All You Need to Know About MUDRA Loans

MUDRA stands for Micro Units Development and Refinance Agency.

Pradhan Mantri Mudra Yojana (PMMY) or Mudra loans is a scheme launched in the year 2015 to provide loans of up to Rs 10 lakh to non-farm, non-corporate small, or micro-enterprises. The intent of introducing this scheme was to make available easy business loans for small and micro enterprises, as they find it difficult to raise loans.

  • These loans can be availed either to start a business or for business expansion.
  • Since its inception, Rs 12 lakh crore worth loans have been disbursed under PMMY.

Mudra Loan Categories

To make finance available for all kinds of small and micro enterprises, MUDRA loans are grouped into 3 product categories. The three categories are 'Shishu', 'Kishore', and 'Tarun'. This is done to indicate the stage of growth/development that a particular micro-enterprise is in and their funding needs.

  1. Shishu : The category Shishu, as the name suggests is those businesses that are just starting up. Mudra loan for new business is allowed under this category of up to Rs 50000. This finance could be used as initial finance for the business.

  2. Kishore : The loan amount in the Kishore category is between Rs 50000 to Rs 500000. These loans are allowed for existing businesses.

  3. Tarun : Loans for Tarun category can be between Rs 5 to Rs 10 lakh. Loans under this category are for those established businesses that are looking at further expansion.

Purposes for Which Mudra Loans Could Be Used

Mudra loan is allowed for a number of purposes that can generate income and employment for individuals. Some of the purposes allowed through Mudra loans are

  1. Business loan for Vendors, Traders, Shopkeepers and other Service Sector activities
  2. A working capital loan through MUDRA Cards
  3. Equipment Finance for Micro Units
  4. Transport Vehicle loans – for commercial use only
  5. Loans for non-farm agri-allied activities like pisciculture. beekeeping, poultry farming, etc.
  6. Loans for tractors, tillers as well as two-wheelers used for commercial purposes only

Mudra Loans Eligibility Criteria

Unlike other business loans that come with a long list of eligibility criteria like minimum income, a minimum number of years in business, profit figures, audited financial statements, etc, Mudra loans were introduced to make it easier for small and establishing businesses to avail a business loan.

The minimum eligibility criteria to avail Mudra Loans are

  1. Individuals applying for the loan to be between the age of 18 to 56.
  2. Only non-farm related businesses like manufacturing, services, or trading are allowed.
  3. The requirement of loan amount should not exceed the particular limits in each category

How to Apply for Mudra Loan?

To apply for a MUDRA loan, you can approach any commercial banks, Regional Rural Banks, Small Finance Banks, Micro Finance Institutions, and also from Non-Banking Financial Companies. Borrowers can also apply directly to the Udyamimitra website.

The borrowers have to understand that the loans cannot be availed directly from Micro Units Development and Refinancing Agency. MUDRA just acts as a refinancing agency to other financial institutions/banks. Also, it is also important to note that there are no agents who are authorized either by MUDRA or the banks who can act as middlemen for getting you the loan.

To apply for a Mudra loan for any category you would need to approach the nearest financial institution with the following documents.

  1. 2 copies of the Mudra Loan application
  2. Photographs
  3. Copies of ID proof
  4. Copies of Address proof
  5. Proof of belonging to SC/ST/Minority Categories, if applicable
  6. Bank statement, if applicable
  7. Quotation for purchase of machinery/equipment, if applicable
  8. Any other documents as required by the lending institution.

Interest Rate on Mudra Loans

Under PMMY, the rate of interest is not fixed by MUDRA. The lending agencies which could be banks or other financial institutions have the authority to set interest rates and other charges on loans availed under the scheme.

Interest rate and other charges on Mudra Loan for some of the banks are given below for your reference.

State Bank of India Mudra Loans

SBI allows all 3 categories of Mudra loans as Working capital finance or as a Term loan. The rate of interest and other features of the loan is:

  • Rate of interest: Linked to MCLR

  • Margin Requirement: Nil for loans up to Rs 50000 10% for loans between Rs 50000 - Rs 10 lakh

  • Repayment Period: 3-5 years with a moratorium of 6 months

  • Processing Fee - Nil for Shishu loan and Kishore loans to MSE Units For Tarun: 0.50%(plus applicable tax) of the Loan amount

Bank of Baroda Mudra Loan

  • Rate of interest: Linked to MCLR

    Micro Enterprises Small Business
    Up to Rs 50000/- MCLF+SP (MCLR+SP)+.5%
    Rs 50000 to Rs 2lakh (MCLR+SP)+.5% (MCLR+SP)+.7%
    Rs 2 lakh to Rs 10 lakh (MCLR+SP)+.7% (MCLR+SP)+.85%
  • Margin Requirement: Nil

  • Processing Fee : Nil

Punjab National Bank (PNB) Mudra Loan

PNB is another nationalized bank that allows Mudra loans for all three categories. The interest rate and other charges are:

  • Rate of interest:In the range of MCLR to MCLR +2.25% (subject to change)

  • Processing Fee : Depends on customer profile


Mudra Card is a RuPay Debit Card that is issued to MUDRA loan applicants for easy withdrawal of cash from ATMs or for payment across the country. This card is issued for the working capital portion of the loan. Mudra Card helps the borrowers to manage their cash flows and spending effectively so that they pay the least amount of interest. Additionally, this card also helps in digitizing all the transactions done through a Mudra loan. It also helps in maintaining the credit history of the borrower.

Interest Subvention on Shishu Loans Due to COVID 19

Small and medium businesses have suffered a lot due to the situation created by COVID 19. While many businesses have had to be closed down, many others are struggling

As a part of the Economic stimulus under Atmanirbhar Bharat Abhiyaan announced by the Finance Minister, Shishu loans under MUDRA are allowed an interest subvention of 2% for a period of 12 months.

This facility will be extended to all Shishu loans that are outstanding as of 31 Mar 2020. The important point here is that such loans are not NPA(Non-Performing Assets). The scheme will give special priority to those who will make regular repayments.