MUDRA Yojana Is Paving Way For Small Business

MUDRA Yojana: what is it? How is it beneficial for micro-enterprises? How is it different from the normal loans? We have all the answers!

MUDRA Yojana was launched in the year 2015 by the Government of India to help micro-enterprises. It’s a developing step in the progressive economic development of India.

It comes under the Non-Banking Financing Institution – Micro Units Development and Refinance Agency (MUDRA) Bank. When we say it’s a Non-Banking Financing Institution, it simply means that it provides financial aid, but it does not have any banking licence.

Now, you might have questions about how this loan lending and borrowing works. How is it beneficial for micro-enterprises? How is it different from the normal loans?

MUDRA (Micro Units Development and Refinance Agency) Banks give loans indirectly to consumers. They provide money to financial institutions like cooperative institutions.

Three types of MUDRA Yojana Loans

Now, consumers take loans from such institutions. MUDRA Yojana aims to provide funding to the non-corporate small business sector. This government scheme consists of three types of loans based on the requirement of the money you need for your business.

  • The first type is the Shishu loan, which gives up to Rs. 50,000. This loan is best to fund your working capital needs.
  • The second one is the Kishore loan, which gives up to Rs. 50,000 to 5 lakh that can be useful for establishing infrastructure and buying raw materials.
  • The third loan, Tarun Loan, provides up to Rs. 5 lakhs to 10 lakhs, which offers higher loan amounts and is aimed towards bigger and more established business enterprises.

Many people sometimes experience hesitation to take loans directly from banks, this is because they believe that you don’t have collateral, which means, assets that they show to take a loan from the bank.

Similarly, small entrepreneurs feel like there is a risk in taking loans from banks as banks demand high interest and also want you to give collateral to get a refund for any future losses. Situations like these prevent small businesses to flourish and hamper their growth.

As India is a densely populated country, that indicates that there would be a future requirement for jobs and livelihood opportunities. Keeping this in mind, we can also say that if small business boom, it will also help in generating employment for a lot of people, especially people coming from rural areas who shift to urban areas to get jobs.

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The pros of this scheme include

Moreover, the scheme has other advantages like an increase in GDP and a boost to Indian Economy in the long run, this is possible because India is not just one of the biggest consumer markets but one of the biggest producer markets in the world.

  • To help set up responsible financial practices to prevent over-borrowing for low-income entrepreneurs.
  • To help create easy access to finance for the unbanked and also help lower the cost of finance. It also gives preference to women and the SC/ST community, which means it will be effective for a vast variety of both urban and rural citizens.
  • Only the direct farming sector will not get loans under this scheme, but agriculture-allied activities like dairy and poultry, etc can get loans under this scheme.
  • The data present in government records show that the policy favours emerging entrepreneurs.
  • Women entrepreneurs are ahead in the disbursement share. Before these women used to face the difficulty of getting loans for business, they were seen as less mature and less capable of doing business.

Shortcomings of the scheme

  • Though the percentage share has increased, there is a major need to bring focus more to minority categories like SC/STs, which is one shortcoming of the scheme. The share of SC, ST, and OBC categories were 18%, 5%, and 32%, respectively, in terms of the loan accounts sanctioned.

But the major portion of their share belongs to the Shishu category, according to the paper of the International Journal of Advance and Innovative Research. It’s because of the history of socio-economic backwardness faced by them.

  • Another shortcoming is that people are unaware of the scheme, that students can volunteer to spread awareness by organizing awareness drives in rural and urban low-line areas.

Keeping the above arguments in mind, we can say, that Mudra Yojana is a long-term and inclusive initiative in the world of finance and entrepreneurship by the government of India. It can be perceived that because of the dispatch of this plan, monetary consideration has expanded towards a positive heading, despite the growth in the minority sector is still not remarkable.

It is important to understand that any policy that is introduced by the government needs to be implemented properly at ground level, only then it will bring change.

Image source: Industrial Photographer, free and edited on CanvaPro

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