Pradhan Mantri Mudra Loan Interest Rate: What Borrowers Need to Know

Small business owners and first-time entrepreneurs across India often struggle to access affordable credit. The Pradhan Mantri Mudra Yojana (PMMY) was designed to bridge this gap by offering collateral-free loans to micro and small enterprises. However, one of the most common questions borrowers ask is: what is the interest rate on a Pradhan Mantri Mudra Loan, and how is it determined? This guide answers that question in full, covering all four loan categories, the factors that influence pricing, and practical steps to help you secure the most competitive rate available.

What Is the PM Mudra Loan?

The PM Mudra Loan scheme was launched by the Government of India in April 2015 to provide institutional credit to non-corporate, non-farm micro and small enterprises.

Under this scheme, loans are extended by Member Lending Institutions (MLIs), which include commercial banks, Regional Rural Banks (RRBs), Small Finance Banks (SFBs), Microfinance Institutions (MFIs) and Non-Banking Financial Companies (NBFCs). The scheme does not prescribe a single uniform rate; instead, each MLI determines its own pricing within the Reserve Bank of India's regulatory framework.

A key feature of the scheme is that all loans are collateral-free, meaning borrowers are not required to pledge assets or provide third-party guarantees. Loans are also covered under the Credit Guarantee Fund for Micro Units (CGFMU), which provides lenders with additional confidence to extend credit to first-time and small borrowers.

Also Read: Pradhan Mantri MUDRA Yojana: A Complete Overview

Overview of Current Mudra Loan Interest Rates

Mudra Loan interest rate is not fixed across all lenders or borrowers. In 2026, indicative rates generally start from around 9% per annum for low-risk borrowers at public sector banks and can extend up to approximately 24% per annum at MFIs and certain NBFCs.

The rate offered to any individual borrower depends on the type of lending institution, the loan category, the borrower's credit profile and the prevailing benchmark rate used by the lender, such as the Marginal Cost of Funds-based Lending Rate (MCLR) or the External Benchmark-based Lending Rate (EBLR).

The table below provides a broad overview of indicative rate ranges by lender type:

Note: These are indicative ranges only. Actual rates are determined by each lending institution based on borrower profile and internal policy. Always verify the current rate directly with the lender before applying.

Mudra Loan Categories and Interest Rates

The PMMY scheme is structured into four categories to serve businesses at different stages of growth. Each category has a defined loan limit, and the Pradhan Mantri Mudra Yojana loan interest rate may vary across these segments based on loan size and borrower risk.

The following table summarises the key details across all four categories:

Note: All rates are indicative and subject to change based on lender policy, RBI guidelines and borrower profile. Verify current rates with the relevant lending institution before applying.

Shishu Mudra Loan

The Shishu category is designed for entrepreneurs who are just starting out or have immediate small-scale funding needs. Loans under this category are capped at ₹50,000.

Because the loan amount is small and the borrower base includes first-time entrepreneurs, public sector banks and RRBs typically offer the most concessional rates in this segment. Processing fees are often waived entirely for Shishu loans, reducing the overall cost of borrowing.

Kishore Mudra Loan

The Kishore category covers loans between ₹50,001 and ₹5 lakh. It is intended for businesses that have already commenced operations and require additional funds for working capital, equipment purchase or business expansion.

The PM Mudra Loan interest rate in this segment is influenced significantly by the borrower's credit history and the stability of business cash flows. Borrowers with a strong repayment track record are better placed to negotiate competitive rates.

Tarun Mudra Loan

The Tarun category is for established businesses seeking larger capital for expansion. Loans range from ₹5,00,001 to ₹10 lakh.

Since the loan exposure is higher, lenders apply more detailed credit assessments. Borrowers with a verifiable business history and a healthy credit score are more likely to receive favourable pricing in this segment.

Also Read: Tarun Mudra Loan: A Complete Guide

Tarun Plus

The Tarun Plus category was introduced in October 2024 following the Union Budget 2024-25 announcement by the finance minister, which raised the Mudra Loan ceiling from ₹10 lakh to ₹20 lakh.

This category is not open to all applicants. Only borrowers who have previously taken and successfully repaid a Tarun-category loan are eligible. Loans under Tarun Plus remain collateral-free and continue to be covered under the CGFMU. Interest rates follow the same lender-determined framework as the Tarun category.

Factors That Influence the Mudra Loan Interest Rate

The rate of interest on a Pradhan Mantri Mudra Loan is not the same for every borrower. Lending institutions assess each application individually based on a combination of borrower-specific, loan-specific and market-related factors.

Understanding these factors can help you prepare a stronger application and improve your chances of receiving a competitive rate.

Borrower-related factors

These are characteristics specific to the individual applicant that lenders evaluate during the credit assessment process.

• Credit score and repayment history of the applicant or business owner
• Stability and consistency of business income and cash flows
• Business vintage and sector of operation
• Existing relationship with the lending institution
• Whether the applicant belongs to a priority category such as women entrepreneurs or SC/ST/OBC/Minority communities, as some lenders offer a concession of up to 0.25 per cent for such borrowers

Loan-related factors

These relate to the structure and purpose of the loan being applied for.

• Loan category (Shishu, Kishore, Tarun or Tarun Plus) and the ticket size
• Repayment tenure selected by the borrower
• Purpose of the loan, such as working capital, equipment purchase or business expansion
• Whether the loan is a fresh application or a repeat borrowing under PMMY

Lender and market-related factors

These are external factors that influence the cost of funds for the lending institution and, in turn, the rate offered to borrowers.

• Type of lending institution (public sector bank, private bank, NBFC or MFI)
• Internal benchmark used by the lender, such as MCLR, RLLR or EBLR
• RBI repo rate changes, which affect floating-rate loans
• Mudra refinance rate, which influences pricing for Shishu and Kishore loans at eligible institutions
• Periodic government schemes or interest subvention programmes for specific sectors or borrower categories

Benefits and Features of Mudra Loans

The PMMY scheme offers several features that make it one of the most accessible credit options for micro and small enterprises in India.

• Collateral-free: No assets need to be pledged and no third-party guarantees are required
• Credit guarantee cover: Loans are backed by the CGFMU, providing lenders with additional security
• Flexible end use: 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, allowing borrowers to withdraw funds as needed and pay interest only on the amount utilised
• Concessional rates for women: Participating lenders may offer a rate concession of up to 0.25 per cent for women entrepreneurs
• Processing fee waivers: Many lenders waive processing fees for Shishu-category loans

Tips to Get a Mudra Loan at Affordable Interest Rate

Securing a competitive rate requires preparation before you apply. The following steps can help you improve your eligibility and negotiate better terms.

• Maintain a credit score of 750 or above before applying, as a strong score significantly improves your bargaining position with lenders
• Compare offers from at least four to five lending institutions, including public sector banks and NBFCs, before committing to any one lender
• Apply through the Udyamimitra or Jan Samarth portals to compare available offers from multiple lenders in a single application flow
• Maintain organised financial records, including up-to-date bank statements, ITR filings and audited accounts, as these demonstrate repayment capacity
• Prepare a clear and realistic business plan with revenue projections, particularly for Kishore and Tarun category applications
• Apply under the correct Mudra category that matches your actual funding need, as applying for a higher amount than required can increase the assessed risk
• Check whether you qualify for any concessional rate as a woman entrepreneur or as an applicant from an SC/ST/OBC or Minority community
• If you have successfully repaid a Tarun loan, apply under Tarun Plus, as a strong repayment track record is a key factor in securing better pricing
• Review the sanction letter carefully to confirm whether the rate is fixed or floating and understand when and how it may be revised during the loan tenure

Planning your repayments in advance is equally important. Using a Business Loan EMI Calculator can help you estimate your monthly outflow across different tenure options before you finalise the loan structure.

Also Read: Everything you need to know about Business Loan – A definitive guide

Mudra Loan Sub-Schemes and Refinance Mechanisms

The PMMY operates several refinance and concessional mechanisms that influence the effective interest rate paid by borrowers. Understanding these can help you identify the most cost-effective borrowing route.

Mudra Refinance Scheme

Mudra provides refinance support to eligible lending institutions, including scheduled commercial banks, RRBs, cooperative banks and NBFCs. This reduces the lender's cost of funds for Mudra lending and enables more competitive pricing for borrowers. RRBs and scheduled commercial banks are typically capped at 3.5 per cent above the Mudra refinance rate, while NBFCs are capped at 6 per cent above it.

Mahila Udyami Yojana

Under this sub-scheme, women borrowers may receive an interest rate concession of up to 0.25 per cent on the prevailing Mudra rate at participating banks. This benefit may be available in addition to other concessions under priority sector or social category lending norms.

Mudra Card facility

The Mudra Card is a RuPay debit card linked to the sanctioned working capital limit. Borrowers can withdraw funds as and when required and pay interest only on the amount actually utilised. This reduces the effective interest cost compared to drawing down the full sanctioned amount upfront.

Equipment Finance Scheme

This is a dedicated facility for micro-enterprises purchasing machinery or equipment. Interest rates and processing terms broadly align with the Kishore or Tarun categories, with disbursement often linked directly to supplier quotations.

Final Thoughts

The Pradhan Mantri Mudra Loan remains one of the most accessible and affordable credit options for micro and small enterprises in India. With loan limits now extending up to ₹20 lakh under the Tarun Plus category, the scheme covers a wider range of business needs than ever before.

The rate of interest on a Pradhan Mantri Mudra Loan is not fixed and varies significantly across lenders, categories and borrower profiles. Preparing well before you apply, maintaining a strong credit score, comparing offers across multiple institutions and choosing the right category for your funding need are the most effective ways to secure a competitive rate.

For businesses whose funding requirements have grown beyond the ₹20 lakh Mudra ceiling, or for those seeking faster digital processing and flexible repayment structures, a Business Loan from Godrej Finance Limited may be a suitable next step. You can use the Business Loan EMI Calculator to plan your repayments and choose a tenure that suits your cash flow before you apply.

Apply now for Business Loan.

FAQs

Q.1. What is the current interest rate of a Mudra Loan?

A. The current PM Mudra Loan interest rate varies by lender and borrower profile. Public sector banks generally offer rates between 9% and 13% per annum, while NBFCs and MFIs may charge up to 24% per annum. Always verify the current rate with your chosen lender before applying.

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

A. Most lending institutions offer Mudra Loans on a floating rate basis, linked to benchmarks such as MCLR or the repo rate. This means the rate may change during the loan tenure in response to RBI policy decisions. Confirm the rate type with your lender at the time of sanction.

Q.3. What is the rate of interest on a Pradhan Mantri Mudra Loan for women entrepreneurs?

A. Women entrepreneurs may be eligible for a concession of up to 0.25 per cent on the prevailing Mudra rate at participating lending institutions. This benefit is available in addition to any other priority sector or social category concessions offered by the lender.

Q.4. Does a low credit score affect the Mudra Loan interest rate?

A. Yes, a lower credit score is typically associated with a higher assessed risk, which can result in a higher interest rate being offered. Maintaining a credit score of 750 or above before applying is generally recommended to improve eligibility for more competitive pricing.

Q.5. How long does it take to get a Mudra Loan sanctioned?

A. Processing times vary by lender and category. Shishu loans are often approved within 7 to 10 working days, while Kishore and Tarun loans may take 10 to 20 working days due to higher loan amounts and more detailed document verification requirements.

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