Mudra Loan Full Form - Meaning, Eligibility & How to Apply?
Small businesses are the backbone of India’s economy. But many of them struggle due to a lack of access to affordable credit. The Mudra Loan Scheme is one of the key financial initiatives to support micro and small enterprises with timely funds. Whether you're just starting out or trying to scale up, Mudra Loan can be a game-changer. Here's everything you need to know about the Mudra Yojana Scheme, how it works, who is eligible, and how to apply.
What is Mudra Loan?
A Mudra Loan is a business loan provided under the Pradhan Mantri Mudra Yojana (PMMY), a flagship scheme of the Government of India launched in April 2015. The scheme offers collateral-free credit to non-corporate, non-farm micro and small enterprises (MSEs) for income-generating activities in manufacturing, trading, and services, including allied agricultural activities like dairy, poultry, and beekeeping. Loans are available up to ₹20 lakh, empowering millions of small businesses to start, grow, and create jobs.
MUDRA stands for Micro Units Development and Refinance Agency. Its mission is to “fund the unfunded” by providing accessible finance to India’s smallest businesses, fostering grassroots entrepreneurship, and promoting inclusive growth.
Types of Mudra Loan Categories
The Mudra Yojana Scheme acknowledges that businesses have diverse needs at various stages. It offers four loan categories:
- Shishu: Up to ₹50,000 – For new businesses and startups in their early stages.
- Kishor: ₹50,001 to ₹5 lakh – For businesses looking to grow, stabilise, or expand operations.
- Tarun: ₹5 lakh to ₹10 lakh – For established businesses aiming for further expansion.
- Tarun Plus: ₹10 lakh to ₹20 lakh – For entrepreneurs who have successfully repaid a Tarun loan and need higher funding for scaling up.
Each category is designed to match the evolving needs of micro and small businesses as they progress from idea to growth.
Who is Eligible for a Mudra Loan?
To apply for a Mudra Loan, you must meet these basic Mudra Loan eligibility criteria:
- Indian citizen with a non-farm, income-generating business in manufacturing, trading, or services.
- Micro, small, or startup enterprise, including individuals, sole proprietors, partnership firms, private/public companies, and other legal forms.
- The applicant should have a satisfactory credit track record and not be a defaulter to any bank or financial institution.
- Relevant skills or experience for the proposed business activity; educational qualifications depend on the sector.
How to Apply for a Mudra Loan?
Applying for a Mudra Loan is simple:
- Offline: Visit your nearest bank, NBFC, or Micro Finance Institution that offers Mudra loans. Fill in the form and submit the required documents. Bank officials can assist you in preparing your application.
- Online: Visit the official Mudra portal at www.udyamimitra.in and Mudra Loan apply digitally by uploading your details and documents. This method is quicker and lets you track the status of your application.
Always ensure that your documents are up to date and your mobile number is linked with your Aadhaar for a smooth process.
Also Read : Government Schemes for Women-led Businesses
Documents Required for Mudra Loan
To Mudra Loan apply successfully, you’ll need:
- Identity Proof: Aadhaar card, PAN card, or Voter ID.
- Address Proof: Utility bill, Aadhaar card, or passport.
- Business Proof: Business registration certificate, shop license, or a business plan.
- Bank Statement: Recent 6-month account statement.
- Passport-size photographs
Note: For Shishu loans, the paperwork is simpler and often doesn’t require a business registration. You may only need a quotation for the item you wish to purchase with the loan.
Benefits of the Mudra Loan Scheme
The Mudra Loan Scheme offers several key advantages for entrepreneurs and small business owners:
- Collateral-Free Loans: No need to mortgage property or assets, which lowers the barrier to entry.
- Flexible Loan Categories: Different stages of business can access funds tailored to their specific needs.
- Financial Inclusion: Enables unbanked entrepreneurs to access the formal credit system.
- Low-Interest Rates: Interest rates are generally reasonable and depend on the lender’s policies.
- Promotes Employment: Encourages self-employment and job creation across urban and rural areas.
- Customised Support: Different lending institutions offer tailored solutions for your needs.
- Credit Building: Timely repayment helps build a good credit score, which can help in future borrowing.
Also Read : Top 6 Government Loan Schemes for Women Entrepreneurs
Sectors Covered Under the Mudra Scheme
Mudra business loans support a wide range of non-farm, income-generating activities, including
- Manufacturing: Small factories, local production units, handicrafts, and cottage industries.
- Trading: Kirana stores, retail shops, vendors, and wholesale distribution businesses.
- Services: Salons, repair shops, mobile service centres, photographers, and tuition centres.
- Transport: Auto-rickshaw owners, taxis, logistics services, delivery vehicles, and e-rickshaws.
- Food & Agro: Food stalls, catering, food processing, dairy, poultry, and agri-allied activities.
- Textile & Handloom: Weaving, tailoring, embroidery units, fashion boutiques, and textile printing.
These businesses often operate on a small scale but have the potential for significant impact in their communities.
Conclusion
The Mudra Loan Scheme is a transformative initiative that has empowered over 52 crore entrepreneurs with loans worth more than ₹32 lakh crore since 2015. By making finance accessible to micro and small businesses, especially in rural and semi-urban India, the scheme has driven financial inclusion, job creation, and grassroots economic growth. Whether you're seeking a loan for MSME or looking to assess your eligibility through a Business Loan eligibility calculator, the Mudra Loan for a new business could be the support you need to turn your entrepreneurial dreams into reality.
FAQs
Q.1. What is the interest of ₹50,000 in Mudra loan?
A. Individual lenders set interest rates for Mudra loans by RBI guidelines, typically ranging from 9% to 12% per annum for Shishu loans. Always confirm the latest rates with your lender to ensure accuracy.
Q.2. What if the Mudra loan is not paid?
A. If you default on a Mudra loan, your credit score is affected, and the lender may initiate recovery action. You may also become ineligible for future government-backed loan schemes.
Q.3. What is the rule of Mudra loan?
A. Mudra loans are for non-farm, income-generating micro and small enterprises. The funds must be used strictly for business purposes, and applicants should not be defaulters to any bank or financial institution.
Q.4. Can a bank refuse Mudra loan?
A. Yes, banks can refuse the loan if you do not meet the Mudra Loan eligibility criteria, lack proper documentation, or have a poor credit record.
Disclaimer:
The contents of this article are for information purposes only & not a financial advisory. For more details, please refer to the product or service document and/ or connect with our customer representative prior to making any financial decision. The information is subject to update, completion, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
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