Government approves 2% interest subsidy on Shishu loans

As part of the COVID-19 relief measures, small borrowers holding Shishu loan accounts will receive 2% interest subsidy. The Shishu loans fall under the Mudra Yojana of the government to help small enterprises and MSMEs. 

The interest subsidy approval is for 12 months. The subsidy extends to loans due as on 31 March 2020. The period of the interest subsidy is 1 June 2020 until 31 May 2021. In case of borrowers who have availed of a moratorium, the period commences from 1 September 2020 and ends on 31 August 2021.

Also Read: Loan Moratorium: SC Adjourns Hearing on the Interest Charged on Deferred Interest

Businesses obtain the Shishu loans under the Mudra Yojana from various small finance banks, Micro Finance Institutions (MFI), NBFCs, commercial banks and RRBs. However, the interest subsidy is not on loans which have become NPAs (non-performing assets). In such cases, the interest subsidy is allowable only when the loan account becomes a performing asset for the banks/lending institutions.

The lockdown and health crisis due to the spread of COVID-19 has disrupted many businesses. The interest subsidy provides low-cost funds for small businesses to meet their liquidity needs, including working capital needs.

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