What is Full Form of MUDRA?
The Full Form of MUDRA is Micro Units Development and Refinance Agency. Mudra is a Non-Banking Financial Corporation involved in uplifting the Micro Small and Medium Enterprises. The government of India has proposed mudra loan in the Finance Budget of 2015 for boosting and providing a line of credit to those entrepreneurs who are beyond the net of the banking channels, and falling prey to the dearth of capital, exploitation from the traditional money lender to fund the required financial assistance for the business.
As per a survey of NSSO in 2013, It was found out that many businesses are beyond the net of banking channels. And, the funding requirements of these businesses happens through sources which lend at a very high rate. So, to provide a funding solution to them, a scheme has been formally launched on 8, April 2015 by then Prime Minister, Shri Narendra Modi though the plans have been laid out in the budget session in February 2015.
Micro units development and refinance agency loan has been launched to cater to various sects of businesses. It was decided to allocate 45%, 35%, and 25% respectively to the respective categories of Shishu, Kishor, and Taruna.
The upper limit of loan to these categories are as follows:
- Shishu – For this category, the maximum loan limit is Rs. 50000.
- Kishor – This category could avail of a loan up to Rs. 5,00,000
- Taruna – This segment is allowed to avail of a loan of Rs. 10,00,000.
The loans are provided by the banks, micro-finance institutions involved in the banking, and Non- Banking Financial Company. Any Indian citizen with a business or a plan related to earning except agricultural sources could apply for a fund requirement within 50000 to 10,00,000 depending upon the business requirements.
- The Micro, Small, and, Medium enterprise is the backbone of Indian economy. It is considered as the biggest chain of non-corporate structure that survives around 50 crore people.
- As per the NSSO survey in 2013, it was stated that there are around 5.5 crore businesses that are small and medium enterprises not connected to the formal stream of funding.
- Around 50% of these businesses are in rural and semi-urban areas. Also, these businesses belong to trading, manufacturing and service divisions.
- A major source of funding comes from friends, family, or traditional lenders which either results in lower funding or exuberantly higher rates. But this segment was facing multiple issues in various domains such as lack of infrastructure, financing issues, lack of guidance, etc. So, to fill out these gaps and to provide a boost to the small and medium system of India, this scheme was devised.
- Apart from allocating funds to the scheme PMMY (Pradhan Mantri Mudra Yojana), the Government of India also decided to provide a refinance facility to banks and other financial institutions alongside maintaining a web portal for tracking the loans, and facilitating facilities as required from time to time.
- For availing the loan under this scheme, an eligible borrower needs to prepare a business plan and get it submitted to the nearest micro units development and refinance agency loan provider along with relevant documents such as Identity cards, passport size photos, etc. Once the loan is approved by the bank, a debit card loaded with the loan amount from Rupay would be given to the borrower. From this card, withdrawals could be made as and when required.
Interest Rate of MUDRA Loan
There is no fixed rate of interest for the MUDRA loans, and it depends upon the profile and risk aptitude of the borrower. The interest rate could be up to 7% from the base rate. It provides loans after no questions asked scheme and hence no collateral is required upfront.
Following are the benefits of the Mudra Loans –
- MUDRA loan has reached out to these segments of business where there is a serious crisis of funds such as businesses not connected to formal ways of banking, rural businesses, and businesses run by schedule casts, and schedule tribes.
- The government provides the guarantee and backup for the funding of the mudra loan. So, there is liquidity in the funds and a consistent flow of funds.
- For taking various tranches of loans, the borrower is not required to the bank regularly, as the debit card provided under the scheme is eligible for withdrawals at subsequent intervals.
The scheme to include the lower sections in business has some disadvantages or limitations too. These are as follows:
- MUDRA loan has been created to reach that segment of society that could not provide collateral to fund the business. This has become one of the biggest loopholes of the schemes. Banks were forced to lend to anybody without taking any security, and this has created scores of proxy entrepreneurs who applied and availed loans even without having a genuine business prospect.
- Again, the scheme favored and promoted female entrepreneurs, and there was some laxity in the process regarding the same. So, many householders have taken loan by presenting the women in the house as a budding businesswoman. It has also led to serious fraud.
- Further, as the loan does not demand security, the probabilities in failing the payment are quite high. And, due to relaxed regulations, multiple bank officials have also taken advantage of the system and unscrupulous allotted loans to incredible people. Hence, it has promoted corruption in the system.
- Furthermore, the government has invested huge money in this venture, and it could lead to a serious NPA issue in the future with no chances of recovery.
Overall, it is a commendable step taken by the prime minister and Ministry of Finance in the direction of bringing the left-alone in the business segments and to fund the requirements of the small and medium enterprises. It also tried to promote female entrepreneurs and to make families and dependents self-sufficient. This could become a game-changer once the loopholes and other related issues are taken care of.
This has been a guide to the Full Form of MUDRA and its definition. Here we discuss objectives, functions of MUDRA, its interest rate on loan along with advantages and disadvantages. You may refer to the following articles to learn more about finance –