Pradhan Mantri MUDRA Yojana (PMMY)
The Pradhan Mantri MUDRA Yojana (PMMY) is a scheme launched by the Union Government on April 8, 2015 for providing loans upto Rs. 10 lakh (around US$15,000) to the non-corporate, non-farm small/micro enterprises. Under PMMY, all banks viz. Public Sector banks, Private Sector Banks, Regional Rural Banks (RRBs), State Co-operative Banks, Urban Co-operative Banks, Foreign Banks and Non-Banking Finance Companies (NBFCs)/Micro Finance Institutions (MFIs) - are required to lend to non-farm sector income generating activities below Rs.10 lakh. These loans are classified as MUDRA loans under PMMY.
For implementing the Scheme, government has set up a new institution named, MUDRA (Micro Units Development & Refinance Agency Ltd.), for development and refinancing activities relating to micro units, in addition to acting as a regulator for the micro finance sector, in general. MUDRA provides refinance to all banks seeking refinancing of small business loans given under PMMY. Thus, MUDRA refinances all Last Mile Financiers - Non-Banking Finance Companies of various types engaged in financing of small business, Societies, Trusts, Section 8 Companies [formerly section 25], Co-operative Societies, Small Banks, Scheduled Commercial Banks and Regional Rural Banks - which are in the business of lending to Micro/Small business entities engaged in manufacturing, trading and services activities.
PMMY was announced through Union Budget 2015-16, which proposed to create MUDRA bank with a corpus of Rs. 20,000 crore made available from the shortfalls of priority sector lending, to refinance Micro-Finance Institutions through Pradhan Mantri Mudra Yojana. Further, budget supported a credit guarantee corpus of Rs.3,000 crore for guaranteeing loans being provided to the micro enterprises.
The purpose of PMMY is to provide funding to the non-corporate small business sector. Non- Corporate Small Business Segment (NCSBS) consists 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.One of the biggest hurdles to the growth of entrepreneurship in the Non-Corporate Small Business Sector (NCSBS) is lack of financial support to this sector and a vast majority belonging to this sector do not have access to formal sources of finance. According to the NSSO Survey of 2013, there are 5.77 crore small business units, mostly proprietorship, which run small manufacturing, trading or service activities.
Loan offerings under PMMY
Under the aegis of PMMY, the MUDRA has already created its initial set of products/ schemes. The interventions have been named ‘Shishu’ (meaning infant), ‘Kishor’ (meaning child) and ‘Tarun’ (meaning adolescent) to signify the state of growth/development and funding needs of the beneficiary micro unit/entrepreneur and also provide a reference point for the next phase of graduation / growth to look forward to:
- Shishu: covering loans upto Rs. 50,000/- provided with no collateral, @1% rate of interest/month repayable over a period of 5 years
- Kishor: covering loans above Rs.50,000/- and upto Rs. 5 lakh
- Tarun: covering loans above Rs. 5 lakh to Rs. 10 lakh
How to avail of PMMY?
The borrower who wishes to avail of loan under PMMY may approach any of the Public/Private Sector Commercial Bank, RRB or Co-operative Bank branches in his/her area with a proper business idea and loan application. After due processing of loan application, the lending institution will sanction the loan. The borrower has to execute loan documents and complete other formalities as per the requirement of the lending institution. Thereafter, the loan will be released to undertake small business activities/micro enterprises.
To begin with, MUDRA has enrolled 27 Public Sector Banks, 17 private sector banks, 27 Regional Rural banks and 25 Micro Finance Institutions as partner institutions for channelizing assistance to the ultimate borrower. MUDRA has identified 97 Nodal officers at various Small Indusries Development Bank of India (SIDBI) Regional offices/Branch offices to act as “first contact persons” for MUDRA.
Approach of PMMY
A minimum of 60% of support would flow to enterprises in the smallest segment.Partner intermediaries of MUDRA Bank have to endeavour to adhere to the following broad framework :
- First time entrepreneurs, youth entrepreneurs (i.e. entrepreneurs aged upto 30 years) and women entrepreneurs shall be encouraged and special schemes shall be designed for such entrepreneurs.
- Emphasis shall be on cash flow based lending and not security based lending. Collateral securities, etc. shall be avoided.
- Repayment obligations shall be flexible and shall be framed keeping in view the business cash flows of the entrepreneur.
More details may be seen from the FAQ of MUDRA.
On 6 November 2015 Hon'ble Prime Minister stated that under the Pradhan Mantri Mudra Yojana banks have provided more than six million loans to small businesses for a total value of nearly Rs 38,000 crores or six billion dollars. If one conservatively estimates that each loan creates 2 jobs it has led to the creation of 12 million new jobs by 6 November 2015. State wise disbursement under the scheme may be seen here.