PMEGP lOAN

The Prime Minister’s Employment Generation Programme (PMEGP) is a credit linked subsidy programme initiated in 2008. It integrated two earlier schemes, viz. Prime Minister’s Rojgar Yojana (PMRY) and the Rural Employment Generation Programme (REGP) that were working along similar lines to generate employment among the youth. The integration of these two initiatives helped combine urban and rural efforts and resulted in a more unified approach to set up micro enterprises to increase the number of jobs in the country.

Under this scheme, the beneficiary has to invest only 5-10% of the project cost while the government provides a subsidy of 15-35% of  the project based on different criteria. The participating banks provide the rest of the funds as term loans to the entrepreneur. We look at this in some detail in the below section.

The PMEGP scheme is managed under the aegis of the Ministry of Micro, Small and Medium Enterprises (MoMSME) and the Khadi and Village Industries Commission (KVIC) looks at it on a national level. The state-wise efforts are divided among different directorates and boards, among others. These include various khadi and village industries boards across different states, the state directorates of KVIC, the industries centres in districts across the country, and the banks. The accounts in these banks are essentially the medium through which the funds are distributed after the aforementioned directorates, boards, etc. approve the subsidies to specific persons setting up the micro units.

Some organisations working with the directorates and boards include NGOs, Panchayati Raj institutions, the National Small Industries Corporation, and so on. These organisations help in the implementation of the scheme by identifying beneficiaries, focus areas where investment is required and providing training to the youth to take up jobs or set up micro-units themselves.

Objectives of the Prime Minister’s Employment Generation Programme (PMEGP)

The PMEGP has a four-fold objective:

1. To create employment in rural as well as urban areas in India by setting up new self-employment micro enterprises or projects.
2. To provide a common ground for the widely dispersed traditional artisans and unemployed youth in both rural and urban areas to come together and create self-employment avenues.
3. To take steps to prevent migration of rural people to cities to seek employment by giving them stable and sustainable employment. This is especially for traditional and prospective artisans and rural and urban unemployed youth who get traditional or seasonal employment and remain unemployed rest of the year.
4. To increase the income earning capacity of artisans and focus on increasing the growth rate of rural and urban employment.

Financial Assistance under PMEGP

The scheme offers financial assistance to people based on different criteria. However, since the scheme covers micro, small and medium-sized enterprises, there are certain specifications on the amount of projects that qualify and the size of the loan that is offered. For the manufacturing sector, the maximum limit of cost of the project will be Rs. 25 lakh. For units in the business or service sector, this limit will be Rs. 10 lakh. Additionally, the per capita investment should not be more than Rs. 1 lakh in the plains and Rs. 1.5 lakh in the hilly regions.

The amount of contribution required from the borrower is 10% for the General category and 5% for the Special categories such as SC/ST/OBC, minorities, women, ex-defence employees, physically challenged persons, and people in the North East region, hills and border areas, among others.

The rate of subsidy will be 15% for the General category in urban areas and 25% in rural regions. For the Special categories of people, the subsidy from the government will be 25% for urban areas and 35% for rural locations.

Subsidy and Funding under PMEGP

Beneficiary Categories	Beneficiary’s Share (of Total Project)	Subsidy Rate (from Govt.) – Urban	Subsidy Rate (from Govt.) – Rural
General	10%	15%	25%
Special	5%	25%	35%

The balance amount of the total project cost is provided by the banks as a term loan to the micro unit entrepreneur. This term loan is more commonly referred to as a PMEGP Loan.

Individuals / Organisations that Meet the Eligibility Criteria for a PMEGP Loan

The PMEGP loan is given to individuals as well as other organisations that meet the specified criteria for such a term loan. The list of such eligible candidates is provided below :

• Individuals, who are above 18 years of age; the beneficiary individual must have studied and passed at least class 8 if they want to establish a manufacturing unit costing over Rs. 10 lakh or a service unit costing over Rs. 5 lakh with the PMEGP loan.
• Self-help groups can also take the PMEGP loan provided they have not availed any other benefit under the scheme.
• Societies that are registered under Societies Registration Act, 1860
• Production Co-operative Societies
• Charitable Trusts

There are no income ceilings to avail this loan. The PMEGP loan is only given to new units and is not available for existing units established under PMRY, REGP or any other government scheme. Moreover, any unit that has availed a subsidy under any other scheme is not eligible for the PMEGP loan.

Documents Required to Apply for a PMEGP Loan

The following documents are needed to apply for a PMEGP Loan.

• Caste or community certificate, or any other relevant document from a competent authority, which shows that the applicant is eligible for a PMEGP loan under one of the specific applicant categories.

• A claim to the subsidy to which they are eligible.

• In case of a society or an institution, a certified copy of the byelaws is also needed.

• The cost of the project with a break-up of the capital expenditure and the working capital requirements for one cycle.

1. In case, there is no need for any working capital, then an approval of such breakup is required from the regional office or Controller of the bank branch.
2. Applicants can include the cost of leasing or renting any work shed or workshop, provided the total of such rent / lease is not for more than 3 years.
3. The cost of land cannot be included in the project cost.
4. 10% of the project cost should comprise the applicant’s own contribution for general category; for the weaker section, 5% of the project cost should be one’s own contribution.

PMEGP Loan Details

The below sections look at different aspects of the PMEGP Loan, from percentage share of each party in the allocation of funds to interest rate and tenure.

• PMEGP Loan Allocation: Here is a look at the breakup of the money that is given under a PMEGP Loan.

1. Once the application is approved, the bank allocates 95% of the project cost (for weaker sections of society) or 90% (for general applicants).
2. Of this, 15-35% is the margin money or subsidy that is provided by the government. The amount of margin money that will be taken by banks will be proportional to the actual capital expenditure availed by the applicant. The rest of the margin money that is proportional to the amount not availed will be returned to the Khadi and Village Industries Commission.
3. The rest of the funds (i.e. 90/95% of funds allocated less 15-35% subsidy) is provided by the bank as a term loan or PMEGP loan.

• Rate of Interest: The rate of interest on the PMEGP loan will be at a normal rate as applicable to the MSE sector. Most banks provide a rate that starts at around 11-12%.

• Tenure of the PMEGP Loan: After an initial moratorium (that usually does not exceed 6 months), the bank may provide a repayment schedule of 3-7 years for the borrowers to pay back the PMEGP loan.

• Margin Money / Subsidy: The margin money is kept in a separate savings account that is linked to the loan account, and locked in for a period of 3 years, after which it is adjusted with the PMEGP loan or released. 

• Working Capital Requirements: The PMEGP loan requires that the working capital expenditure be equal to the cash credit limit at least once in the three years after the margin money is locked in. Moreover, it should not be less than 75% utilisation of the sanctioned limit.

• Indicative Sectors for Which PMEGP Loan is Given: The PMEGP loan is given for enterprises in the following sectors:

1. Agro-based Food Processing
2. Forest-based Products
3. Hand Made Paper and Fibre
4. Mineral-based Products
5. Polymer and Chemical-based Products
6. Rural Engineering and Bio-Tech
7. Service and Textile

• Activities for Which PMEGP Loan is Not Available: The PMEGP loan is not given for enterprises engaged in the following activities:

1. Businesses engaged in meat slaughter or any related activities such as processing, canning and/or serving it for consumption.
2. Production, manufacturing or sale of harmful intoxicants such as Beedi, Pan, Cigar, Cigarettes, etc.
3. Preparation or production of tobacco as raw material.
4. Hotel, dhaba or sales outlet serving liquor.
5. Tapping of toddy for sale.
6. Businesses engaged in the cultivation of cash crops such as tea, coffee, rubber, etc.
7. Organisations or individuals engaged in sericulture, horticulture, floriculture, animal husbandry, etc.
8. Enterprises providing harvester machines.
9. Manufacturing of polythene bags that are less than 20 microns thick or making containers or plastic bags from recycled plastic and which are dangerous to the environment.
10. Small scale industries that process Pashmina wool and other such products by hand spinning or hand weaving, and make use of Khadi Programme initiatives or sales rebates.
11. People or organisations engaged in rural transport, except for certain specific modes of transport such as cycle rickshaw, or others in certain designated areas such as auto rickshaw in Andaman & Nicobar and house boat, Shikara or tourist boat in Jammu and Kashmir.

Also Read: PMEGP Online Application Process & Steps to Apply

Frequently Asked Questions (FAQs) on PMEGP Loan

Here are a few common queries that people have on a PMEGP loan:

• Who can take a PMEGP loan?A PMEGP loan can be taken by individual entrepreneurs, self-help groups, institutions, production co-operative societies and trusts.
• Are there any age restrictions on taking a PMEGP loan?The Prime Minister’s Employment Generation Programme (PMEGP) mandates that applicants be at least 18 years of age. There are no upper age limits, though banks may use their own criteria to prescribe an upper age limit.
• Are there any education restrictions on taking a PMEGP loan?The beneficiary must have studied and passed class 8 if they want to establish a manufacturing unit costing over Rs. 10 lakh or a service unit costing over Rs. 5 lakh with a PMEGP loan. This implies that in case the cost of the manufacturing unit is less than Rs. 10 lakh or that of the service unit is less than Rs. 5 lakh, then there are no educational criteria for the person to take a loan.
• Can a person living in an urban area take a PMEGP loan?Yes, he or she can. The PMEGP loan scheme is available to all eligible applicants, no matter where they stay. There are certain restrictions, however, on how much subsidy one can get. For instance, the subsidy for the general category is 15% in urban areas, while it is 25% in rural. For the weaker sections of society, it is 25% in urban areas and 35% in rural.
• What is the maximum PMEGP loan I can get?The maximum cost of project allowed is Rs. 25 lakh in the manufacturing sector and Rs. 10 lakh in the business or service sector. Additionally, the per capita investment should not be more than Rs. 1 lakh in the plains and Rs. 1.5 lakh in the hilly regions.
• What is margin money under a PMEGP loan? How does it benefit me?Margin money refers to the subsidy you get from the Khadi and Village Industries Commission (KVIC). It is the amount that the government contributes to your business under the PMEGP loan. This margin money is given to the bank and is subject to a lock-in period of 3 years.
• Will the bank give me the margin money?Yes, the bank gives you the margin money after the lock-in period, provided you have used your funds as per the guidelines provided by the bank.
• Are there any guidelines on fund utilisation?The PMEGP loan requires that the working capital expenditure be equal to the cash credit limit at least once in the three years after the margin money is locked in. Moreover, it should not be less than 75% utilisation of the sanctioned limit.
• What is the project cost?The project cost is the break-up of the capital expenditure and the working capital requirements for one cycle. It also includes the cost of leasing or renting any work shed or workshop, provided the total of such rent / lease is not for more than 3 years. 10% of the project cost should comprise of the applicant’s own contribution for the general category and 5% of the project cost should be one’s own contribution for the special category. The cost of land cannot be included in the project cost
• I do not have any working capital expenses. Will I be able to get a PMEGP loan?Yes, you can. You need an approval of the breakup without working capital from the regional office or Controller of the bank branch.