What is Mudra Loan - 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:

Types of MUDRA Loans (Shishu, Kishor, Tarun, and Tarun Plus)

MUDRA loans are offered under four categories—Shishu, Kishor, Tarun, and Tarun Plus—based on the stage and funding needs of a business. Each category supports different growth phases, from initial setup to large-scale expansion.

1. Shishu: Up to ₹50,000

Best for: New businesses, early-stage startups, and first-time entrepreneurs.

Loan Range: Up to ₹50,000.

Eligibility Nuances:

• Ideal for businesses still at the idea or setup stage.
• Applicants typically don’t require extensive financial history or collateral.
• Suitable for individuals starting small-scale entrepreneurial activities.

Typical Uses:

• Purchasing basic equipment or tools
• Initial working capital needs
• Setting up small shops, stalls, service units
• Raw material procurement

Example Use Cases:

• A fruit vendor buying a new pushcart
• A tailor purchasing a sewing machine
• A home-based tiffin service acquiring cooking utensils

2. Kishor: ₹50,001 to ₹5 lakh

Best for: Growing businesses transitioning from setup to stabilisation.

Loan Range: ₹50,001 to ₹5 lakh

Eligibility Nuances:

• Borrowers may need basic financial records or proof of business viability.
• Suitable for businesses looking to expand operations or strengthen cash flow.
• Often availed by entrepreneurs who already have some operational history.

Typical Uses:

• Purchasing new machinery or equipment
• Stocking inventory
• Expanding workforce
• Upgrading existing business infrastructure

Example Use Cases:

• A boutique buying additional sewing machines and fabrics
• A small retail shop expanding its inventory
• A mechanic upgrading essential tools or renting a larger workspace

3. Tarun: ₹5 lakh to ₹10 lakh

Best for: Established businesses aiming for significant expansion.

Loan Range: ₹5 lakh to ₹10 lakh

Eligibility Nuances:

• Businesses must demonstrate stable revenue and repayment capacity.
• Lenders may assess credit behaviour, cash flows, and business performance.
• Suitable for small businesses scaling to the next stage of growth.

Typical Uses:

• Large equipment purchases
• Business expansion and renovation
• Hiring skilled staff
• Launching new product lines

Example Use Cases:

• A restaurant opening a second outlet
• A manufacturing unit buying advanced production machinery
• A salon investing in premium equipment and additional space

4. Tarun Plus: ₹10 lakh to ₹20 lakh

Best for: Entrepreneurs who have repaid a previous Tarun loan and require higher funding to scale further.

Loan Range: ₹10 lakh to ₹20 lakh

Eligibility Nuances:

• Only available to existing Tarun loan borrowers with a clean repayment record.
• Higher scrutiny on business growth, cash flow, and expansion plans.
• Designed for businesses gearing up for substantial scaling.

Typical Uses:

• Setting up large-scale operations
• High-value machinery or technology upgrades
• Launching multiple new branches
• Strengthening supply chain and bulk procurement

Example Use Cases:

• A profitable manufacturing unit upgrading to automated machinery
• A retail chain opening multiple new stores
• A packaged food business expanding to wholesale distribution

Each category is designed to match the evolving needs of micro and small businesses as they progress from idea to growth.

Mudra Loan Interest Rate and limits

MUDRA loans do not have a fixed, government-mandated interest rate. Instead, the interest rate is determined by the lending institution—banks, NBFCs, and MFIs—based on the applicant’s profile, business risk, credit history, and loan category (Shishu, Kishor, Tarun, or Tarun Plus). Understanding these rates helps borrowers make an informed decision before applying.

Typical MUDRA Loan Interest Rates

While rates vary, most lenders offer MUDRA loans at competitive pricing:

• Shishu Loans: Lower interest rates as they support micro and early-stage businesses
• Kishor Loans: Slightly higher rates due to increased funding needs
• Tarun & Tarun Plus Loans: Higher limits often come with higher rates compared to Shishu and Kishor
• Average Market Range: Approximately 8.50% to 12.50% per annum, depending on lender policies and applicant eligibility

Borrowers can compare lender offerings using a MUDRA loan interest rate calculator to estimate EMIs, interest payable, and total repayment outflow before applying.

MUDRA Loan Limits

The loan limits are fixed under the MUDRA scheme and categorised based on the business stage:

• Shishu: Up to ₹50,000
• Kishor: ₹50,001 – ₹5 lakh
• Tarun: ₹5 lakh – ₹10 lakh
• Tarun Plus: ₹10 lakh – ₹20 lakh

These limits ensure that entrepreneurs at every stage—idea, growth, or expansion—can access financial support tailored to their requirements.

Why Understanding Interest Rates Matters

Knowing the MUDRA loan interest rate helps users:

• Compare lenders and choose the most affordable offer
• Estimate monthly EMI using a MUDRA loan interest rate calculator
• Plan cash flow and repayment capacity effectively
• Avoid unexpected costs or higher repayment burden

Understand the Mudra Loan Eligibility Criteria

To apply for a Mudra Loan, you must meet these basic Mudra Loan eligibility criteria:

To apply for a MUDRA loan, applicants must meet specific requirements set by lenders and the Government of India. These criteria ensure that the loan supports genuine micro and small business owners.

Age Requirements

• Applicants must typically be between 18 and 65 years old.
• Some lenders may require a minimum age of 21 for certain categories.

Eligible Applicants / Types of Businesses

• Individuals, sole proprietors, partnership firms, LLPs, private limited companies, and micro enterprises.
• Small manufacturers, traders, service providers, and startups generating income.
• Businesses such as retail shops, food services, tailoring, repair shops, beauty services, and other micro ventures.

Income-Generating, Non-Farm Activities Only

• The MUDRA scheme supports non-farm micro business activities.
• Eligible sectors include manufacturing, trading, and services.
• Agriculture and direct farming activities are not included, except allied services like dairy, poultry, and fisheries.

Indian Citizen

• Only Indian citizens operating a business within India can apply.
• Identity and address verification is mandatory.

Business Stage & Loan Category Fit

• Shishu: For startup entrepreneurs needing small initial capital.
• Kishor: For growing businesses requiring working capital.
• Tarun & Tarun Plus: For established businesses planning to scale operations.

Good Credit Record Expected

• Applicants should have a stable and positive credit history.
• A higher credit score improves chances of loan approval.

No Outstanding Defaults

• The applicant must not be a defaulter with any bank, NBFC, or financial institution.
• Existing overdue loans may reduce eligibility.

Skills or Experience for the Proposed Business

• Experience, training, or qualifications related to the business improve credibility.
• Educational requirements vary by business type.

Viable Business Plan or Purpose

• Applicants should have a clear business purpose or a simple business plan.
• Lenders may assess cash flow feasibility before approval.

KYC and Basic Documentation

• Mandatory documents include ID proof, address proof, business proof, bank statements, and financial records (if required).

How to Apply for a Mudra Loan?

Applying for a Mudra Loan is simple:

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:

Different categories under the MUDRA loan—Shishu, Kishor, and Tarun—require specific documentation based on the size and nature of the business. Below is a structured list for each category.

Shishu Loan (Up to ₹50,000)

Designed for startups, new micro businesses, and first-time entrepreneurs. Documentation is minimal.

Basic Documents Required:

• Identity Proof: Aadhaar Card, PAN Card, or Voter ID
• Address Proof: Aadhaar Card, utility bill, ration card, or passport
• Recent passport-size photographs
• Bank Account Statement (optional; may ask for last 3–6 months in some cases)

Business-Related Documents:

• No formal business registration required
• A simple business plan or explanation of proposed activity
• Quotation for equipment/materials to be purchased with the loan (mandatory)

Note: Shishu loans are the simplest to apply for and require minimal paperwork.

Kishor Loan (₹50,001 to ₹5 lakh)

For growing businesses that need working capital or funds to expand operations.

Identity & Address Documents:

• Aadhaar Card, PAN Card, Voter ID, Driving License
• Utility bill, rental agreement, or passport for address verification

Business Proof:

• Business registration certificate (if applicable)
• GST registration (if applicable)
• Shop and Establishment Act license
• Udyam Registration (recommended but optional for many lenders)
• Business plan detailing revenue, expenses, and purpose of loan

Financial Documents:

• Bank statements for the last 6–12 months
• Income proof (ITR, if available)
• Previous loan statements (if any)

Photographs:

• Passport-size photographs of the applicant/proprietor

Tarun Loan (₹5 lakh to ₹10 lakh)

Suitable for established businesses seeking higher funding for expansion.

Identity & Address Documents:

• Aadhaar Card, PAN Card, Voter ID, Driving License
• Valid address proof like utility bill, passport, rental agreement

Business Documents:

• Business registration documents (mandatory)
• GST Registration
• Udyam Certificate
• Trade license, shop license, or factory license
• Partnership deed/MOA/AOA (for firms and companies)
• Detailed business plan, including projections and loan usage

Financial Documents:

• Bank account statements for last 12 months
• ITR for last 1–2 years (preferred by lenders)
• Balance sheet and P&L statement (for larger micro enterprises)
• Existing loan repayment history (if applicable)

Other Documents:

• Passport-size photographs
• Proof of business premises (rent agreement or ownership papers)

Benefits of the Mudra Loan Scheme

The Mudra Loan Scheme offers several key advantages for entrepreneurs and small business owners:

MUDRA Loans under the Pradhan Mantri Mudra Yojana (PMMY) offer a wide range of advantages for micro and small businesses across India. These benefits support entrepreneurs at different stages - from starting up to scaling operations.

Key Benefits of MUDRA Loan

• Collateral-Free Funding

No security or property mortgage is required, making it easier for small entrepreneurs to access credit without risking personal assets.

• Flexible Loan Categories for Different Business Stages

Shishu, Kishor, and Tarun categories ensure customised funding for startups, growing businesses, and established enterprises.

• Easy Availability & Wide Access

MUDRA loans are offered through banks, NBFCs, MFIs, and cooperative societies, making them widely accessible across urban, semi-urban, and rural areas.

• Low-Interest Rates

Interest rates are generally affordable and vary based on lender guidelines, borrower profile, and business category.

• Quick Access to Funds

The application process is simple, and many lenders offer faster disbursal to help entrepreneurs meet urgent financial needs.

• Supports Financial Inclusion

Helps unbanked and underbanked individuals enter the formal credit system, improving their long-term financial stability.

• Promotes Employment Generation

By supporting small businesses and self-employment ventures, MUDRA loans contribute directly to job creation.

• Women-Focused Support

Women entrepreneurs often get preferential treatment such as lower interest rates, priority processing, and easier eligibility.

• Special Mudra Credit Plus Support

Many institutions offer additional benefits like business mentoring, financial literacy support, and access to digital tools.

• Support in Case of Default

The Credit Guarantee Fund for Micro Units (CGFMU) covers lenders, making it easier for them to support borrowers even in challenging situations.

• Customised Lending Solutions

Banks and NBFCs tailor loan products according to the applicant’s business needs, cash flow, and growth plans.

• Builds Credit History

Regular and timely repayment helps in creating a strong credit profile, increasing eligibility for higher loan amounts in the future.

• Boosts Economic Growth

Encourages entrepreneurship across sectors such as manufacturing, trading, and services, contributing to the overall growth of the Indian economy.

Also Read : Top 6 Government Loan Schemes for Women Entrepreneurs

MUDRA Card

A MUDRA Card is a debit card issued under the Pradhan Mantri Mudra Yojana (PMMY) that provides borrowers easy and flexible access to Mudra loan funds. Offered on the RuPay platform, the card works like a credit line from which you can withdraw money as per your business needs instead of taking the entire loan amount at once.

The MUDRA Card helps small businesses manage working capital smoothly - such as purchasing raw materials, paying suppliers, stocking inventory, or handling day-to-day operational expenses. By using the card, borrowers also build a digital transaction history, which can support better Mudra loan eligibility for future credit.

Sectors Covered Under the Mudra Scheme

Mudra business loans support a wide range of non-farm, income-generating activities, including

1. Manufacturing Small manufacturing units such as local factories, fabrication units, handicraft workshops, and cottage industries can apply for a MUDRA Loan. These businesses use funds for machinery, raw materials, production expansion, and working capital requirements.
2. Trading Retailers, wholesalers, and everyday business owners like kirana shops, mobile stores, stationery shops, and street vendors are eligible. MUDRA Loans help them purchase stock, upgrade shops, or improve day-to-day operations.
3. Services Service-based businesses such as salons, beauty parlours, coaching centres, repair shops, photographers, and mobile service centres can benefit. The loan supports buying equipment, hiring staff, and expanding service offerings under PMMY Mudra Loan.
4. Transport Individuals operating commercial vehicles like auto-rickshaws, taxis, delivery vans, school vans, and e-rickshaws can use the loan to buy or repair vehicles. This category also covers small logistics or parcel delivery businesses.
5. Food & Agro Food vendors, small restaurants, catering units, tiffin services, dairy farms, poultry farms, and food processing units are eligible. The loan helps with equipment purchase, raw materials, storage, and day-to-day operational needs.
6. Textile & Handloom Businesses such as tailoring units, boutique owners, embroidery shops, weaving units, and small textile printing operations can apply. MUDRA Loan funds help with sewing machines, raw materials, design tools, and shop expansion.

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.

Q.5. How long does it take to get Mudra loan approval?

A. Mudra loans are usually approved within 7 to 15 working days, depending on the lender and completeness of your documents. Some banks and NBFCs may offer faster approvals if all eligibility criteria are met and verification is completed on time.

Q.6. Is collateral required for a Mudra loan?

A. No, Mudra loans are completely collateral-free. Under the PMMY scheme, lenders cannot ask for security or a guarantor for loans up to ₹10 lakh, making it easier for small businesses and first-time borrowers to access credit.

Q.7. Can students or women entrepreneurs apply for a Mudra loan?

A. Yes. Students, women entrepreneurs, and first-time business owners can apply for a Mudra loan if they have a viable income-generating business idea. Many lenders also offer priority processing and tailored schemes for women under Mudra.

Q.8. How can you check your Mudra loan application status?

A. You can check your Mudra loan status by visiting your lender’s website, tracking the application through your reference number, or contacting the branch where you applied. Some banks also send real-time SMS updates during the verification and approval process.

Q.9. Can the Mudra loan be repaid early without penalties?

A. Yes, most lenders allow prepayment or foreclosure of Mudra loans without penalties. This helps borrowers reduce interest costs and close the loan earlier, though the terms may vary slightly depending on the bank or NBFC.

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