What is PMEGP Loan Scheme The PMEGP or Prime Minister’s Employment Generation Programme is a credit-linked subsidy scheme supported by the Government of India. It aims to generate employment opportunities in rural and urban areas of the country by setting up new micro-enterprises and small projects.
What is PMEGP Loan Scheme Objectives
The PMEGP loan scheme has been designed specifically keeping in mind certain core objectives. Meeting these objectives can spur entrepreneurship and employment generation across India.
Generate Employment Opportunities
One of the foremost objectives of the PMEGP loan scheme is to generate gainful employment opportunities in both rural and urban parts of India. The scheme aims to set up new micro-enterprises and small projects that can provide employment to artisans and the unemployed youth of the country.
Support for Entrepreneurs
Another key objective is to provide a common platform and holistic support system for aspiring entrepreneurs and artisans to set up their own micro-enterprises. The PMEGP loan scheme provides financial, advisory and skill-enhancement support to first-generation entrepreneurs.
Reducing Migration
By facilitating local employment generation, the PMEGP loan scheme also strives to arrest migration from rural to urban centers. Sustainable employment opportunities in rural and semi-urban areas can stem migration among the youth to cities.
Increase Incomes
The scheme also endeavors to increase the earnings of artisans and unemployed youth by enhancing their entrepreneurial skills and providing funding assistance to start micro-enterprises.
Key Features of PMEGP Loan
The PMEGP loan scheme provides funding to new and existing micro-enterprises in manufacturing as well as service sectors. Here are some of its key attributes:
Maximum Project Cost
The maximum project cost allowed under the PMEGP is ₹25 lakhs for setting up a manufacturing enterprise. For enterprises in the services sector, the upper cap on project cost is ₹10 lakhs.
Subsidy on Project Cost
A key highlight of the PMEGP loan scheme is the subsidy offered on the project cost. This subsidy ranges from 15% to 35% of the total project cost based on the location of the unit and the beneficiary category.
Flexible Loan Tenure
The PMEGP term loan can be repaid over a flexible tenure of 3 to 7 years. This provides convenience to entrepreneurs in managing cash flows.
Attractive Interest Rates
Banks sanction loans under PMEGP at competitive interest rates ranging from 11% to 12%. This makes capital accessible at a very reasonable cost.
Collateral-free Loans
Another big positive is that projects with investment up to ₹10 lakhs get collateral-free loan under this scheme. This encourages new entrepreneurs with limited assets.
Streamlined Implementation
The scheme is implemented through a vast network comprising KVIC, KVIBs, DICs and leading PSU banks. This ensures seamless delivery across the country.
Key Benefits of PMEGP Loan
The PMEGP loan scheme is crafted to meet the unique needs of first-generation, rural entrepreneurs. Some of its major benefits are:
Minimum Collateral Requirement
With no collateral required for loans up to ₹10 lakhs, the PMEGP scheme makes capital accessible even to entrepreneurs with limited assets.
Limited Documentation
The documentation and processing for PMEGP loans is simplified for quicker processing and disbursal of funds.
Generous Capital Subsidy
The credit-linked subsidy of 15% to 35% on the project cost is a major value addition, reducing overall capital costs.
Hassle-free Application Process
The online application process through the PMEGP e-portal or partner bank branches is easy and transparent.
Moratorium on Repayment
Borrowers get a 6 months moratorium period before they have to start repaying the PMEGP loan amount. This helps plan cash flows better.
Long Repayment Tenure
The longer repayment tenure of 3 to 7 years ensures very reasonable EMIs and minimal strain on cash flows.
In summary, the PMEGP loan scheme has been designed keeping in mind the needs and limitations of small, rural entrepreneurs. The generous subsidy, minimal collateral requirements and simple application process makes it especially attractive.
Eligibility Criteria for PMEGP Loan
The eligibility criteria are designed to ensure timely and proper utilization of subsidies. Applicants have to meet both individual eligibility as well as sectorial eligibility.
Eligibility Criteria for Individuals
For individuals seeking a PMEGP loan, the key criteria are:
- Age: Applicant must be over 18 years of age. There is no maximum age limit.
- Education: For project costs above ₹10 lakhs in manufacturing sector and above ₹5 lakhs in service sector, applicants must have cleared at least VIII standard.
Eligibility Criteria for Organizations
Apart from individuals, certain types of organizations are also eligible for PMEGP loans:
- NGOs: Non-Governmental Organizations (NGOs) with at least 5 years of experience in relevant activities.
- SHGs: Self Help Groups can apply, provided they have not availing benefits under any other scheme.
- Societies: Societies registered under Societies Registration Act 1860.
- Co-operatives: Co-operative societies involved in production rather than trade can apply.
- Trusts: Charitable trusts are also eligible for PMEGP loans subject to other criteria.
How to Apply for PMEGP Loan
The application process for PMEGP loans has been simplified and made completely transparent.
Online Application
Applicants can submit their application directly through the PMEGP e-portal. The user-friendly portal allows attaching all documents and submitting the application online.
Offline Application
One can also download the application form and submit the completed application along with documents at the nearest branch of any PMEGP partner bank such as SBI, PNB, Union Bank etc.
The KVICs, KVIBs and DICs provide assistance in application preparation as well as submission. Based on eligibility, the applications are forwarded to banks for further processing and disbursal.
List of Activities Covered Under PMEGP
The PMEGP loan can be used to finance micro-enterprises across a wide spectrum of activities in the manufacturing and services sectors.
Manufacturing Sector Activities
Some of the key manufacturing activities that can be established under the PMEGP scheme include:
- Agro-based food processing units
- Mineral based production like cement products
- Furniture making and wood products
- Leather products including footwear
- Textile production like garments or weaving
- Pottery and clay-based products
- Auto components, engineering goods
- Electrical machinery and electronics
- Rubber and plastic based production
- Chemicals and polymer production
- Paper products and printing
Service Sector Activities
Some of the service enterprises that can avail PMEGP subsidy and loans are:
- Tailoring and embroidery
- Computer training and Xerox centers
- Mobile and DTH recharge outlets
- Beauty parlors and salons
-Courier services
- Auto or electronic repairs
- Photocopying and cyber cafes
- Catering and food stalls
- Healthcare clinics
- Tuition centers
- Transport services
Thus micro-enterprises in a very wide range of manufacturing as well as service domains can benefit through this scheme.
However there is a negative list of activities that cannot be financed under PMEGP. This includes manufacturing of alcohol, beedi and cigarette, any hazardous chemicals as well as hotel or restaurants serving liquor.
Subsidy under PMEGP Loan Scheme
One of the biggest incentives under the PMEGP loan scheme is the provision of capital subsidy to the beneficiaries.
Margin Money Subsidy
This subsidy component is also referred to as margin money. It is provided to SCs, STs, OBCs, minorities as well as women entrepreneurs.
Subsidy Rates
The rate of subsidy varies from 15% to 35% based on the location of the unit and the category of beneficiary.
Beneficiary|Rate of Subsidy|Rate of Subsidy|
:-:|:-:|:-:|
|Category|Urban Areas|Rural Areas|
|General |15%|25%|
Special |25%|35%|
The special categories eligible for higher subsidy include SC, ST, OBC, minorities, ex-servicemen, physically handicapped, NER residents among others.
This margin money subsidy is meant to cover the beneficiary’s contribution. The remaining project cost is financed through term loans from PMEGP partner banks.
Subsidy Disbursal
The subsidy amount is released directly to the financing bank account after loans are sanctioned. It is kept in a separate Savings Account in the name of the beneficiary.
This margin money stays locked-in for 3 years after disbursement. After this period, it is adjusted towards the outstanding loan amount.
What is The Project Cost Under PMEGP?
The PMEGP scheme has certain limits on how much can be spent on projects it finances. The project cost includes the following key components:
Capital Expenditure
This covers the fixed costs incurred on plant, machinery, equipment, tools, furniture, fixtures etc. It is the major portion of the project cost.
Working Capital
This covers the preliminary expenses incurred before production commences. It includes costs of purchasing raw materials, salaries, utility bills etc.
Own Contribution
Beneficiaries have to contribute between 5% to 10% of the project cost from their own funds. This component is also added to arrive at the total project cost.
Based on these elements, the maximum project cost allowed under PMEGP is as follows:
- For manufacturing enterprises: Up to ₹25 lakhs
- For service enterprises: Up to ₹10 lakhs
Thus prospective entrepreneurs have to craft their project cost estimates within these thresholds to avail PMEGP benefits.
What is The Loan Amount Under PMEGP?
One of the most important considerations for any entrepreneur is how much loan amount can be availed under the PMEGP scheme:
Loan Amount
The loan granted under PMEGP is based on the total project cost.
For manufacturing sector, PMEGP term loans up to ₹25 lakhs can be approved.
For service sector projects, the maximum loan under PMEGP is ₹10 lakhs.
Margin Money Subsidy
In addition to the loan component, entrepreneurs also get a margin money subsidy equal to 15% to 35% of the project cost.
So for a manufacturing unit with ₹25 lakhs project cost with 25% subsidy, the loan amount is ₹18.75 lakhs.
Beneficiary Contribution
Beneficiaries have to contribute between 5% to 10% of the project cost from their own funds. This contribution amount reduces the actual loan amount to be funded.
Minimum 3 Years Loan
The PMEGP loan approved has to be sufficient to fund at least 3 years of working capital along with the fixed costs. Banks provide adequate credit limits keeping this factor in mind.
The interest rate on the PMEGP loan is based on rates prevailing for MSME lending. Banks can charge between 11% to 12% p.a. interest on loans under this scheme.
Who Can Apply for PMEGP Loan?
The PMEGP scheme aims to support a wide spectrum of entrepreneurs and entities. Here is a look at key applicant categories:
Individual Entrepreneurs
Any individual who meets the age and educational criteria can apply for funding under the PMEGP scheme. It is aimed at supporting small entrepreneurs.
Partnership Firms
Partnership firms where the partners meet the eligibility conditions can also apply for loan under this scheme.
Limited Liability Partnerships
LLPs engaged in manufacturing or services can avail the PMEGP loan, margin money subsidy as well as other benefits.
Private Limited Companies
Even Private Limited companies can apply, provided they fall under the MSME size criteria of investment in plant and machinery.
SHGs
The PMEGP scheme encourages applications from Self Help Groups that undertake entrepreneurial activities.
Cooperative Societies
Production Cooperatives are also eligible beneficiaries under PMEGP. The Cooperative Society should be actively engaged in production rather than merely trading.
Trusts and Societies
Societies, Charitable Trusts and NGOs with proven track record can apply provided they meet other PMEGP eligibility norms.
Thus the scheme encompasses a wide range of applicant categories from individuals to associations and enterprises. Certain entities like State owned companies and Corporations are however not eligible under PMEGP.
How is The PMEGP Loan Amount Sanctioned?
While the PMEGP subsidizes the project cost by up to 35%, the remaining amount is funded through term loans from banks. Here is an overview of how the loan amount is sanctioned:
Need-based Finance
Banks assess the actual fund requirements for each project individually based on the project report. Only need-based financing is provided.
Maximum Limit
The amount sanctioned is capped at the maximum limit of ₹25 lakhs for manufacturing and ₹10 lakhs for service enterprises.
Margin Money
Banks deduct the margin money subsidy percentage from the project cost to arrive at the remaining amount to be funded by them.
Beneficiary’s Contribution
Banks further reduce the loan amount by the beneficiary’s own contribution stipulated under the scheme. This contribution is 10% for general category applicants and 5% for special categories.
Adequate Working Capital
Banks sanction the term loan amount in a manner that 3 years’ working capital requirement for the project is adequately covered.
Thus the financing under PMEGP is customized for every project based on the promoter’s contribution, margin money subsidy and the actual fund needs.
What is The Repayment Period and Interest Rate Under PMEGP?
The PMEGP loan is sanctioned to beneficiaries at very affordable terms which are ideal for small and micro-units:
Repayment Period
The term loan under PMEGP can be repaid over a period of 3 to 7 years. Each bank fixes the exact repayment period based on the borrower’s cash flows and debt repayment capacity.
Moratorium Period
Borrowers get a moratorium of 6 months to 1 year before commencing repayment of the PMEGP loan. This helps stabilize operations before regular repayment starts.
Interest Rate
The annual interest rate on funds borrowed under the PMEGP scheme ranges from 11% to 12% based on RBI guidelines. This rate is very competitive for small borrowers.
Instalments
Based on the final loan tenure, borrowers have to repay the loan in monthly or quarterly instalments. The instalments are structured to include interest as well as principal repayment.
Thus the long repayment tenures, moratorium period and moderate interest rate makes the PMEGP loan easy to service for small business owners.
What is The Collateral Requirement Under PMEGP?
One of the key benefits under the PMEGP scheme is that it provides collateral-free loans up to a certain limit:
No Collateral Upto ₹10 Lakhs
As per RBI guidelines, loans under PMEGP up to ₹10 lakhs are exempted from any collateral or third-party guarantee requirement. So such loans are sanctioned without any security.
CGTMSE Cover
For loans above ₹10 lakhs, the PMEGP scheme provides credit guarantee cover through the CGTMSE scheme. So borrowers get collateral-free loans even for bigger loan amounts.
Larger Loans
For PMEGP loans exceeding ₹25 lakhs, banks may require collateral security, though third-party guarantee can still be avoided.
Thus new entrepreneurs with limited assets can still get adequate funding based on their business needs under PMEGP. This encourages self-employment initiatives.
What Are The Key Features of The PMEGP Portal?
The PMEGP portal or e-portal serves as a common platform bringing different stakeholders together and facilitating interaction:
User Friendly Interface
The portal has been designed for ease of use with applicants, banks, administrators etc. It has various modules for different users.
Online Application Submission
Interested applicants can submit their PMEGP loan applications directly online along with documents. This saves time and energy.
Application Tracking
Users can log in and track the status of their PMEGP application as it undergoes different stages of processing and approval.
Grievance Redressal
The portal allows online submission of grievances which are forwarded to program officials for timely resolution.
Document Repository
All forms, guidelines, FAQs and other relevant reference material for the PMEGP scheme are hosted on the portal.
Administration Module
The portal has a detailed back-end module for administration and monitoring of the scheme by KVIC and MSME officials.
Reports and Status Checks
Administrators can generate and study relevant reports on performance of banks, institutions and other ecosystem partners through the portal.
The PMEGP e-portal thus brings ease, convenience and transparency to the entire ecosystem.
How to Check PMEGP Application Status?
Applicants can easily check the status of their PMEGP loan application through the following methods:
Via PMEGP Portal
Log into the PMEGP e-portal using your application ID and track the stage at which your application is pending.
Contact Bank
Get in touch with the bank branch where you submitted your application to know the latest status.