MUDRA Loan Explained — Shishu, Kishore and Tarun in 2025-26
India's most accessible small-business loan programme has funded over 50 crore accounts — but most eligible entrepreneurs still don't know how to tap it.
MUDRA Loan Explained — Shishu, Kishore and Tarun in 2025-26
PM MUDRA Yojana (Pradhan Mantri Micro Units Development and Refinance Agency) was launched in April 2015 to provide formal credit to India's vast ecosystem of small businesses, micro-enterprises, and self-employed individuals who have historically been excluded from bank credit. Since inception, over 52 crore loan accounts have been sanctioned for a cumulative amount exceeding ₹31 lakh crore.
The Three MUDRA Loan Categories
MUDRA loans are divided into three categories based on the stage and funding needs of the enterprise:
| Category | Loan Amount | Target Stage |
|---|---|---|
| Shishu | Up to ₹50,000 | Starting up — first formal credit |
| Kishore | ₹50,001 – ₹5 lakh | Established micro-enterprise needing growth capital |
| Tarun | ₹5,00,001 – ₹10 lakh | Mature micro-unit scaling operations |
As of FY 2025-26, the government has also announced a Tarun Plus category of up to ₹20 lakh for enterprises that have successfully repaid a Tarun loan, effective for eligible borrowers.
Who Is Eligible?
MUDRA loans are available to:
- Individuals, proprietary firms, partnership firms, and limited liability companies.
- Non-farm income-generating activities in manufacturing, trading, and services.
- Street vendors, artisans, small shopkeepers, transporters, food stall owners, tailors, repair shops, beauticians, and similar micro-businesses.
- Women entrepreneurs, SC/ST borrowers, and minority community borrowers receive priority treatment from most lenders.
Agriculture and allied activities (farming, livestock, fisheries) are covered under PM-KISAN and other separate schemes, not MUDRA.
Interest Rates and Costs
MUDRA loans are not interest-free. The government provides refinancing to banks and MFIs (Microfinance Institutions) through MUDRA Ltd, which allows lenders to price these loans competitively. But rates vary:
| Lender Type | Typical Interest Rate |
|---|---|
| Public sector banks (SBI, PNB, Bank of Baroda) | 8.5%–12% p.a. |
| Private banks (HDFC, ICICI, Axis) | 11%–16% p.a. |
| Regional Rural Banks (RRBs) | 10%–13% p.a. |
| Microfinance Institutions (MFIs) | 20%–24% p.a. |
There are no processing fees for Shishu loans at public sector banks. Kishore and Tarun loans may carry a processing fee of 0.5%–1%.
What Can MUDRA Funds Be Used For?
MUDRA loan proceeds can be used for:
- Purchase of equipment, machinery, and tools.
- Working capital (raw materials, stock, wages).
- Business expansion — additional workspace or transport vehicle.
- Working capital in the form of a MUDRA card (a pre-loaded RuPay debit card linked to a working capital limit).
The MUDRA Card is particularly powerful for working capital needs — it functions like an overdraft facility where interest is charged only on the amount and duration drawn, not the full sanctioned limit.
How to Apply for a MUDRA Loan
-
Identify your category — Shishu, Kishore, or Tarun based on loan amount needed.
-
Visit a lender — any public sector bank, private bank, RRB, cooperative bank, MFI, or small finance bank participates. You can also apply via the Udyami Mitra portal (udyamimitra.in) online.
-
Documents typically required:
- Aadhaar card and PAN
- Proof of business (Udyam Registration Certificate, GST certificate, or business address proof)
- Last 6 months' bank statements
- Quotation or invoice for equipment to be purchased (for asset finance)
- Photographs
-
Collateral: No collateral is required for MUDRA loans under any category. The Credit Guarantee Fund for Micro Units (CGFMU) provides lenders with a government-backed guarantee.
MUDRA vs Other Small Business Loan Options
| Feature | MUDRA Loan | MSME Bank Loan | Business Credit Card |
|---|---|---|---|
| Max amount | ₹10–20 lakh | ₹1 crore+ | ₹5–25 lakh |
| Collateral | Not required | Often required above ₹10 lakh | Not required |
| Processing speed | 7–30 days | 15–60 days | 3–7 days |
| Interest rate | 8.5%–24% | 10%–16% | 24%–42% |
| Government backing | Yes (CGFMU) | Partial (CGTMSE) | No |
Common Mistakes Applicants Make
Applying without Udyam Registration: Udyam Registration (udyamregistration.gov.in) is now practically mandatory for a smooth MUDRA application at most banks. It is free, instant, and requires only an Aadhaar number.
Underestimating the working capital need: Many first-time entrepreneurs apply for just equipment cost and then struggle with inventory and operational expenses. Include working capital in your loan request.
Not comparing MFI vs bank rates: MFI rates of 20–24% are legal under RBI guidelines but significantly more expensive than a public sector bank's 9–11%. If you qualify for a bank loan, take it.
These figures are estimates for educational purposes. Consult a SEBI-registered advisor for personalised advice.
Frequently asked questions
What is the maximum amount under PM MUDRA Yojana?+
The standard maximum is ₹10 lakh under the Tarun category. A new Tarun Plus category offers up to ₹20 lakh for businesses that have already repaid a Tarun loan successfully.
Is collateral required for a MUDRA loan?+
No. MUDRA loans are collateral-free under all three categories. The Credit Guarantee Fund for Micro Units (CGFMU) provides a government backstop to lenders, enabling them to lend without physical collateral.
Can a salaried person apply for a MUDRA loan?+
MUDRA loans are intended for micro-enterprises and self-employed individuals, not for salaried income. However, a salaried person running a side business or planning to start one can apply based on the business's needs and viability.
How long does it take to get a MUDRA loan approved?+
Public sector banks typically take 7–21 days for Shishu and Kishore loans, and 21–45 days for Tarun. The timeline depends on document completeness and branch workload. Applying via the Udyami Mitra portal can speed up the process.
What is the MUDRA Card?+
The MUDRA Card is a RuPay debit card linked to a working capital limit sanctioned under MUDRA. Borrowers can draw funds as needed and are charged interest only on the drawn amount, making it ideal for managing irregular business cash flows.
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