability of loans without collateral and at lower interest rates has provided a much-needed boost to the sector.

Q3: Evaluate the impact of MUDRA loans on the Indian economy.

Answer: The MUDRA loans have had a transformative impact on the Indian economy by addressing the credit gap faced by non-corporate, non-farm micro and small businesses. These loans have empowered entrepreneurs to start or expand their businesses, which has led to an increase in employment and productivity. The scheme's focus on financial inclusion has brought many individuals and enterprises into the formal banking fold. As a result, MUDRA loans have facilitated the growth of a more inclusive economy, which is crucial for achieving sustainable economic development in India.

Previous Year Questions on MUDRA

1. UPSC CSE 2023

Question: What role does MUDRA play in the context of financial inclusion in India?

Answer: MUDRA plays a pivotal role in improving financial inclusion by offering collateral-free loans to micro and small businesses, thereby providing them with easier access to credit. This initiative has been instrumental in bringing millions of small entrepreneurs into the formal financial system, thus aiding in economic growth and job creation.

2. UPSC CSE 2022

Question: How does the MUDRA Yojana align with the government's broader initiatives like 'Make in India' and 'Startup India'?

Answer: MUDRA Yojana aligns with these initiatives by providing financial support to the small-scale entrepreneurs and startups, which are crucial for the success of 'Make in India' and 'Startup India'. The scheme’s loan offerings cater to the needs of these sectors, enabling them to establish or scale up their businesses, thus contributing to job creation and innovation in the country.