All About MUDRA Scheme: A Scheme for Financing Small Business

MUDRA, also known as the Micro Units Development & Refinance Agency, is a financial institution established by the government under PMMY to develop and refinance micro enterprises. The key objective of the scheme is to offer loans to the small and micro enterprises in the non-farm sector.

The loan or credit under the MUDRA scheme can be accessed through the eligible member lending institutions (MLIs). Eligible member lending institutions can determine the interest rate under this scheme in accordance with Reserve Bank of India guidelines.

The MUDRA loan for new business is classified into various categories based on the business requirements. Here are the main categories of the MSME MUDRA loan.

Shishu Loan

This is a type of MSME MUDRA loan that provides credit and funds to small shopkeepers, street vendors and small startups. These are those individuals or entrepreneurs who are starting from scratch. The loan limit under this category is up to ₹50,000.

Kishore Loan

This MUDRA scheme is beneficial for the manufacturing sector that wants credit to grow their business. With the funds, MSMEs can buy machinery and equipment, hire employees and more. The loan limit in this category ranges from ₹50,000 to ₹5 lakh.

Tarun Loan

This is another MUDRA loan category suitable for MSMEs with stable business operations. With the credits, MSMEs can set up new units, purchase advanced machinery and more. The loan limit for this category ranges between ₹5 lakh and ₹10 lakh.

Tarun Plus Loan

It is the category that supports MSMEs that have successfully repaid a previous Tarun loan and are ready for further expansion. The loan amount under the Tarun Plus category ranges between ₹10 lakh and ₹20 lakh.

Also Read: What is MSME and Why Is It Importance

The MSME MUDRA loan is designed to support non-corporate and non-farming startups and MSMEs. Below are the eligible sectors that are covered under the MUDRA scheme.

• Trading sector: Wholesalers, retailers, distributors, and small shop owners can use the loan to manage inventory and working capital requirements.
• Food outlets: Bakeries, food stalls, catering services, and other food-related businesses can use the loan to purchase kitchen equipment, renovate premises, or expand their operations.
• Agri-allied business: Activities allied to agriculture, such as dairy farming, poultry, fisheries, beekeeping, food processing, and agricultural service centres, are eligible for financial support under the scheme.
• Textile Products: Entrepreneurs engaged in garment manufacturing, tailoring units, handloom and handicraft production, embroidery, and fabric processing can obtain funding for machinery, raw materials, and business expansion.
• Commercial vehicle: Individuals and businesses purchasing commercial vehicles such as auto-rickshaws, taxis, goods carriers, mini trucks, and transport vehicles for income-generating purposes are covered under the scheme.
• Merchants: Small merchants and service providers, including repair shops, salons, pharmacies, stationery stores, and local vendors, can access MUDRA loans to meet working capital needs and improve business infrastructure.
• Equipment finance scheme for Micro Units: Micro enterprises can avail of financing to purchase or upgrade machinery, tools, and equipment required for manufacturing, production, or service delivery.

Also Read: List of Businesses That Come Under the MSME Sector

Before submitting a MUDRA loan application, applicants must meet the following eligibility criteria.

• The loan applicant must be 18 to 65 years of age.
• The applicant should either have a viable business plan or be operating as an existing small business.
• The business should be a non-farm enterprise engaged in trading, manufacturing, or service-related activities.
• Applicants should have a good credit history and must not have defaulted on any loan with a bank or financial institution.
• The applicant's educational qualifications, if applicable, may be evaluated based on the nature and requirements of the proposed business activity.

Loan applicants can apply for the loan online and offline after meeting the MUDRA loan eligibility. Here is the process to apply for the loan.

Apply for MUDRA Loan Online

• Step 1: Go to the official PSB loan website.
• Step 2: Click on the “Register” option to create an account.
• Step 3: After creating an account, log in using the username and password you created.
• Step 4: Choose the “MUDRA Loan” option and then click on the “Apply Now” button.
• Step 5: Fill out the MUDRA loan application form. Review all the details before submitting them.
• Step 6: Submit all the required documents with the application form. Click on the “Submit” button.
• Step 7: The lending bank official will review the application form along with the submitted documents.
• Step 8: Once the application is approved, it will be submitted to the bank for disbursement of the loan amount.

Apply for MUDRA Loan Offline

• Step 1: Visit the bank or financial institution offering the MSME MUDRA loan.
• Step 2: Ask the bank representative for the MUDRA loan application form.
• Step 3: Fill out the application form correctly.
• Step 4: Submit the application form and other documents to the bank representative.
• Step 5: The official will verify the application and other documents. Upon approval, they will disburse the loan amount.

Here is the list of documents you need to submit to apply for the MUDRA loan for a new business.

• Valid identity proof, such as an Aadhaar Card, PAN Card, Voter ID, Driving Licence, or Passport.
• Address proof, including an Aadhaar Card, Passport, recent electricity bill, telephone bill, or property tax receipt.
• Two recent passport-size photographs of the applicant.
• Caste or community certificate for SC/ST/OBC/Minority applicants, wherever applicable.
• Business address proof, such as a rent agreement or any other valid supporting document.
• Bank account statement.
• Quotations or proforma invoices for machinery, equipment, or other assets proposed to be purchased.
• Udyam Registration Certificate, if applicable.
• Unaudited balance sheets for the previous two financial years, wherever required.
• Details of sales achieved during the current financial year.
• Asset and liability statement of the borrower.

The Pradhan Mantri MUDRA Yojana is essential for the growth of MSME businesses in India. With the help of government schemes, young and aspiring professionals can set up their own business. Not just this, those who already have an MSME unit can expand their business with the help of the MUDRA loan scheme.

In addition to taking advantage of the MUDRA loan, small and medium businesses should consider an MSME insurance plan. The insurance coverage will protect the MSME business's financial assets against various risks, such as fire hazards, third-party liability, and more.

With small-business insurance plans in place, businesses can focus on growth rather than worrying about expenses. TATA AIG offers a range of business insurance solutions tailored to business requirements.

For example, our professional indemnity insurance provides coverage for professionals and firms against claims arising from negligence, errors, etc., while performing duties.

With our commercial insurance plans, you will get unique benefits such as digital access, minimal documentation, strong claims assistance and more. Explore our business insurance plans and focus on growth and not financial worries and risks.