The Offerings and Purpose of Pradhan Mantri MUDRA Scheme

The Pradhan Mantri MUDRA Yojana or PMMY is a welfare scheme launched by the Government of India to enhance market liquidity and benefit the smaller businesses in India. It was launched in April of 2015, and has since then achieved remarkable success across three distinct sectors- Small Manufacturing Units or SMUs, trading units and service sectors.

The fundamental aspect of the MUDRA scheme is to provide adequate access to funds for non-farming and non-corporate small, medium and micro industries, which together constitute Non-Corporate Small Business Sector or NCSBS. MUDRA stands for Micro Units Development & Refinance Agency which provides a working capital loan. The most recent reports released by the Government of India reveal that –

  • Approxmately 6 Crore loans have been sanctioned till the end of FY 2018-2019.
  • More than Rs 3.5 Lakh Crores have been disbursed as loans.
  • About Rs 3.2 Lakh Crores have been sanctioned for future disbursal.

The Pradhan Mantri MUDRA Yojana has a variety of offers. Before that, given below are the most essential purposes why the scheme was launched.

Purposes of the PMMY

The generation of income and employment are the two pillars on which the PMMY scheme exists. All loans under the MUDRA scheme serve the following purposes:

  • To act as business loan for shopkeepers, small traders, and the largely cash-starved small services units.
  • To help in availing working capital loans using the MUDRA Card that is distributed alongside the loans.
  • To provide finance for equipment for small enterprises.
  • To aid non-farming but agriculture-allied firms which work in bee-keeping, poultry and pisciculture.

Features of the PMMY

Here are the most important features of the Pradhan Mantri MUDRA Yojana.

1.Micro Credit Schemes: Financial support from the Central Government is routed via Micro Financial Institutions or MFIs. Most NBFCs in India also provide a MUDRA loan. Under the Micro Credit Scheme, the maximum amount that can be lent is Rs 1 Lakh. It can act as a working capital loan.

2.Women’s Self-Help Programs: Also known as the PMMY Women’s Initiative, it is a loan targeted at female entrepreneurs who are looking for liquidity. The main advantage that availing a loan under the scheme is the lower interest rates when compared to traditional lending institutions. This feature will help Self-Help Groups and Joint Liability Groups which only have women members.

3.Refinancing for smaller financial corporations: It had been noted in multiple Economic Surveys that semi-urban and rural financial lenders tending to Small and Medium Enterprises were short on funds. Pradhan Mantri MUDRA Loan will refinance such cash-strapped enterprises with loans of up to Rs. 10 Lakh.

4. Assistance in Equipment Financing:  Many smaller enterprises lack the necessary funding to buy specialised machinery for their businesses. A new bakery, for example, will require funding to initiate the manufacturing processes for products like cakes, bread and loafs. Also, most of the manufacturing businesses that are booming have liquidity problems. The scheme will handle all those issues.

5.Overdraft facility: Very often, small and medium enterprises have problems related to overdraft. Since most commercial lenders do not provide this facility, having the MUDRA card is handy. Not only does it allow the borrower to use it as a Credit Card with overdraft facility, it can also be used as any ordinary ATM-cum-debit card. It is also one of the fundamental advantages of a MUDRA loan.

More financial institutions are joining the Central scheme because the Credit Guarantee Fund Trust for Micro and Small Enterprises or CGFTMSE promises to act as a buffer in case the loan is not returned and is regarded as an NPA. The future of a working capital loan is bright.

Summary

Pradhan Mantri Mudra Loan Yojana: Purpose and Offering

The Pradhan Mantri MUDRA Yojana is a measure taken by the Union Government of India to ensure uninterrupted flow of liquidity to small businesses and enterprises. Launched in early 2015, it has managed to impact the trading, manufacturing and services sectors in India.

Around 6 Crore PMMY loans have been approved till the end of FY 2019. The sanctioned loan amount adds up to Rs 321722.79 Crore (Rs 3.2 Lakh Crores) while the loans already disbursed is greater than Rs 3 Crores. Most financial institutions including NBFCs lend money to applicants under the scheme.

A Pradhan Mantri MUDRA loan is essentially a business loan and comes with a MUDRA card which acts as a credit card as well. It can also be used for ATM withdrawals. Besides, these loans come with a lower payable interest rate, which makes them more attractive to the applicant. 

The PMMY scheme benefits a large chunk of the population including women entrepreneurs who are comparatively fewer in number. On offer are a Credit Guarantee which ensures that availing small credits is easier, besides equipment finance and micro credit schemes.

The PMMY scheme solves the liquidity issues that many marginal businesses face. Given that fact that it is directed at non-farming and non-corporate entities, it is likely that entrepreneurship will receive a boost.

Additional Read: Secret Tips that will Help You Improve your Business Loan Eligibility.

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