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MUDRA- Boon for aspiring Entrepreneurs

Updated: Sep 1

Under our current banking system, a person in need of finance has to provide some valuable property as collateral to avail a loan. This condition often leads to the needy being deprived of the opportunity. But MUDRA loan here has turned out to be the saviour for such people. Launched on April 8, 2015, Pradhan Mantri MUDRA Yojana (PMMY) is a scheme for providing collateral free loans up to 10 lakhs to the non-corporate, non-farm small/micro enterprises. This being a refinance scheme, the Mudra Organisation transfers the amount of the loans to various banks and the banks in turn extend the amount as loans to respective beneficiaries.


Three products named Shishu (covering loans up to 50,000), Tarun (covering loans up to 50,000 to 5 lakhs) and Kishore (covering loans up to 5 lakhs to 10 lakhs) have been created under the scheme to signify the stage of growth/development and funding needs of the beneficiary micro unit/entrepreneur. Until March 2019, Shishu loans worth INR 1,39,965 crores have been extended to ease the process of procurement of finance for the entrepreneurs.


The vision of the organisation is to provide integrated financial and support services which are at par with best global practices and standards for those who are at the bottom of the pyramid for their comprehensive economic and social development. Further, the organisation aims to create an inclusive, sustainable and value based entrepreneurial culture with the help of its partner institutions in order to achieve economic success and financial security.


These loans are provided by Commercial Banks, Regional Rural Banks, Small Finance Banks, Micro Finance Institutions and Non-Banking Financial Companies and are classified as MUDRA loans under PMMY. The borrower can approach any of the lending institutions mentioned above or can apply online through this portal www.udyamimitra.in.


It aims to ensure that more focus is given to the Shishu Category Units first and then the Kishore and Tarun categories, respectively. Within the framework and overall objective of development and growth of micro enterprises sector under Shishu, Kishore and Tarun, the products being offered by MUDRA are so designed, to meet requirements of different sectors/business activities as well as business/ entrepreneur segments.


Mudra loan is given for different purposes which result in income generation and employment creation. The loans are extended mainly for:

  • Business loan for Vendors, Traders, Shopkeepers and other Service Sector activities

  • Working capital loan through MUDRA Cards

  • Equipment Finance for Micro Units

  • Transport Vehicle loans – for commercial use only

  • Loans for agro-allied non-farm income generating activities, e.g. Pisciculture. Bee keeping, poultry farming, etc.

  • Tractors, tillers as well as two wheelers used for commercial purposes only.


The PMMY is a highly ambitious scheme of the Government with the objective to create an inclusive and sustainable entrepreneurial culture with partner institutions to achieve financial security and economic success. The track of an economy’s recovery from a major slowdown and slack is infusion of huge investments, both public and private investments. With the ongoing pandemic and the Indian Economic slowdown, this scheme can prove to be a turning point for the economy as it will help to create a big pool of entrepreneurs and start-ups in the country, further leading to job creation and increased employment rates.


Availing credit has always been a challenge for new small scale entrepreneurs as either they have to borrow from unorganised lenders who charge extremely high interest rates and ultimately the entrepreneurs end up in full debt or they have to look up to commercial banks for credit who demand assurance of stable incomes and revenues. Thus, Mudra Loans become a new credit availing opportunity.


During the current corona crisis, many workers have lost their jobs and had to undergo disruptions in their businesses and reverse migration. This has led to increase in needs of new small businesses which brings along finance requirements. The lower income group does not have enough buffer savings with them. Thus, the finance procured under this scheme can act as the lifeblood for their businesses.


Our Union Finance Minister Nirmala Sitharaman had also announced a two percent interest subvention scheme for 12 months to prompt loan payees under the Mudra scheme, as a part of government’s INR 20 lakh crore COVID-19 economic package. This step taken by the government is worth a total of INR 1,542 crore and will benefit about three crore people. Further, special loans of up to INR 10,000 to provide working capital for street vendors to restart businesses were also started and this scheme is likely to benefit more than 30 million credit takers.


However, availing these loans isn’t as easy as it seems to be. The applicants have to go through a rigorous procedure in order to avail this credit scheme. A full-fledged business plan with pricing costing and quotations has to be developed and presented to the lending institution. There might be chances that the institution might reject application if the product/service is unconventional or unknown or seems infeasible to the lending organisation. This might be act as an obstacle in promoting and incorporating firms with the potential of innovation. Also this scheme is effectively developed for underprivileged people who might lack the skills to present a business plan on paper and even the skills to clear the interview in the latter stage.


There are some challenges which have to be dealt with before the economy actually reaps the benefits of this ambitious scheme. It completely depends on how efficiently this scheme is implemented and its outreach among the needy. There are a certain aspects on which the government can improve the implementation of this scheme and can benefit a greater number of citizens by slightly easing out the process of availing the loan.


By Saumya Bardia

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