What is a Shishu Loan?

Last Updated at: July 03, 2020
256
What is a Shishu Loan

In light of the business losses by the coronavirus pandemic, the government of India launches a beneficial interest subvention scheme for small loans. This is mainly to enable the smallest of businesses in continuing their operations, in times of cash crunch. In this post, we highlight what a Shishu loan is, its benefits for your company, and how the new beneficial scheme can be utilized by your business.

Categorization of Loans

The Pradhan Mantri Mudra Yojana has its launch in 2015 with three classes of loans. These signify varied stages of growth, development, and funding needs of the type of unit that is availing loan. The Shishu loans cover value up to ₹50,000. The Kishore loans cover value above ₹50,000 and up to Rs.5 lakh. The Tarun loans cover large companies with loans between five lakhs and up to 10 lakhs.

How is a Shishu Loan available?

  • The MUDRA Ltd – micro-unit development and refinance agency is a government entity for providing micro-entrepreneurs with loan requirements of up to Rs.10,00,000. 
  • Moreover, lending institutions such as commercial banks, non-banking financial institutions, public sector as well as private banks, registration with the Mudra agency are eligible to extend Shishu loans.
  • A company intending to take a loan up to ₹50,000 can avail of this priority sector lending scheme in a commercial bank of their choice 

Get legal advice 

What does the Shishu Loan cover?

  • Working capital needs – The Shishu loan is basically a type of facility for providing working capital or a term loan. Its purpose can be for meeting regular orders, meeting credit needs, capacity expansion, modernization. 
  • Available to all business types – The loans belonging to the Shishu category can be availed by all business enterprises whether or belonging to the manufacturing trading or service sector including agriculture activities. This loan can avail by business owners, shopkeepers, start-up entrepreneurs, etc. 
  • Advantages of Shishu Loans – For taking a Shishu loan from a scheduled commercial bank, the best advantage is that there are no processing charges, no security or collateral required, and no minimum loan amount requirement. Mudra card issues that work as an ATM card with access to the Rupay platform and POS machines. 
  • Repayment tenure – The loans need to be repaid in a maximum of five years.

How to apply for a mudra loan 

Any beneficiary – whether sole proprietor, partnership, or company can avail Shishu loan. This can be done by downloading the appropriate form from the tab “Application Form for Shishu” on the official Mudra website. This application form needs to get approval from the bank. Or financial institutions willing to extend a loan to your business. Although not necessary, it is advisable to avail a loan from a branch familiar to you.  Additionally, where you already have banking operations.  

Ministry of Finance approves interest subvention of Shishu loans

The Union Cabinet approves an interest subvention (reduction in the rate of interest) by 2% for a period of 12 months to all Shishu loan accounts. Moreover, the scheme would entail a cost of ₹1542 crores.

Need for interest subvention of loans in Shishu category

  • The government realizes that due to severe losses to businesses, financial stresses at the bottom of the industrial chain is accumulating. These were pushing many small businesses to the brink of closure. 
  • Micro and small companies availing loans with small amounts were finding it difficult to make repayments.
  • Additionally, this would help small businesses in meeting their interest obligations and also help them retain employees.

Eligibility for interest subvention 

  • The scheme will extend only to businesses that will not declare as Non-Performing, base on the reserve bank of India guidelines.
  • Moreover, the interest subvention is payable for months in which the accounts are operational and not non-performing. This is to encourage only regular payment makers. 

Operational details of the scheme

  • The scheme should operate by the small industries development bank of India for a period of 12 months.
  • This period would commence from 1 June 2020 until 2021.
  • For those borrowers who have already availed a moratorium on payment by the bank or financial institution. The scheme would still be available to them once there is the completion of the moratorium period. Hence, it would not make moratorium holders eligible for the benefit. 
  • Defaulters on loans cannot avail of the benefit of interest reduction. Unless they service their debt and get their account status cleared by the bank.  

 

0

What is a Shishu Loan?

256

In light of the business losses by the coronavirus pandemic, the government of India launches a beneficial interest subvention scheme for small loans. This is mainly to enable the smallest of businesses in continuing their operations, in times of cash crunch. In this post, we highlight what a Shishu loan is, its benefits for your company, and how the new beneficial scheme can be utilized by your business.

Categorization of Loans

The Pradhan Mantri Mudra Yojana has its launch in 2015 with three classes of loans. These signify varied stages of growth, development, and funding needs of the type of unit that is availing loan. The Shishu loans cover value up to ₹50,000. The Kishore loans cover value above ₹50,000 and up to Rs.5 lakh. The Tarun loans cover large companies with loans between five lakhs and up to 10 lakhs.

How is a Shishu Loan available?

  • The MUDRA Ltd – micro-unit development and refinance agency is a government entity for providing micro-entrepreneurs with loan requirements of up to Rs.10,00,000. 
  • Moreover, lending institutions such as commercial banks, non-banking financial institutions, public sector as well as private banks, registration with the Mudra agency are eligible to extend Shishu loans.
  • A company intending to take a loan up to ₹50,000 can avail of this priority sector lending scheme in a commercial bank of their choice 

Get legal advice 

What does the Shishu Loan cover?

  • Working capital needs – The Shishu loan is basically a type of facility for providing working capital or a term loan. Its purpose can be for meeting regular orders, meeting credit needs, capacity expansion, modernization. 
  • Available to all business types – The loans belonging to the Shishu category can be availed by all business enterprises whether or belonging to the manufacturing trading or service sector including agriculture activities. This loan can avail by business owners, shopkeepers, start-up entrepreneurs, etc. 
  • Advantages of Shishu Loans – For taking a Shishu loan from a scheduled commercial bank, the best advantage is that there are no processing charges, no security or collateral required, and no minimum loan amount requirement. Mudra card issues that work as an ATM card with access to the Rupay platform and POS machines. 
  • Repayment tenure – The loans need to be repaid in a maximum of five years.

How to apply for a mudra loan 

Any beneficiary – whether sole proprietor, partnership, or company can avail Shishu loan. This can be done by downloading the appropriate form from the tab “Application Form for Shishu” on the official Mudra website. This application form needs to get approval from the bank. Or financial institutions willing to extend a loan to your business. Although not necessary, it is advisable to avail a loan from a branch familiar to you.  Additionally, where you already have banking operations.  

Ministry of Finance approves interest subvention of Shishu loans

The Union Cabinet approves an interest subvention (reduction in the rate of interest) by 2% for a period of 12 months to all Shishu loan accounts. Moreover, the scheme would entail a cost of ₹1542 crores.

Need for interest subvention of loans in Shishu category

  • The government realizes that due to severe losses to businesses, financial stresses at the bottom of the industrial chain is accumulating. These were pushing many small businesses to the brink of closure. 
  • Micro and small companies availing loans with small amounts were finding it difficult to make repayments.
  • Additionally, this would help small businesses in meeting their interest obligations and also help them retain employees.

Eligibility for interest subvention 

  • The scheme will extend only to businesses that will not declare as Non-Performing, base on the reserve bank of India guidelines.
  • Moreover, the interest subvention is payable for months in which the accounts are operational and not non-performing. This is to encourage only regular payment makers. 

Operational details of the scheme

  • The scheme should operate by the small industries development bank of India for a period of 12 months.
  • This period would commence from 1 June 2020 until 2021.
  • For those borrowers who have already availed a moratorium on payment by the bank or financial institution. The scheme would still be available to them once there is the completion of the moratorium period. Hence, it would not make moratorium holders eligible for the benefit. 
  • Defaulters on loans cannot avail of the benefit of interest reduction. Unless they service their debt and get their account status cleared by the bank.  

 

0

No Record Found
SHARE
Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.