The Pradhan Mantri MUDRA Yojana was launched by the Prime Minister on 8 April 2015. MUDRA stands for Micro Units Development and Refinance Agency. It is a refinance agency, which means it gives funds to banks and other lenders so they can lend onward to small businesses. You get the loan from the lender, not from MUDRA.

The scheme is meant for non-corporate, non-farm businesses. Think of a neighbourhood tailor, a tea stall, a small garage or a beauty parlour. According to the Press Information Bureau (PIB), the loans cover manufacturing, trading and services, plus allied activities such as poultry, dairy and beekeeping.

You can use the money for term financing (buying machinery or equipment) or for working capital (the cash a business needs for day to day costs like raw material). Interest rates follow RBI guidelines, and each lender sets its own rate, so the cost of a Mudra loan can differ from one bank to another.

Did You Know?
According to a PIB release in April 2026, 57.79 crore loans worth ₹40.07 lakh crore have been sanctioned under PMMY since launch (figures as on 27 March 2026). The release also says about two-thirds of the loans went to women entrepreneurs.

How does a Mudra loan work?

A Mudra loan follows the same path as most small business loans, with a few scheme-specific steps.

1. Check that your business fits. The activity should be income-generating, non-farm and non-corporate. A sole proprietor, partnership firm or small manufacturing unit usually qualifies.
2. Decide the amount and purpose. Work out whether you need money for equipment, stock or day to day running costs, and how much your monthly sales can support.
3. Apply to a lender. You can walk into a branch of a bank, regional rural bank, small finance bank, NBFC or microfinance institution. You can also apply online on the Udyamimitra portal. Carry identity proof, address proof and basic business details. Exact documents vary by lender.
4. The lender assesses you. It checks whether your business can repay, a process called credit appraisal. Lenders usually look at your credit score
5. The loan is sanctioned and placed in a category. Depending on the amount, it falls under Shishu, Kishore, Tarun or Tarun Plus (see the types below).
6. You repay in instalments. You pay a fixed monthly EMI over the agreed loan tenure.

Pro Tip:
MUDRA states that it uses no agents or middlemen. Never pay a fee to anyone who claims they can arrange a Mudra loan for you. Apply directly to the lender or through the official MUDRA website.

Mudra loan example with real numbers

Types of Mudra loans

PMMY sorts loans into four categories by size, as listed in the PIB release. The names also mark how far a business has grown.

Shishu (up to ₹50,000)

Shishu is the smallest category. It suits very small or newly started units, such as a roadside vendor or a home-based food business, that need a modest amount for stock or basic tools.

Kishore (above ₹50,000 and up to ₹5 lakh)

Kishore is for businesses that are already running and want to grow. A tailoring unit buying sewing machines or a small workshop adding a second tool is a typical case.

Tarun (above ₹5 lakh and up to ₹10 lakh)

Tarun suits established small businesses with steady sales that need larger funds, for example to set up a bigger workshop or buy equipment in bulk.

Tarun Plus (above ₹10 lakh and up to ₹20 lakh)

Tarun Plus was added after the Union Budget 2024-25 raised the ceiling from ₹10 lakh to ₹20 lakh. It is meant for borrowers who have taken and successfully repaid a Tarun loan. The new limit took effect on 24 October 2024, and the Credit Guarantee Fund for Micro Units (a government-backed fund that covers part of a lender’s loss if a borrower defaults) now backs these larger loans.

Key features to look at before you apply

1. Loan amount and category. This decides which of the four bands you fall in. Ask for the amount your business needs, not the largest amount offered.
2. Confirm whether the lender is giving you a term loan for assets or a working capital loan for running costs, since the use shapes the repayment plan.
3. Interest rate and charges. There is no single Mudra rate. Ask each lender for the rate, processing charges and any penalty for late payment, in writing.
4. Tenure and EMI. A longer tenure lowers your monthly EMI but raises the total interest you pay.
5. Collateral and guarantee. PIB describes the scheme as collateral-free up to ₹20 lakh. Check with your lender what, if anything, it asks you to sign.
6. Your credit history. A clean repayment record and a healthy credit score make approval easier.

Benefits of a Mudra loan

1. No collateral. Many small business owners in towns and tier-2 cities do not own property they can pledge. A collateral-free loan opens a door that a traditional business loan may keep shut.
2. Support for first-time entrepreneurs. The PIB release says about one-fifth of all loans went to first-time entrepreneurs, so new business owners are an intended group.
3. A wide choice of lenders. Banks, regional rural banks, small finance banks, NBFCs and microfinance institutions can all lend under the scheme, so you can compare offers.
4. A path to bigger loans. The four categories let a business move up as it grows. Repaying a Tarun loan on time is also what makes a borrower eligible for Tarun Plus.
5. Formal credit history. Regular repayments build a record with credit bureaus, which can help you borrow on better terms later.

Risks and limitations

1. Repayment pressure. The EMI is due every month, even in a slow season. Keep your total loan payments well below your monthly business surplus, and see our guide on how to budget and repay loans faster.
2. Rates differ by lender. Because lenders set their own rates, the same loan can cost more at one place than another. Compare at least two or three offers.
3. Default damages your record. Missed payments lower your credit score and can lead to recovery action by the lender.
4. Approval is not guaranteed. Lenders still run their own checks, such as credit appraisal and a look at your existing debts, so the scheme does not promise a loan to everyone who applies.
5. Middlemen and fake agents. MUDRA warns against people who pose as agents for a fee. Apply only through the lender or the official portal.

Important:
Do not borrow the maximum you qualify for. Borrow what your monthly cash flow can repay, because the lender expects its instalment whether the business earns well or not.

Frequently asked questions

1. What is a Mudra loan in simple words?

A Mudra loan is a business loan of up to ₹20 lakh for small and micro businesses, given under the government’s PMMY scheme. Banks, NBFCs and microfinance institutions give the loan, and you do not have to pledge any collateral. You repay it in monthly instalments with interest, like any other loan.

2. Who can get a Mudra loan?

Owners of non-corporate, non-farm businesses can apply. This includes manufacturing, trading and service units, and allied activities such as dairy, poultry and beekeeping. A shopkeeper, a tailor, a small transporter or a salon owner would be typical applicants. Each lender decides approval after checking your business and repayment ability.

3. Is a Mudra loan really collateral-free?

Yes. The PIB describes PMMY as collateral-free credit up to ₹20 lakh. That only means you do not pledge property or assets. The lender can still ask for documents, check your credit history and refuse the loan if it doubts your ability to repay.

4. What is the maximum Mudra loan amount?

The ceiling is ₹20 lakh. It was raised from ₹10 lakh after the Union Budget 2024-25, and the change took effect on 24 October 2024. Loans above ₹10 lakh fall in the Tarun Plus category, which is meant for borrowers who have already repaid a Tarun loan.

5. What is the interest rate on a Mudra loan?

There is no single fixed rate. According to PIB, interest rates are governed by RBI guidelines, and each lender sets its own rate. Ask for the rate, processing charges and prepayment terms in writing from more than one lender before you decide.

6. How is a Mudra loan different from a normal business loan?

A Mudra loan is given under a government scheme and is collateral-free up to ₹20 lakh. Many regular business loans ask you to pledge property or other assets as security. The loan itself still has to be repaid with interest, and lenders still assess your ability to repay.

7. Is a Mudra loan a subsidy or a grant that I do not have to repay?

No. This is a common misunderstanding. PMMY is a loan scheme, so you repay both the principal (the amount you borrowed) and the interest. Missing payments can lower your credit score.

8. Should I take a Mudra loan to start or grow my business?

It can help if you have a clear plan, steady expected sales and an instalment you can afford. Borrowing for a vague idea, or for personal spending, is risky. If you are unsure how a business loan fits with your savings and other goals, a fiduciary planner can help you test the numbers first. See our page on goal-based financial planning.