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 that uplifts micro, small, and medium enterprises. The government of India has proposed a Mudra Yojana loan in the finance budget of 2015 for boosting and providing a line of creditLine Of CreditA line of credit is an agreement between a customer and a bank, allowing the customer a ceiling limit of borrowing. The borrower can access any amount within the credit limit and pays interest; this provides flexibility to run a business. to the entrepreneurs beyond the net of the banking channels and falling prey to the absence of capital, exploitation from the traditional money lender to fund the required financial assistance for the business.
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As per a survey of NSSO in 2013, They found that many businesses are beyond the net of banking channels. And the funding requirements of these businesses happen through sources that lend at a very high rate. So, to provide a funding solution, a scheme was formally launched on 8 April 2015 by Prime Minister Shri Narendra Modi though he laid out the plans in the budget session in February 2015.
Micro units development and refinance agency loan launch to cater to various sects of businesses. They 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 banks, micro-finance institutions involved in banking, and non-banking financial companies provide loans. Any Indian citizen with a business or a plan related to earning except agricultural sources could apply for a fund requirement within ₹50,000 to ₹10,00,000, depending upon the business requirements.
- The micro, small, and medium enterprise is the backbone of the Indian economy. It is considered the biggest chain of non-corporate structures that survives around 50 crore people.
- The NSSO survey in 2013 states that there are around 5.5 crore businesses that are small and medium enterprises not connected to the formal funding stream.
- Around 50% of these businesses are in rural and semi-urban areas. Also, these businesses belong to trading, manufacturing, and service divisions.
- A major funding source comes from friends, family, or traditional lenders, resulting in lower funding or exuberantly higher rates. But this segment faced multiple issues in various domains such as lack of infrastructure, financing issues, lack of guidance, etc. So, to fill out these gaps and boost India’s small and medium systems, they devised this scheme.
- Apart from allocating funds to the scheme PMMY (Pradhan Mantri Mudra Yojana), India’s Government 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.
- To avail of the loan under this scheme, an eligible borrower must prepare a business plan and submit it to the nearest micro units development and refinance agency loan provider and relevant documents such as identity cards, passport size photos, etc. Once the bank approves the loan, they will give the borrower a debit card loaded with Rupay’s loan amount. From this card, one can make withdrawals as and when required.
Interest Rate of MUDRA Loan
There is no fixed interest rate for the MUDRA loans. In addition, 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 the no questions asked scheme. Hence, no collateral is required upfront.
Following are the benefits of the Mudra loans: –
- The MUDRA loan has reached out to these business segments where there is a serious crisis of funds, such as businesses not connected to formal banking, rural businesses, and businesses run by scheduled castes and tribes.
- The government provides the guarantee and backup for the funding of the mudra loan. So, there is liquidityLiquidityLiquidity is the ease of converting assets or securities into cash. in the funds and a consistent flow of funds.
- For taking various tranches of loans, the borrower does not require to go 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 disadvantages or limitations. These are as follows:
- They created the MUDRA loan to reach that segment of society that could not provide collateral to fund the business. It has become one of the biggest loopholes of the schemes. Banks were forced to lend to anybody without taking any security, creating scores of proxy entrepreneurs who applied and availed of loans without a genuine business prospect.
- Again, the scheme favored and promoted female entrepreneurs, and there was some laxity regarding the process. So, many householders have taken loans by presenting the women in the house as budding businesswomen. It has also led to serious fraud.
- Further, as the loan does not demand security, the probability of failing the payment is quite high. And, due to relaxed regulations, multiple bank officials have also taken advantage of the system and evil allotted loans to incredible people. Hence, it has promoted corruption in the system.
- Furthermore, the government has invested huge money in this venture, which 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 to bring the left alone in the business segments and fund the requirements of the small and medium enterprises. It also tried to promote female entrepreneurs and to make families and dependents self-sufficient. It could become a game-changer once you consider the loopholes and other related issues.
This article guides the Full Form of MUDRA and its definition. Here we discuss the objectives, functions of MUDRA, its interest rate on loans, and its advantages and disadvantages. You may refer to the following articles to learn more about finance: –