Difference between PMMY and MSME loan

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PMMY or Pradhan Mantri Mudra Yojana and MSME refers to Micro, Small and Medium Enterprises. Mudra loan extends to the MSME sector but there is a difference in the loans meant for the MSME sector and loans provided to the MSMEs under the Mudra scheme.

What is the MSME sector?

The MSME sector is governed by the Ministry of Micro, Small and Medium Enterprises headed by Mr. Nitin Gadkari since May 31, 2019. As of July 1^st, 2020, MSME can be classified as:

Micro enterprises– All manufacturing and service rendering enterprises that have an investment in Plant and Machinery/Equipment of less than INR 1 Cr and an annual turnover less than INR 5 Cr fall under the category of micro enterprises.

Small enterprises– All manufacturing and service rendering enterprises that have an investment in Plant and Machinery/ Equipment of less of less than INR 10 Cr and an annual turnover of less than INR 50 Cr fall under the category of small enterprises.

Medium Enterprises– All manufacturing and service rendering enterprises that have an investment in Plant and Machinery/ Equipment of less than INR 50 Cr and an annual turnover of less than INR 250 Cr fall under the category of medium enterprises.

MSMEs are well known for generating employment opportunities in rural areas. They have helped in the industrialization of rural and backward areas, thus improving their conditions and at the same time assuring more equitable distribution of national income and wealth. Individuals, MSME business owners, traders, and manufacturers between the age of 18 years to 70 years can apply for a MSME loan, although the client must have a good CIBIL score of above 750 and must be an Indian citizen with no criminal record.

The MSME sector contributes around,

11 % of the manufacturing GDP
63% of the GDP from service activities
4% of India’s manufacturing output

Who provides MSME loans?

Most banks, public as well as private, provide loans to MSMEs at varying interest rates depending on business requirements.
Interest rates can vary from as low as 7% to as high as 15% and can even go higher.
There is no minimum loan amount as such, but the maximum loan provided is upto 1 Cr.
The loan repayment tenure ranges from 12 months to 5 years
The loan cancellation charges vary from bank to ban

Some benefits of MSMEs:

It becomes easy to get licenses, sanctions, and registration for MSMEs regardless of the field of business.
MSMEs that are registered under the Udyam scheme get fare subsidies, least interest taxes, and other benefits like reimbursement of ISO license.
MSME loans also get a discharge under direct tax laws.
Under the Atmanirbhar scheme initiated by the Government of India, various other benefits have been included for MSMEs such as:
MSME loans of around 3 lakh Crore for purchase of raw materials, to meet operational requirements, and smooth functioning.
Disallowing global tenders of around INR 200 Cr so as to help the domestic companies sell their products and enhance their businesses.
Clearance of MSME dues by the Government and Public Sector Units (PSUs) within 45 days to avoid disputes and delays.

What is the MUDRA loan?

On 8^th April 2015, under the leadership of Prime Minister, Shri Narendra Modi, the Government of India launched a scheme called the Prime Minister Mudra Yojana. The scheme provides reasonable loans to the non-corporate, non-farm small and micro enterprises loans amounting upto INR 10 lakh to qualified individuals.

The full form of MUDRA is Micro Units Development and Refinance Agency Limited. The loans under the MUDRA scheme are provided through profit making banks, Cooperative banks, NBFC, MFIs, etc.

The MUDRA loan scheme has 3 segments of loan namely Shishu, Kishor, and Tarun.

Shishu

Kishor

Tarun

Loan value amounting upto INR 50,000

Loan value above INR 50,000 and upto INR 5 lakhs

Loan value above INR 5 lakhs and amounting upto INR 10 lakhs.

Eligibility for the MUDRA loan:

Corporate or farm related enterprises cannot apply for the MUDRA loan.
It is concerned with those enterprises that require loan for manufacturing, trading and services thus leading to revenue generation to acquire a stable income and further expand their businesses.
The MUDRA loan as stated before provides loan amounting upto INR 10 lakhs.

Points of difference between MSME loan and MUDRA loan:

MSME

MUDRA

1) MSME loans are a credit product offered by NBFS’s and banks for businesses in the MSME sector.

1) Mudra loans are provided under the PMMY scheme that not only provides financial help to the MSME sector but also has projects under it for the development of the small business sector.

2) The business loans offered by various NBFS’s are at low rates due to the competitive market.

2) The Mudra loan interests depend and vary from bank to bank and starts at around 8%. The competition doesn’t matter as such because it’s a government scheme meant for the welfare of the MSME sector.

3) For being eligible for the MSME loans, the client must have a good credit score, a minimum turnover of INR 5 lakhs and minimum 2 years business vintage.

3) Mudra loan is provided to shopkeepers, vendors, and service sector allied business owners. It is used for purchase of equipment for micro units, to provide financing for vehicles like tractors and to those involved in non-farm agricultural related activities.

4) Hassle free documentation for applying to the MSME loans, mainly requiring business address proof, PAN card, previous nine years bank statement and some little formalities for verification.

4) As it falls under a Govt. scheme, it requires more documentation and stricter verification than regular business loans including personal ID proof, bills, SSI registration certificate, Memorandum of Association and Articles of Association if it is a company or a partnership deed in case it is a partnership enterprise.

For loans amounting to more than INR 2 lakhs, a clearance from pollution board is required too thus proving to be cumbersome for the applicants.

5) Loan amount can go as high as upto INR 1 Cr.

5) Loan amount can go upto a maximum of INR 10 lakhs.

Krishna Murthy V

Krishna Murthy is the senior publisher at Trickyfinance. Krishna Murthy was one of the brilliant students during his college days. He completed his education in MBA (Master of Business Administration), and he is currently managing the all workload for sharing the best banking information over the internet. The main purpose of starting Tricky Finance is to provide all the precious information related to businesses and the banks to his readers.