Introduction to PMMY
The Pradhan Mantri MUDRA Yojana (PMMY) is a scheme launched by the Hon’ble Prime Minister Narendra Modi on April 8, 2015, aimed at providing loans to non-corporate, non-farm small/micro enterprises. These loans, classified as MUDRA loans, are offered by various financial institutions including Commercial Banks, Regional Rural Banks (RRBs), Small Finance Banks, Micro Finance Institutions (MFIs), and Non-Banking Financial Companies (NBFCs).
Recent Updates
In the Union Budget 2024 presented by Finance Minister Nirmala Sitharaman, significant enhancements were made to the PMMY to further support Micro, Small, and Medium Enterprises (MSMEs). The loan limit under the ‘Tarun’ category has been doubled from Rs. 10 lakh to Rs. 20 lakh for entrepreneurs who have successfully repaid previous loans under the same category.
Objectives of PMMY
The PMMY was initiated with several key objectives:
- Establishing policy guidelines for financing small/micro enterprises.
- Registering and regulating all Microfinance Institutions and related entities.
- Assisting small businesses in their development and growth.
- Supporting lower income groups in expanding their businesses.
- Facilitating easy access to finance for unbanked individuals and lowering their cost of finance.
- Providing lending preference to SC/ST entrepreneurs.
- Regulating Microfinance Institutions involved in trading, manufacturing, and service sectors.
Loan Products under PMMY
MUDRA offers three main products to cater to the different stages of growth and funding needs of micro units and entrepreneurs:
- Shishu: Loans up to Rs. 50,000.
- Kishore: Loans from Rs. 50,000 up to Rs. 5 lakh.
- Tarun: Loans from Rs. 5 lakh up to Rs. 10 lakh (now enhanced to Rs. 20 lakh for eligible entrepreneurs).
The interest rates and repayment periods for these loans vary based on the lending institution’s guidelines and the applicant’s credit history.
| Category | Details |
|---|
| Scheme Name | Pradhan Mantri MUDRA Yojana (PMMY) |
| Launch Date | April 8, 2015 |
| Initiated By | Prime Minister Narendra Modi |
| Loan Products | Shishu, Kishore, Tarun |
| Recent Update | Loan limit for Tarun category increased from Rs. 10 lakh to Rs. 20 lakh |
| Objectives | – Policy guidelines for financing small/micro enterprises – Regulating Microfinance Institutions<br>- Assisting small businesses – Supporting lower income groups – Providing lending preference to SC/ST entrepreneurs – Facilitating easy access to finance for unbanked individuals |
| Application Process | Apply through lending institutions or online via www.udyamimitra.in |
| Required Documents | – Proof of identity – Business address proof – Category proof (if applicable) – Financial statements – Proof of business existence – Additional documents as required by banks |
| Loan Purposes | – Commercial and transport vehicle loans – Working capital loans – Loans for plant and machinery – Business loans for traders and shopkeepers – Loans for agri-allied non-farm income-generating activities |
| Eligibility | Non-farm income-generating businesses in trading, manufacturing, and services sectors with credit requirements below Rs. 10 lakh |
| Interest Rates | Vary by bank and depend on loan amount and repayment tenure |
| Support for Segments | Women, backward classes, minorities, Dalits, Tribals |
| Participating Institutions | – 21 Public Sector Banks – 36 Regional Rural Banks – 18 Private Sector Banks – 35 NBFCs – 25 MFIs – 47 NBFC-MFIs – 15 Co-operative Banks – 6 Small Finance Banks |
| Interest Rates Examples | – State Bank of India: As per bank guidelines, up to Rs. 10 lakh, 1 to 5 years – UCO Bank: 8.85% p.a. onwards, up to Rs. 10 lakh, tenure at discretion of bank – Bank of Baroda: 9.65% onwards, up to Rs. 10 lakh, 1 to 5 years – Union Bank of India: 7.30% p.a. onwards, up to Rs. 10 lakh, 1 to 7 years |
Application Process
Borrowers can apply for MUDRA loans through any of the lending institutions mentioned or online via the Udyamimitra portal (www.udyamimitra.in). The application process requires the submission of various documents such as proof of identity, business address proof, category proof (if applicable), financial statements, and proof of business existence.
New Mechanisms and Credit Assessment Models
To facilitate continued bank credit to MSMEs during stress periods, new mechanisms have been introduced. Additionally, a new credit assessment model for MSMEs has been developed, focusing on evaluating creditworthiness using digital footprints instead of traditional asset or turnover-based criteria. This model aims to provide more accurate assessments, even for MSMEs without formal accounting systems, ensuring a broader distribution of credit.
Benefits for Entrepreneurs
The increased loan limit is particularly beneficial for entrepreneurs facing financial constraints in starting or expanding their businesses. The financial support, now up to Rs. 20 lakh, will be directly transferred to the beneficiary’s bank account, boosting self-employment and entrepreneurship across the country.
Sector-Specific Uses of MUDRA Loans
MUDRA loans can be utilized for various purposes, including:
- Commercial and transport vehicle loans.
- Working capital loans.
- Loans for plant and machinery.
- Business loans for traders and shopkeepers.
- Loans for agri-allied non-farm income-generating activities.
Eligibility Criteria
Loans are available to all non-farm income-generating businesses in trading, manufacturing, and services sectors whose credit requirements are below Rs. 10 lakh. Applicants must not be defaulters to any financial institution.
Support for Specific Segments
The government emphasizes supporting women, backward classes, minorities, Dalits, and Tribals who typically face challenges in accessing finance for their businesses.
Interest Rates
Interest rates under the PMMY vary among different banks and depend on the loan amount and repayment tenure. Here are some examples:
- State Bank of India: As per bank guidelines, maximum Rs. 10 lakh, tenure 1 to 5 years.
- UCO Bank: 8.85% p.a. onwards, maximum Rs. 10 lakh, tenure at the discretion of the bank.
- Bank of Baroda: 9.65% onwards, maximum Rs. 10 lakh, tenure 1 to 5 years.
- Union Bank of India: 7.30% p.a. onwards, maximum Rs. 10 lakh, tenure 1 to 7 years.
Conclusion
The Pradhan Mantri MUDRA Yojana continues to be a pivotal scheme in fostering the growth of MSMEs in India. With the recent enhancements and new mechanisms, the scheme aims to provide robust financial support, ensuring a significant boost to self-employment and entrepreneurship across the country.
