What is the Modi Loan Scheme for Small Businesses?

Introduction to the Modi Loan Scheme

Pradhan Mantri Mudra Yojana (PMMY), also referred to as the Modi Loan Scheme, was initiated by the Government of India in 2015 to stimulate self-employment and entrepreneurship among individuals. The scheme gained prominence in the 2024 Budget presentation by Finance Minister Nirmala Sitharaman. PMMY offers collateral-free loans tailored to support non-corporate and non-agricultural ventures.

The Modi Loan Scheme is structured into three categories – Shishu Loan, Kishore Loan, and Tarun Loan; each catering to different funding requirements of the businesses.

This scheme provides accessible financial assistance ranging from small amounts to substantial sums aiming to support individuals for establishing and expanding their businesses without the need for security.

Types of Loans Available under the Modi Loan Scheme

The Pradhan Mantri Mudra Yojana (PMMY), also known as the Modi Loan Scheme offers three primary types of loans.

– Shishu Loan Scheme

Shishu scheme provides loans of up to Rs 50,000, suitable for small-scale ventures or those seeking initial capital.

– Kishore Loan Scheme

Kishore scheme provides loans ranging from above Rs 50,000 to Rs 5 lakh. This option is ideal for expanding existing enterprises or pursuing medium-scale business ventures.

– Tarun Loan Scheme

Tarun scheme provides loans from above Rs 5 lakh to Rs 10 lakh, suitable to support large-scale business initiatives.

Eligibility Criteria for the Modi Loan Scheme

To avail of the benefits offered by the Modi Loan Scheme, individuals must meet certain eligibility criteria set forth by the government. Here are the key requirements:

1. Applicants must be citizens of India to qualify for the Modi Loan Scheme.

2. Individuals applying for the loan should not have any history of defaulting on loans with banks.

3. The businesses for which the loan is sought should not fall under the category of corporate institutions.

4. Applicants must possess a valid bank account in their name to facilitate loan disbursement and repayment.

5. The minimum age requirement for individuals applying for the Modi Loan Scheme is 18 years or above.

Application Process for the Modi Loan Scheme

The application process for availing loans under the Pradhan Mantri Mudra Yojana (PMMY) is designed to be accessible and straightforward, catering to the diverse needs of aspiring entrepreneurs. Whether applying through physical branches or online platforms, the process ensures ease of access while adhering to necessary documentation and eligibility criteria.

Application Process

Step 1: Begin by visiting the official website of Mudra Yojana at https://mudra.org.in

Step 2: On the homepage, applicants are presented with three loan categories: Shishu, Kishore, and Tarun. Choose the category that aligns with requirements.

Step 3: Navigate to the appropriate loan category and access the application form. Ensure to read through the instructions carefully before proceeding.

Step 4: Fill out the application form accurately, providing all necessary details as required. Ensure that the information provided is consistent with supporting documentation.

Step 5: Attach all required documents, Aadhar card, PAN card, proof of permanent and business address, copy of income tax return and self-tax return, and attach a passport size photo, etc.

Step 6: Submit the completed application form along with supporting documents to your nearest bank branch participating in the Pradhan Mantri Mudra Yojana scheme.

Online Application Process

The following are the prerequisites for the enrolment process:

ID Proof

Address Proof

Applicant Signature

Proof of Identity / Address of Business Enterprises

Passport size photograph

Step 1: Visit the PM MUDRA official website. Here, select the UdyamiMitra portal (the online platform facilitating loan applications and processing).

Step 2: Click on the ‘Apply Now’ option to apply for a Mudra loan.

Select from one of the following categories based on applicant’s status : New entrepreneur, Existing entrepreneur, or Self-employed professional.

Step 3: Fill in the required details such as name, email, and mobile number to initiate the registration process. Generate and verify the OTP (One-Time Password) for authentication.

Step 4: Complete the registration by providing personal and professional details.

Note: If required, applicants can opt for assistance from hand-holding agencies for preparing documents like project proposals, etc. 

Step 5: Select the desired loan category – Shishu / Kishore / Tarun; and proceed to fill in business information, including activities, ownership details, banking facilities, and future estimates.

Step 6: Applicants require to fill in business details (business name, activity details etc.) and select the industry type (i.e. Manufacturing, Service, Trading, Agriculture activities).

Step 7: Fill in other information including details of owner, banking and credit facilities, lender etc.

Step 8: Applicants need to upload scanned copies of all required documents (proof of identity, address, business registration, financial statements, and other relevant certificates).

Step 9: Once all information and documents are provided, submit the application electronically through the portal. A unique application number will be generated and shared to be kept for future reference.

Both offline and online application processes aim to simplify the process of seeking financial assistance through the Pradhan Mantri Mudra Yojana.

Also Read: MSME Registration In India: Procedure, Documents Required

Following is the list of documents required for each loan category (Shishu, Kishore, Tarun)

For Shishu Loan

1. Proof of Identity (Self- attested copy of Voter’s ID Card / Passport / PAN Card / Aadhaar Card / Driving Licence / Photo IDs issued by Govt. authority etc).

2. Proof of Residence: Latest telephone bill / electricity bill / property tax receipt (the bills should not be older than 2 months)/ Voter’s ID Card / Aadhar Card / Passport of Individual / Proprietor / Partners Bank passbook or latest account statement duly attested by Bank Officials / Domicile Certificate / Certificate issued by Govt. Authority / Local Panchayat / Municipality etc.

3. Applicant’s recent coloured Photograph (2 copies) not older than 6 months.

4. Quotation of Machinery / other items to be purchased.

5. Name of supplier / details of machinery / price of machinery and / or items to be purchased.

6. Proof of Identity / Address of the Business Enterprise – Copies of relevant Licenses / Registration Certificates / Other Documents pertaining to the ownership, identity of address of business unit, if any.

7. Proof of belonging to a special category, such as SC, ST, OBC, Minority, etc. (if applicable).

For Kishore and Tarun Loan

1. Proof of Identity – Self attested copy of Voter’s ID card / Driving License / PAN Card / Aadhar Card/Passport.

2. Proof of Residence – Recent telephone bill, electricity bill, property tax receipt (not older than 2 months), Voter’s ID card, Aadhar Card & Passport of Proprietor/Partners/Directors.

3. Applicant’s recent coloured Photograph (2 copies) not older than 6 months.

4. Proof of Identity/Address of the Business Enterprise (copies of relevant licenses/registration certificates/other documents pertaining to the ownership, identity and address of the business unit).

5. Applicants should not be defaulters in any Bank/Financial institution.

6. Statement of accounts (for the last six months), from the existing banker, if any.

7. Last two years balance sheets of the units along with income tax/sales tax return etc. (applicable for all cases from Rs.2 Lacs and above).

8. Projected balance sheets for one year in case of working capital limits and for the period of the loan in case of term loan (applicable for all cases from Rs.2 Lacs and above).

9. Sales achieved during the current financial year up to the date of submission of application.

Project report (for the proposed project) containing details of technical & economic viability.

10. Memorandum and Articles of Association of the company/Partnership Deed of Partners etc.

11. In absence of third party guarantee, Asset & Liability statements from the borrower including Directors & Partners may be sought to know the net-worth.

12. Proof of belonging to a special category, such as SC, ST, OBC, Minority, etc. (if applicable).

Benefits and Support Provided by the Modi Loan Scheme

The Pradhan Mantri Mudra Yojana, under the Modi Loan Scheme, presents several advantages aimed at supporting Micro, Small and Medium Enterprises (MSMEs) and fostering entrepreneurship.

Following are the benefits of availing a Mudra loan:

1. Segmented Loan Amounts: The Mudra loan scheme provides financial assistance ranging from Rs. 50,000 to Rs. 10 lakhs, catering to the diverse capital requirements of MSMEs operating in various sectors.

2. Repayment Flexibility: Borrowers enjoy flexibility in repaying the loan, with the option to choose monthly, quarterly, half-yearly, or yearly installments, aligning with their cash flow dynamics and business needs.

3. No Collateral Required: Unlike traditional loans, Mudra loans do not necessitate collateral, relieving borrowers from the obligation to pledge assets as security against the loan amount.

4. No Prepayment Charges: Borrowers have the freedom to prepay the loan without incurring any prepayment charges or penalties, facilitating early repayment and reducing interest burden.

5. Easy Application Process: The application process for Mudra loans is streamlined and user-friendly, allowing applicants to apply online or through designated banks and Non-Banking Financial Companies (NBFCs) conveniently.

6. Low Interest Rates: Mudra loans are offered at attractive interest rates, which are typically lower compared to those associated with traditional loans, enhancing affordability for MSMEs seeking financial assistance.

7. Easy Credit Facilities: By providing easy access to credit facilities, the Mudra loan scheme encourages entrepreneurship and self-employment, empowering individuals to pursue their business ventures and contribute to economic growth.

8. No Processing Fees: Mudra loans incur no processing fees, minimizing the financial burden on MSMEs and making the scheme a cost-effective financing option for businesses.

9. Sector-Specific Loans: The Mudra loan scheme extends sector-specific loans tailored to the unique needs of businesses engaged in activities such as agriculture, poultry farming, food processing, and more, facilitating targeted support for various sectors of the economy.

These benefits underscore the significance of the Mudra loan scheme in facilitating the growth and development of MSMEs across diverse sectors, thereby fostering economic empowerment and entrepreneurship at grassroots levels.

Also Read: MSME Loan For Small Business

Impact of the Modi Loan Scheme on Small Business Growth

1. Increased Access to Finance

PMMY offers collateral-free loans ranging from small amounts to Rs 10 lakhs, addressing diverse financial needs and empowering entrepreneurs to start or expand businesses.

2. Promoting Entrepreneurship among Marginalized Sections

Simplified application processes and no collateral requirements have enabled marginalized groups, including women, SCs, STs, and OBCs, to access capital, fostering entrepreneurship and economic empowerment.

3. Job Creation

Small businesses are significant contributors to employment, particularly in rural and semi-urban areas. PMMY’s financial support has facilitated the creation of new job opportunities, reducing unemployment rates.

4. Encouraging Youth Entrepreneurship

PMMY has encouraged youth to venture into entrepreneurship, leading to the establishment of new enterprises across various sectors.

5. Catalyzing Innovation and Technology Adoption

Access to funding has enabled entrepreneurs to invest in research, development, and modern technologies, enhancing product/service quality and efficiency and driving overall competitiveness.

6. Contribution to Economic Growth

By supporting small business growth, PMMY contributes to overall economic development, fostering inclusive growth and prosperity.

7. Transformative Impact

PMMY’s transformative impact on small business growth positions it as a key driver of economic development in India, with enduring positive effects expected in the future.

Conclusion

The Pradhan Mantri Mudra Yojana has proven to be instrumental in promoting marginalized sections of society, including women and individuals from backward classes. The Modi scheme’s impact on business growth is undeniable which is evidenced through its contribution to job creation, technology adoption, and economic development.

Also Read: MSME Money Talk: Sources & Challenges In India

FAQs

1. What is the eligibility criteria for the Modi Loan Scheme?

Applicants must be citizens of India, have no history of loan defaults, and their businesses should not be corporate entities. Additionally, they need to possess a valid bank account and be at least 18 years old.

2. What are the three categories of loans offered under the Modi Loan Scheme and their loan amounts?

The three categories are Shishu, Kishore, and Tarun loans. Shishu loans offer up to INR 50,000. Kishore loans range from INR 50,000 to INR 5 lakhs, and Tarun loans range from INR 5 lakhs to INR 10 lakhs.

3. What is the application process for availing loans under the Modi Loan Scheme?

Applicants can either apply online through the official Mudra Yojana website or visit their nearest bank branch participating in the scheme. They need to fill out the application form, attach required documents, and submit them to the bank.

4. What documents are required for applying for Shishu, Kishore, and Tarun loans?

For Shishu loans, documents such as proof of identity, residence, recent photograph, quotation of machinery, and business enterprise proof are needed. For Kishore and Tarun loans, additional documents like bank statements, balance sheets, and project reports are required.

5. What are the benefits provided by the Modi Loan Scheme?

Benefits of the Pradhan Mantri Mudra Yojana include segmented loan amounts, flexible repayment options, no collateral requirement, no prepayment charges, easy application process, low-interest rates, easy credit facilities, no processing fees and sector-specific loans tailored to various business needs.

6. How has the Modi Loan Scheme impacted small business growth?

The scheme has increased access to finance, promoted entrepreneurship among marginalized sections, facilitated job creation, encouraged youth entrepreneurship, catalyzed innovation and technology adoption, contributed to economic growth, and had a transformative impact.

7. Can individuals with bad credit history or loan defaults apply for the Modi Loan Scheme?

No, individuals with a history of defaulting on loans are not eligible to apply for the Modi Loan Scheme.

8. Is there any specific category of businesses that the Modi Loan Scheme does not support?

Yes, the scheme does not support corporate institutions. It is designed to cater to non-corporate and non-agricultural ventures.

9. Is there any special provision for individuals belonging to marginalized sections of society?

Yes, the Modi Loan Scheme aims to promote entrepreneurship among marginalized sections, including women, SCs, STs, OBCs, and minorities, by providing easy access to capital without the need for collateral.

10. What is the permissible age requirement for individuals applying for the Modi Loan Scheme?

Applicants must be at least 18 years old to qualify for the Modi Loan Scheme.

Twinkle Barot

Twinkle loves everything content. She brings over 5 years of experience writing for leading financial institutions, some of the Fortune 500 companies and fintech firms - simplifying complex financial concepts into clear, engaging content. She is committed to delivering high-value content that empowers clients to achieve their goals.

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