Mudra Loan Interest Rate 2025-26

Accessing financial support is a major challenge for small businesses in India. The Pradhan Mantri Mudra Yojana (PMMY) offers essential credit for small and micro-enterprises. Understanding the Shishu, Kishore and Tarun categories, along with loan terms and eligibility criteria, can help you confidently select the right funding option.

What is a Mudra Loan?

The Pradhan Mantri Mudra Yojana (PMMY) was launched by the Government of India in 2015 to provide funding to the non-corporate, non-farm small/micro-enterprises sector. Under this scheme, loans of up to ₹10 lakh and, in some products, up to ₹20 lakh, are provided to income-generating small businesses in the manufacturing, trading and service sectors, including allied agricultural activities. These loans are extended by Member Lending Institutions (MLIs) such as Commercial Banks, Regional Rural Banks (RRBs), Small Finance Banks (SFBs), MFIs and NBFCs.

A key advantage of the Mudra Loan is that it is a collateral-free facility, meaning borrowers do not need to provide security to the lending institution. While the government backs the scheme, the PM Mudra Loan interest rate is not uniform across lending institutions; it varies by lending institution and the credit profile of the borrower.

Overview of Mudra Loan Interest Rates in 2025-26

In 2025 - 26, the Mudra Loan interest rate across lending institutions generally starts from about 8.5–9 per cent per annum for low‑risk borrowers. It can be as high as 20 per cent per annum for higher‑risk profiles or certain institutions. The interest rate for Mudra Loan is usually linked to the bank base rate, MCLR or an external benchmark, which means offers differ by lending institution, borrower risk, loan size and tenure.

Common features in 2025–26 include:

• Repayment tenure usually ranges from 3 months to about 5 - 7 years, depending on the lending institution and category.
• Many lending institutions offer processing fee concessions, especially for smaller Shishu loans up to ₹50,000.

Mudra Loan Interest Rates and Limits by Category

The PMMY scheme is divided into three categories, Shishu, Kishore and Tarun, to cater to businesses at different stages of growth. Each category has a specific loan limit and the Pradhan Mantri Mudra Loan interest rate may vary slightly across these segments.

Shishu Mudra Loan

This category is designed for entrepreneurs just starting their businesses. It covers loans up to ₹50,000. The focus here is to support the initial setup costs. Since the loan amount is small, lending institutions often keep interest rates competitive to encourage new entrepreneurship.

Kishore Mudra Loan

This category covers loans of ₹50,000 or more and up to ₹5 lakh. It is meant for businesses that have already started but need additional funds to establish themselves in the market.

Tarun Mudra Loan

This is for established businesses looking for expansion. It covers loans of up to ₹10 lakh. These borrowers have a credit history that can help them negotiate better rates.

Also Read: Tarun Mudra Loan: Limit, Interest Rate and Eligibility

Tarun Plus

An established addition for compliant borrowers who have successfully repaid Tarun loans, with limits extending up to ₹20 lakh. Its availability depends on the adoption of specific lending institutions and updated government guidelines.

*Note: The final interest rate is custom-assessed based on your credit score, business profile and the current cost of funds by the bank (MCLR/EBLR).

Benefits and Features of Mudra Loan

The PMMY scheme offers several advantages designed to support the growth of the Indian MSME sector.

• Collateral-Free: No need to mortgage assets or provide third-party guarantees.
• Flexible Tenure: Repayment periods generally extend up to 5 years, reducing the burden of heavy monthly outflows.
• Lower Rates: The Mudra Loan interest rate is often lower than that of standard unsecured business loans.
• Credit Guarantee: Loans are covered under the Credit Guarantee for Micro Units (CGFMU), providing lending institutions with confidence.
• Usage Flexibility: Funds can be used for term loans, working capital or overdraft facilities.
• Mudra Card: A RuPay Debit Card is issued for the working capital portion, enabling easy fund withdrawals.

Factors Influencing Mudra Loan Interest Rates

Interest rates for Mudra Loans vary across borrowers because lending institutions assess each case based on risk ratings and policy guidelines.

Key factors that can influence a Mudra Loan interest rate include:

• Credit score and repayment history of the owner or business
• Type of business, sector risk and stability of cash flows
• Loan category (Shishu, Kishore, Tarun) and ticket size
• Chosen tenure and repayment structure
• Internal policy of the lending institution and prevailing benchmark rates

Eligibility Criteria for Mudra Loan

Mudra Loans are designed primarily for Indian citizens running micro and small non‑farm enterprises in manufacturing, trading or services.

The eligibility conditions include:

• Applicant must be an Indian citizen with a viable business plan.
• The business must be non‑corporate, non‑farm and fall under Micro, Small & Medium Enterprise norms.
• Loan requirement should fall within Shishu, Kishore or Tarun limits up to ₹10 lakh (or Tarun Plus up to ₹20 lakh where available).
• Basic KYC compliance and a clean or explainable credit history are usually required.

Also Read: Everything you need to know about Business Loan

Documents Required to Apply for Mudra Loan

Documentation is a critical step in the loan application process. Here is the list of required documents:

1. Proof of Identity: Aadhaar Card, PAN Card, Voter ID or Passport.
2. Proof of Residence: Utility bills (electricity/water), Aadhaar Card or Passport.
3. Business Proof: Registration certificate, Udyam Registration or trade license.
4. Financial Documents: Bank statement for the last 6 months. For loans above ₹2 lakh, lending institutions may ask for audited balance sheets or income tax returns (ITR).
5. Photographs: Recent passport-sized photographs of the applicant/partners/directors.
6. Quotation: If the loan is for purchasing machinery, a proforma invoice or quotation from the supplier is required.

How to Apply for a Mudra Loan (Online & Offline Step-by-step Guide)

Many lending institutions offer online and branch-based options for applying for Mudra Loans, often through government-linked portals. The interest rate will be communicated after the lender completes basic checks and risk assessment.

Online Process:

1. Visit the official website of the chosen lending institution and select the Mudra Loan or PMMY section.
2. Check the category (Shishu, Kishore, Tarun) based on the required amount and review basic eligibility and documents.
3. Fill in the online application form with KYC details, business information and the requested loan amount and tenure.
4. Upload scanned documents, such as identity proof, business proof and bank statements, as per the portal instructions.
5. Submit the form; the lending institution then verifies the details, evaluates the risk, decides the pm Mudra Loan interest rate and communicates the sanction and further steps digitally.

Offline Process:

1. Visit a nearby branch of the lending institution that offers Mudra Loans under PMMY.
2. Collect the Mudra application form, select the correct category and carefully fill in business and personal information.
3. Attach photocopies of required KYC and business documents along with bank statements and, where needed, a project report.
4. Submit the application to the designated officer, who will check details, process underwriting and decide the Pradhan Mantri Mudra Loan interest rate and sanction conditions.
5. Once approved, sign the agreement and complete disbursement formalities; the loan amount is then released to your account or as per the approved mode.

Tips to Get the Mudra Loans at the Lowest Possible Interest Rates

Securing the best interest for Mudra Loans requires a little preparation. Here are actionable tips to ensure you get a competitive deal:

• Build a Strong Credit Score: Ensure you pay all outstanding debts on time. A score above 750 gives you negotiation power.
• Compare lending institutions: Do not settle for the first offer. Compare Mudra Loans interest rate across various lending institutions.
• Maintain Clear Financial Records: Organised balance sheets and tax returns instil confidence in lending institutions regarding your repayment capacity.
• Apply for the Right Category: Ensure you apply under the correct category (Shishu/Kishore/Tarun) that matches your funding needs to avoid rejection or higher rates.
• Prepare a Solid Business Plan: For Kishore and Tarun loans, a clear project report showing revenue projections can help convince the lending institution of your business viability.
• Check for Concessions: Some lending institutions or government sub-schemes offer interest concessions for women entrepreneurs.

Final Thoughts

The Pradhan Mantri Mudra Yojana is vital for empowering micro-enterprises in India. With competitive interest rates in 2025-26, businesses can easily secure capital without collateral. Understanding the Shishu, Kishore and Tarun categories, along with maintaining a strong financial profile, can help you access affordable funds for growth.

Responsible borrowing, disciplined repayment and tools like a Business Loan EMI Calculator can help you choose the right tenure and EMI. As your needs grow, consider a Business Loan from Godrej Capital for larger investments in inventory or expansion.

Apply now for a Business Loan.

FAQs

Q.1. What is the starting interest rate for Mudra Loans in 2025-26?

A. The starting interest rate for Mudra Loans varies significantly across lending institutions.

Q.2. Are Mudra Loan interest rates fixed or variable?

A. Most lending institutions offer Mudra Loans with floating interest rates tied to the MCLR or repo rate, meaning the rate may fluctuate during the loan term in response to economic changes.

Q.3. Does collateral affect Mudra Loan interest rates?

A. Mudra Loans are collateral-free, so you would not face higher rates for lacking collateral. Interest rates depend on your credit score, business stability and the risk assessment by the lender.

Q.4. How long does it take to get a Mudra Loan sanctioned?

A. Processing times vary: Shishu loans can be approved in 7–10 days, while Kishore and Tarun loans take 10 to 20 days due to higher amounts and document verification.

Q.5. Are there any government subsidies or interest rate benefits available on Mudra Loans?

A. The government sometimes offers interest subvention schemes, like 2% for Shishu loans during certain periods. Women entrepreneurs may also get a 0.25% discount on interest rates from some lenders.

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