What is the MUDRA loan?

MUDRA stands acronym for Micro Units Development & Refinance Agency Ltd. It is an institution of Government of India set up for development and refinancing activities relating to non-corporate micro-units. At present MUDRA is set up as a subsidiary of SIDBI, pending statutory enactment by the Government.

Traditionally commercial banks and financial institutions in India used to provide security oriented finance to trade and industry. Big industrial houses and traders were beneficiaries of a security-oriented lending concept and a large chunk of bank finance was enjoyed by them. The Non-corporate Small business sector (NCSBS) has been a neglected sector in the matter of the formal sources of finance. The goal of the MUDRA bank is catering to the needs of the NCSBS segment or the informal sector for bringing them in the mainstream. MUDRA would be responsible for refinancing all financing agencies like Commercial banks, NBFCs, Societies, Trusts, companies, Co-operative Societies, Small Banks, and Regional Rural Banks engaged in the financing of small businesses comprising of millions of proprietorship/partnership firms running as small manufacturing units, service sector units, shopkeepers, fruits/vegetable vendors, truck operators, food-service units, repair shops, machine operators, small industries, artisans, food processors and others, in rural and urban areas. Besides refinancing Last-Mile financiers, Mudra Bank has been associating and refinancing through other states/regional level intermediaries who refinance to Last Mile Financier of Small / Micro business enterprises.

MUDRA has created three initial schemes under Pradhan Mantri MUDRA Yojana viz. ‘Shishu’, ‘Kishor’ and ‘Tarun’ to signify the stage of growth / development and funding needs of the beneficiary business unit also indicating a reference point for the next phase of graduation / growth. The loan covering loans up to Rs.50000/- is named as Shishu and loans above Rs.50000 up to Rs.5 lakh are named as Kishore scheme. The loan covering above Rs.5 lakh up to 10 lakh is named as Tarun Scheme.