PMEGP LOAN

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Oct 16, 2019
6 min read

The Prime Minister’s Employment Generation Program (PMEGP) is a credit linked subsidy program initiated in 2008. It integrated two earlier schemes, viz. Prime Minister’s Rojgar Yojana (PMRY) and the Rural Employment Generation Program (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 centers 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 organizations working with the directorates and boards include NGOs, Panchayat Raj institutions, the National Small Industries Corporation, and so on. These organizations 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 Program (PMEGP)

The PMEGP has a four-fold objectives:

To create employment in rural, as well as urban areas in India by setting up new self-employment micro enterprises or projects.
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.
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.
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 (MSMEs), 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 from 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

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

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 / Organizations that Meet the Eligibility Criteria for a PMEGP Loan

The PMEGP loan is given to individuals as well as other organizations 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 lakhs 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 bye-laws is also needed
The cost of the project with a break-up of the capital expenditure and the working capital requirements for one cycle

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.
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.
The cost of land cannot be included in the project cost.
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

Once the application is approved, the bank allocates 95% of the project cost (for weaker sections of society) or 90% (for general applicants).
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 (KVIC).
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:

Agro-based Food Processing
Forest-based Products
Hand Made Paper and Fibre
Mineral-based Products
Polymer and Chemical-based Products
Rural Engineering and Bio-Tech
Service and Textile

Activities for which PMEGP Loan is not available: The PMEGP loan is not given for enterprises engaged in the following activities:

Businesses engaged in meat slaughter or any related activities such as processing, canning and/or serving it for consumption.
Production, manufacturing or sale of harmful intoxicants, such as beedi, paan, cigar, cigarette, etc.
Preparation or production of tobacco as raw material.
Hotel, dhaba or sales outlet serving liquor.
Tapping of toddy for sale.
Businesses engaged in the cultivation of cash crops such as tea, coffee, rubber, etc.
Organisations or individuals engaged in sericulture, horticulture, floriculture, animal husbandry, etc.
Enterprises providing harvester machines.
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.
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.
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.