India offers a robust financial landscape, featuring both traditional banks and non-banking financial companies (NBFCs) that provide collateral-free loans to individuals and businesses. These loan products are designed to cater to a variety of needs, especially for small and medium-sized enterprises (MSMEs) and individuals lacking collateral. This article explores the availability of collateral-free loans, the providers, and government schemes designed to support these borrowers.
Providers of Collateral-Free Loans
Indian banks and NBFCs have recognized the need for collateral-free loans and have expanded their offerings to meet this demand. Some of the major banks providing such loans include:
State Bank of India (SBI) HDFC Bank ICICI Bank Axis Bank Punjab National Bank (PNB) Bank of Baroda (BoB) Canara Bank Union Bank of India Indian Overseas Bank (IOB) Bank of India (BOI)Non-banking financial companies, on the other hand, include:
Bajaj Finance Tata Capital Fullerton India Lendingkart Finance Capital Float IIFL Finance Indifi Technologies Kinara Capital ZipLoan NeoGrowthThese institutions offer a range of collateral-free loans, including personal loans, business loans, and microfinance, suitable for various borrower needs and eligibility criteria.
Who Needs Collateral-Free Loans?
Collateral-free loans are particularly important for employees and owners or entrepreneurs of MSMEs. MSMEs, comprising more than 600 crore operational entities, significantly contribute to the growth of the Indian economy. However, large businesses and industries generally require substantial capital, often exceeding several crores, and thus do not qualify for collateral-free loans.
Public Collateral-Free Loan Schemes
The Indian government has introduced several schemes to support borrowers through collateral-free loans. These include:
CGTMSE (Credit Guarantee Trust for Micro and Small Enterprises)
A key scheme, the CGTMSE, was established by the Government of India on August 30, 2000, in collaboration with the Small Industries Development Bank of India (SIDBI). This scheme allows individuals to borrow up to INR 1 crore for their registered businesses. Borrowers must submit a concrete and feasible business plan at the time of application. Loan repayment schedules can extend up to 5 years.
The funds are disbursed through member lending institutions (MLIs), which include any scheduled commercial banks, public sector units, foreign or private banks, and selected state rural banks and finance corporations. Interest rates charged by MLIs are capped at 3% above the RBI's Prime Lending Rate (PLR). For example, if the PLR of SBI is 10%, the interest rate on a CGTMSE collateral-free loan cannot exceed 13%.
MUDRA Yojana (Micro Units Development and Refinance Agency)
The MUDRA Yojana, launched under the Jan Dhan Yojana on April 8, 2015, focuses on providing small loans to micro units. The maximum amount that can be borrowed through MUDRA is INR 10 lakhs. This scheme aims to provide financial support to small businesses, artisans, and street vendors, contributing significantly to the economic empowerment of the lower-income segment of the population.
These government schemes not only provide financial assistance to borrowers but also serve to promote economic growth and development in India.