Centre Doubles Mudra Loan Ceiling to Rs 20 Lakh Under New ‘Tarun Plus’ Category

Why in the News?

The government has recently raised the maximum loan limit under the Pradhan Mantri Mudra Yojana (PMMY) from Rs 10 lakh to Rs 20 lakh, introducing a new ‘Tarun Plus’ category to support emerging entrepreneurs in scaling their businesses.

This increase aims to empower entrepreneurs, contributing to the scheme’s mission of “funding the unfunded” and strengthening India’s entrepreneurial ecosystem. Finance Minister Nirmala Sitharaman initially announced this enhancement in her Union Budget for July 2024, specifying that it targets borrowers who have already availed and repaid loans in the ‘Tarun’ category.

What’s Covered in Today’s Article?

• Overview of the Pradhan Mantri Mudra Yojana (PMMY)
• Loan Categories and Eligibility
• Benefits and Achievements of PMMY

Pradhan Mantri Mudra Yojana (PMMY)

• Purpose: Launched in April 2015, Pradhan Mantri Mudra Yojana (PMMY) provides loans up to Rs 10 lakh (now up to Rs 20 lakh with the new category) to non-corporate, non-farm small and micro enterprises.
• Lending Institutions: These MUDRA loans are offered through Commercial Banks, Regional Rural Banks (RRBs), Small Finance Banks, Microfinance Institutions (MFIs), and Non-Banking Financial Companies (NBFCs).

Institution Supporting PMMY – MUDRA

• Micro Units Development & Refinance Agency Ltd. (MUDRA): This government-established agency is responsible for financing and refinancing small businesses through various last-mile financial institutions, such as banks, MFIs, and NBFCs.
• Note: MUDRA itself does not lend directly to entrepreneurs; instead, it funds financial institutions that, in turn, provide loans to micro-businesses.

Loan Categories Under PMMY

Pradhan Mantri Mudra Yojana (PMMY)  offers three main loan products based on the stage and financial requirements of the business:

1. Shishu – Loans up to Rs 50,000 for businesses in the initial stages.
2. Kishore – Loans between Rs 50,000 and Rs 5 lakh for expanding or growing businesses.
3. Tarun – Loans from Rs 5 lakh to Rs 10 lakh for well-established enterprises.
4. Tarun Plus (new) – Loans up to Rs 20 lakh, specifically for those who have previously availed and successfully repaid Tarun loans.

Eligibility for Pradhan Mantri Mudra Yojana (PMMY):

• Any Indian citizen with a viable business plan for a non-farm income-generating activity (in sectors like manufacturing, processing, trading, or services) can apply.
• The applicant should not have a history of default with any financial institution and should maintain a good credit record.
• Applications can be made through the designated financial institutions or via the udyamimitra.in portal.

Interest Rates on Mudra Loans

• Interest rates on Mudra loans vary by bank type: for public sector banks (PSBs), they range from 9.15% to 12.80%, while private banks offer rates between 6.96% and 28%. Rates depend on factors like borrower risk profile, loan tenure, and lending institution.

Key Benefits of Pradhan Mantri Mudra Yojana (PMMY):

1. No Collateral Security: Borrowers are not required to provide any collateral, making it easier for them to access funds without risking personal or business assets.
2. Accessible Funding: Loans are available across India, catering to micro-entrepreneurs from diverse industry sectors.
3. Default Protection: In case of loan default due to unforeseen circumstances or natural causes, the government takes responsibility for the repayment.
4. Quick and Simple Process: Loans up to Rs 10 lakh (now Rs 20 lakh under Tarun Plus) are easily accessible, providing much-needed capital to micro-businesses quickly.
5. Support for Women Entrepreneurs: Women borrowers enjoy concessional benefits, promoting gender inclusivity within the entrepreneurial landscape.
6. Rural and Urban Coverage: The Mudra scheme offers equal access to entrepreneurs in both urban and rural areas, making it especially beneficial for rural businesses.
7. Flexible Repayment Options: Borrowers can choose to repay their loans within a flexible timeline of up to 7 years.
8. Multiple Credit Options: The scheme provides various forms of credit support, including cash credit and equipment financing.
9. MUDRA Card: Borrowers can opt for a MUDRA card, offering instant access to credit and overdraft facilities.

Achievements of Pradhan Mantri Mudra Yojana (PMMY):

• Loan Disbursement: In 2023-24, around 66.8 million loans were sanctioned under PMMY, amounting to Rs 5.4 trillion. Since its inception, PMMY has sanctioned over 487.8 million loans, with a cumulative amount of Rs 29.79 trillion as of June 2024.
• Non-Performing Assets (NPA): The NPA rate of public sector banks for Mudra loans has shown improvement, reducing to 3.4% in FY24 from 4.77% in 2020-21 and 4.89% in 2019-20. In comparison, the gross NPA of all scheduled commercial banks stands at 2.8% as of March 2024.

Conclusion

The increase in the loan ceiling under PMMY and the introduction of the ‘Tarun Plus’ category demonstrate the government’s commitment to fostering entrepreneurship and financial inclusion. By facilitating accessible credit, the PMMY continues to support India’s entrepreneurial ecosystem, enabling micro-businesses to grow, create jobs, and strengthen the economy.

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