Mudra Yojana: Types, Interest rates, objectives, eligibility

Are you running a small business or thinking about launching one, but don't have enough money? The Pradhan Mantri Mudra Yojana (PMMY) is your solution. It's a government-backed loan program that makes it easier for micro and small business owners to receive loans.

There is no need for extensive documentation or collateral. We'll go over all you need to know about Mudra Yojana, including its types, interest rates, eligibility, required documents, and how to apply. It will help you decide if it's good for you. 

What is Pradhan Mantri Mudra Yojana?

Pradhan Mantri Mudra Yojana is the Indian government’s flagship scheme to give small, non-farm, non-corporate, micro and small enterprises easy access to loans. There is no heavy collateral or red tape that used to block so many entrepreneurs.

Launched on 8 April 2015, Mudra supports manufacturing, trading, services and allied activities with credit up to specified limits through banks, NBFCs and MFIs. The maximum credit limit under Pradhan Mantri Mudra Yojana is up to ₹20 lakh.

Types of Mudra Loans: Shishu, Kishor, and Tarun Explained

Mudra categorises loans by the stage and funding need of the enterprise:

• Shishu — micro ticket loans up to ₹50,000. Ideal for startups, street vendors, and small artisans.

• Kishor — loans above ₹50,000 and up to ₹5 lakh for growing units that need working capital or small capex.

• Tarun — loans above ₹5 lakh and up to ₹10 lakh for more established micro enterprises.

• Tarun Plus — loans above ₹10 lakh and up to ₹20 lakh for entrepreneurs who have successfully repaid previous loans in the Tarun category.

Mudra Loan Interest Rates and Repayment Terms

MUDRA is a refinancing agency that will extend its funds to Last Mile Financiers. Hence, it does not fix a single rate. Interest rates are set by lending institutions (banks/NBFCs) within RBI/regulatory guidance, so rates vary by lender, the borrower’s credit profile, and product.

Expect rates broadly in the low to mid-single digits above the bank’s benchmark. The starting rates are around 8.8–9.5% and up, depending on the lender and product. Always check the specific bank’s Mudra product page for live pricing.

The terms of repayment are also different. Depending on the size of the loan and the business's cash flow, many lenders provide terms that range from 1 year up to 5–7 years. Some banks offer grace periods and flexible EMI choices that work with seasonal enterprises. 

Eligibility Criteria and Documents Required for Mudra Yojana

The eligible people for Pradhan Mantri Mudra Yojana include:

• Individuals, proprietorships, partnership firms, and certain registered entities in non-farm sectors.

• Business should be income-generating (manufacturing, trade, services, allied activities).

• No age or educational bar; bank assessment focuses on business viability and repayment capacity.

Common documents required for applying for the loan include: 

• Address proof

• Bank statements

• Project cost/quotation

• KYC for proprietors/partners

• Identity proof (Aadhaar, PAN)

• Business proof (registration, Udyam/Udyam Aadhar)

Exact lists differ by lender and loan amount; small Shishu loans may have minimal documentation, whereas Tarun and Tarun Plus require fuller financials. 

How to Apply for Mudra Loan Online and Offline

Online:

• Visit the lender’s Mudra page or the Udyamimitra / MUDRA portals to check product details and start an application.

• Fill the digital application, upload KYC, business details, quotations, and bank statements.

• The bank/NBFC processes may do a site visit or quick due diligence, and communicate sanction/EMI details.

Offline:

• Walk into the nearest branch of a bank that offers Mudra loans (most public and private banks do).

• Get the Mudra application form, submit the required documents, and meet the branch officer for a quick assessment.

Apply to multiple lenders, compare processing fees and prepayment penalties, and keep projected cash flows handy to justify the repayment schedule.

Conclusion

Mudra Yojana is a simple, powerful credit route for micro and small entrepreneurs, especially those who’ve struggled to access formal finance. The four tiers let you pick a loan that matches your stage, while multiple lenders competing means you can find competitive terms if you compare offers.

Why Choose Tractor Gyan?

Tractor Gyan is India's most impactful agri-tech voice that understands rural and small-business cash flows. If you run an agri-linked micro business or rural enterprise, we walk you through the documentation and application process. It saves time, prevents costly mistakes, and gets funds flowing where they belong, into your business.