For many budding entrepreneurs and small business owners in India, access to capital is a major challenge. To address this issue, the Indian government launched the Mudra Loan scheme. This initiative has helped millions of micro and small enterprises (MSEs) grow by offering easy loans without collateral.
In this article, we’ll take a simple, detailed look at what a Mudra Loan is, its types, benefits, eligibility, application process, and the current interest rates from various banks. If you’re looking to start or expand a small business, understanding how it works can open doors to financial success.
What is Mudra Loan?
Mudra Loan, short for Micro Units Development and Refinance Agency Loan, is a financial support system under the Pradhan Mantri Mudra Yojana (PMMY). It was launched in 2015 to help non-corporate, non-farm small/micro enterprises. These loans are provided by banks, microfinance institutions, and non-banking financial companies (NBFCs).
The biggest advantage of a this Loan is that it does not require any collateral or security. It’s designed to encourage self-employment and business development, especially in rural and semi-urban areas.
Types of Mudra Loans
The Mudra Loan scheme is divided into three categories, based on the stage and funding needs of the business:
| Loan Category | Loan Amount Range | Suitable For |
|---|---|---|
| Shishu | Up to ₹50,000 | New businesses or startups |
| Kishor | ₹50,001 to ₹5 lakh | Growing small businesses |
| Tarun | ₹5 lakh to ₹10 lakh | Established businesses expanding |
This classification helps applicants choose the right loan based on their business size and requirement.
Who Can Apply for a Mudra Loan?
This Loan can be availed by:
- Small manufacturing units
- Shopkeepers
- Artisans and craftsmen
- Food vendors
- Service sector units (salons, repair shops, etc.)
- Truck owners or transporters
- Small-scale agriculture-based enterprises
You must be a resident Indian with a viable business plan and clear repayment ability.
Documents Required for Mudra Loan
To apply for a Mudra Loan, you’ll need:
- Identity proof (Aadhaar, PAN, Voter ID, etc.)
- Address proof (Utility bill, Aadhaar, Passport, etc.)
- Business proof (Registration, license, etc.)
- Quotation of machinery or goods (if applicable)
- Bank statement (past 6 months)
- Filled application form
While the document list may vary slightly from bank to bank, these are generally required.
Interest Rates from Top Banks – 2025
Rates may vary based on applicant profile and loan type. Mudra Loan for Shishu category usually has the lowest interest.
The Pradhan Mantri Mudra Yojana (PMMY) is a flagship scheme by the Government of India to provide financial assistance to micro-enterprises in the non-farm sector. Loans are categorized into Shishu, Kishore, and Tarun, based on the loan amount. Interest rates for Mudra Loans vary significantly between banks and depend on several factors, including the applicant’s profile, business requirements, and the specific loan category.
While specific discounts for senior citizens are generally not a standard feature of Mudra Loans, many banks offer concessional interest rates for women entrepreneurs to promote women’s empowerment.
Here’s a comprehensive comparison of indicative Mudra Loan interest rates from various banks, along with details on loan categories and special concessions:
| Bank Name | Shishu Loan (Up to ₹50,000) Indicative Interest Rate (p.a.) | Kishore Loan (₹50,001 – ₹5 Lakh) Indicative Interest Rate (p.a.) | Tarun Loan (₹5 Lakh – ₹10 Lakh) Indicative Interest Rate (p.a.) | Special Concessions (e.g., for Women) | Key Features / Notes |
|---|---|---|---|---|---|
| Category | Shishu (Up to ₹50,000) | Kishore (₹50,001 to ₹5 Lakh) | Tarun (₹5 Lakh to ₹10 Lakh) | Special Concessions | Notes |
| — | — | — | — | — | — |
| Punjab National Bank | 9.40% – 10.65% | 9.40% – 10.65% | 9.40% – 10.65% | Concessional rates for women entrepreneurs (specific details vary by scheme/bank policy). | Interest rates may vary based on applicant’s credit profile and business risk. |
| Union Bank of India | 10.30% onwards | 11.00% – 12.00% | 11.00% – 12.00% | Concessional rates for women entrepreneurs. | Offers Mudra STP (Straight Through Process) for quick digital application. |
| Bank of Baroda | As per applicant’s credit profile | As per applicant’s credit profile | As per applicant’s credit profile | Concessional rates for women entrepreneurs. | Rates are highly dependent on individual creditworthiness and business nature. |
| State Bank of India | As per applicant’s credit profile | As per applicant’s credit profile | As per applicant’s credit profile | Concessional rates for women entrepreneurs. | Offers e-Mudra loan for existing SBI customers up to ₹1 Lakh. |
| Bank of India | Repo + Spread (e.g., 4.40% spread for Shishu) | As per applicant’s credit profile | As per applicant’s credit profile | Concessional rates for women entrepreneurs. | Online Shishu Mudra Loan available for existing customers with minimum CIBIL score of 730 or -1. |
| Indian Bank | Online Shishu Mudra Loan: 10.55% p.a. | Varies | Varies | Concessional credit for handloom weavers (e.g., 6% for 3 years). | Offers specific “Weaver Mudra Loan” with interest subvention benefits. |
| Central Bank of India | RBLR + 0.95% (e.g., 9.95% for up to 3 years) | RBLR + 0.95% + 0.20% (for 3-5 years) | RBLR + 0.95% + 0.30% (for 5-7 years) | Concessional rates for women entrepreneurs. | Digital Cent Mudra Term Loan available. No processing fee for loans up to ₹5 Lakh. |
| HDFC Bank | Varies (often higher than public sector banks) | Varies | Varies | Concessional rates for women entrepreneurs. | Primarily focuses on existing customers with strong credit profiles. |
| Axis Bank | Varies | Varies | Varies | Concessional rates for women entrepreneurs. | Interest rates generally start from 9.99% p.a. for business loans. |
Important Considerations for Mudra Loans:
- Loan Categories:
- Shishu: Loans up to ₹50,000, for new businesses or those in early stages.
- Kishore: Loans from ₹50,001 to ₹5 Lakh, for established businesses needing funds for expansion or sustenance.
- Tarun: Loans from ₹5 Lakh to ₹10 Lakh, for established businesses requiring substantial funds for expansion or diversification.
- Collateral-Free: Mudra Loans are generally collateral-free, covered under the Credit Guarantee Fund for Micro Units (CGFMU).
- Repayment Tenure: Typically ranges from 12 months to 5 years, but can extend for specific cases (e.g., Shishu loans up to 5 years with some banks).
- Processing Fees: Generally Nil to nominal, especially for Shishu loans.
- Eligibility: Indian citizens, engaged in non-farm income-generating activities (manufacturing, trading, services, allied agriculture). Good credit history is often required.
- Factors Affecting Interest Rates: Your creditworthiness, nature of business, annual turnover, loan amount, and repayment tenure all influence the final interest rate offered by the bank.
- Discounts for Senior Citizens: While general Mudra Loan schemes do not typically offer specific interest rate discounts for senior citizens, individual banks might have internal policies or schemes that favor them based on other criteria (e.g., existing banking relationship, strong credit profile). It’s best to inquire directly with the bank.
- Women Entrepreneurs: Many banks actively promote women entrepreneurship through Mudra Loans by offering slightly lower interest rates or streamlined application processes. This is a common feature across most Public Sector Banks.
Note: The interest rates provided are indicative and subject to change based on the bank’s internal policies, RBI guidelines, and individual applicant assessment. It is highly recommended to contact the respective bank directly for the most current and personalized interest rate information.
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Benefits of Mudra Loan
Here are the top benefits of taking this Loan:
- ✅ No collateral needed
- ✅ Quick processing and approval
- ✅ Flexible repayment period (up to 5 years)
- ✅ Promotes financial inclusion
- ✅ Supports rural and women entrepreneurs
- ✅ Loans available even for small-ticket businesses
These features makes this highly accessible for first-time entrepreneurs and micro-businesses.
How to Apply for Mudra Loan
You can apply for a Mudra Loan online or offline:
Offline Application:
- Visit your nearest bank branch that offers this Loan.
- Ask for the Mudra loan application form.
- Submit required documents along with a business plan or purpose of the loan.
- The bank will verify your documents and process the request.
- Once approved, the amount will be credited to your account.
Online Application:
Many banks offer online Mudra loan applications through their websites or the Udyami Mitra portal. Steps include:
- Visit the official bank website or udyamimitra.in
- Fill in the application form
- Upload necessary documents
- Track application status online
Use of Funds from Mudra Loan
The Loan amount can be used for a wide range of business purposes:
- Buying raw material
- Purchasing machinery or equipment
- Setting up shop interiors
- Hiring staff
- Transport vehicles
- Marketing and promotion
However, it must be used strictly for business development and not for personal expenses.
Repayment and Tenure
The loan tenure depends on the category:
| Loan Type | Repayment Tenure |
|---|---|
| Shishu | Up to 3 years |
| Kishor | 3 to 5 years |
| Tarun | Up to 7 years |
Banks usually offer EMI-based repayment. Some lenders also provide a moratorium of up to 6 months before EMIs start.
Frequently Asked Questions (FAQs)
A. A Mudra Loan is a government-backed micro-credit scheme under the Pradhan Mantri Mudra Yojana (PMMY), designed to provide financial assistance to non-farm micro and small enterprises for income-generating activities. It aims to fund the “unfunded” and support entrepreneurship.
A.Indian citizens involved in non-farm sector income-generating activities (manufacturing, trading, services, or allied agricultural activities) are generally eligible. This includes individuals, proprietorships, partnerships, and other entities.
A.Mudra Loans are categorized into three types based on the loan amount: <br> 1. Shishu: Loans up to ₹50,000 <br> 2. Kishore: Loans from ₹50,001 to ₹5 Lakh <br> 3. Tarun: Loans from ₹5 Lakh to ₹10 Lakh
A.No, Mudra Loans are generally collateral-free. They are covered under the Credit Guarantee Fund for Micro Units (CGFMU), which provides security to the lending institutions.
A.The maximum loan amount available under the Mudra Yojana is ₹10 Lakh, falling under the Tarun category.
A.Interest rates for Mudra Loans vary from bank to bank and depend on factors like the loan category (Shishu, Kishore, Tarun), the applicant’s credit profile, and the nature of the business. Public sector banks often offer competitive rates. For more details, read this article.
A.Yes, many banks offer concessional interest rates or other benefits to women entrepreneurs applying for Mudra Loans, encouraging female participation in business.
A.The repayment tenure for Mudra Loans typically ranges from 12 months (1 year) to 60 months (5 years), though it can be extended in specific cases depending on the business’s cash flow and the lending institution’s policy.
A.Common documents include identity proof (Aadhaar, PAN), address proof, business proof (e.g., business registration, business plan), income proof (ITR, bank statements), and passport-sized photographs. Specific requirements may vary by bank.
A.You can apply for a Mudra Loan at public sector banks, private sector banks, regional rural banks (RRBs), cooperative banks, microfinance institutions (MFIs), and Non-Banking Financial Companies (NBFCs) that are Member Lending Institutions (MLIs) under the scheme. Online application is also possible through the Udyamimitra portal.
A.Yes, Mudra Loans are available for both new businesses (Shishu category) and existing micro-enterprises looking to expand, modernize, or manage working capital (Kishore and Tarun categories).
A.Generally, there are no processing fees for Shishu category loans (up to ₹50,000). For Kishore and Tarun categories, processing fees are usually nominal and vary by bank.
A.Mudra Loans cover a wide range of non-farm income-generating activities, including small manufacturing units, service sector units (e.g., salons, repair shops), shopkeepers, traders, vendors, transport vehicle operators, and activities allied to agriculture like poultry and beekeeping.
A.Yes, a Mudra Card (a RuPay debit card) may be issued, primarily for working capital loans. It allows for flexible withdrawals and deposits, functioning like an overdraft facility, and helps in digitalizing transactions.
A.Yes, you can apply for a Mudra Loan online through the Udyamimitra portal (www.udyamimitra.in) or through the digital platforms of some banks.
Final Thoughts
The Mudra Loan scheme is a powerful tool for empowering India’s small business sector. It brings financial access to people who often struggle with traditional banking norms. With no collateral and low-interest rates, it opens up endless opportunities for those with business dreams.
Whether you are a street vendor, a mechanic, a tailor, or a rural entrepreneur, the Mudra Loan could be your first big step toward financial independence. If you meet the eligibility criteria and have a solid business idea, don’t hesitate to apply and turn your vision into reality.