The Pradhan Mantri MUDRA Yojana (PMMY) was launched by the Government of India to fund the unfunded, enabling micro-enterprises and early-stage entrepreneurs in manufacturing, trading, and allied service sectors to access formal institutional bank credit without pledging ancestral land or residential property.
In this guide
1. The 4 MUDRA Loan Categories (Including New ₹20 Lakh Limit)
Under recent Union Budget updates, the government introduced a fourth higher tier to incentivize graduating entrepreneurs:
- Shishu: Credit facilities up to ₹50,000 for early-stage entrepreneurs, artisans, and micro-vendors.
- Kishore: Credit facilities from ₹50,001 up to ₹5,00,000 for acquiring small plant, machinery, tools, or initial trading inventory.
- Tarun: Credit facilities from ₹5,00,001 up to ₹10,00,000 for established units upgrading business capacity.
- Tarun Plus (New Enhanced Category): Credit facilities from ₹10,00,001 up to ₹20,00,000 for entrepreneurs who have previously availed and successfully settled loans under the Tarun tier.
2. Collateral Security & Guarantee Coverage
MUDRA loans are collateral-free under the scheme, and all loans sanctioned under PMMY, including Tarun Plus, are covered by the Credit Guarantee Fund for Micro Units (CGFMU) managed by NCGTC. Separately, RBI does not allow banks to take collateral for loans to micro and small enterprises up to ₹20 Lakhs.
- Processing fees are waived for Shishu loans. For Kishore, Tarun and Tarun Plus, banks may charge fees as per their own policy.
- Interest rates are linked to bank benchmark lending rates (MCLR/EBLR) with competitive spreads.
3. The MUDRA Card Facility
For working capital requirements, banks issue a MUDRA Card (an Indian RuPay debit card linked to the borrower's Cash Credit / Overdraft facility). Borrowers can withdraw cash from any ATM network across India as and when operational funds are needed and make digital merchant payments, minimizing interest costs by paying interest only on the utilized amount.
4. Documents & Application Procedure
Borrowers can apply through any Public Sector Bank, Regional Rural Bank (RRB), private commercial bank, Small Finance Bank (SFB), or NBFC, as well as digitally through the government's JanSamarth portal (jansamarth.in):
- Udyam Registration Certificate and PAN Card of the enterprise.
- Proof of identity and address of promoters (Aadhaar, Passport, Voter ID).
- Quotations for machinery or capital equipment to be purchased.
- Past 6 to 12 months bank current account statements.
- Brief business profile with projected sales and means of repayment.
Key takeaways
- Borrowers must have no past loan defaults with any bank or financial institution (clean CIBIL track record).
- Loans can be structured as Term Loans (for asset acquisition), Working Capital limits (for inventory/debtors), or a composite loan combining both.
- Mudra loans cannot be utilized for purely speculative trades or personal consumer spending.
- Apply via the JanSamarth digital portal for automated eligibility matching and faster in-principle sanction.
Frequently asked questions
Can a retail shop or small distributor apply for a MUDRA loan?
Yes. Non-corporate small business segment (NCSBS) entities comprising millions of proprietorship/partnership firms running small manufacturing units, service sector units, shopkeepers, fruits/vegetable vendors, truck operators, food-service units, and repair shops are fully eligible.
Is Udyam Registration mandatory for MUDRA loans?
Most banks ask for Udyam Registration as part of the application, and it is free to obtain, so it is worth registering before you apply. Check your bank's document list.
Official sources
General information only, not advice for your specific situation. Scheme rules and bank policies change; check the official source or talk to us before acting on it. Lending and subsidy decisions are made by banks, NBFCs and government agencies.