A MUDRA loan under the Pradhan Mantri MUDRA Yojana (PMMY) gives non-corporate, non-farm micro enterprises collateral-free finance up to ₹20 lakh for working capital and equipment. The scheme’s ceiling moved from ₹10 lakh to ₹20 lakh in October 2024 with the new Tarun Plus category, reserved for borrowers who have already repaid a Tarun loan successfully. Here is how the four categories work, what interest to expect, and how to apply through banks or the JanSamarth portal.
What a MUDRA loan covers
PMMY has run since April 2015 and funds income-generating activity in manufacturing, trading, services and food processing. It targets micro units that are not registered as companies and are outside the farm sector – proprietorships, small partnerships, vendors and first-generation entrepreneurs. The money can pay for machinery, a delivery vehicle, shop renovation, raw material stock or day-to-day working capital.
No collateral or third-party guarantee is taken from the borrower, because the Credit Guarantee Fund for Micro Units (CGFMU) stands behind the lender and absorbs part of the default risk. That guarantee is precisely why asset-light businesses can borrow at all. Remember the loan is credit, not a subsidy – the full principal and interest are repayable on schedule.
The four MUDRA categories
| Category | Loan size | Typical use |
|---|---|---|
| Shishu | Up to ₹50,000 | First-stage activity – street vendors, tiny stock, basic tools |
| Kishore | ₹50,001 – ₹5 lakh | Established small units expanding stock or equipment |
| Tarun | ₹5,00,001 – ₹10 lakh | Growing micro enterprises scaling operations |
| Tarun Plus | ₹10,00,001 – ₹20 lakh | Prior Tarun borrowers scaling up further (from October 2024) |
The stage-wise design lets a business climb from Shishu to Tarun Plus as its repayment record builds. Tarun Plus is not open to newcomers – it exists for businesses that availed and successfully repaid a Tarun loan earlier, so a clean track record is the entry ticket to the higher slab.
Interest rates and charges
There is no government-set rate for MUDRA loans – each bank prices its own book. Prevailing rates have generally ranged from around 9% to 12% or more, depending on the lender, the category, the applicant’s profile and credit history. Processing charges vary by bank and category, so confirm the exact rate and fee sheet before signing the sanction letter.
The MUDRA card for working capital
Alongside the loan, banks issue a RuPay MUDRA card that works like a business withdrawal facility – you can draw working capital as needed up to the sanctioned limit at ATMs and points of sale. This lets a business take only what it needs, when it needs it, instead of borrowing the full amount upfront. It suits seasonal trades where cash needs arrive in bursts, such as festival stocking or harvest-linked services.
How to apply
- Approach any public sector bank, regional rural bank or private bank branch that lends under PMMY.
- Or apply online through the JanSamarth portal, which routes your application to a suitable lender.
- Keep KYC documents (Aadhaar, PAN) ready, along with a business plan or equipment quotations and recent bank statements of the business account.
- State the loan purpose clearly – machinery purchase, working capital or shop expansion – with the amount you need.
The bank assesses the activity, cash flows and repayment capacity before sanctioning, and disbursal can come as a lump sum or in stages for larger limits. Accurate quotations and clean bank statements speed up the appraisal, because they are the primary evidence of a real, fundable business need.
Key takeaways
- MUDRA loans are collateral-free for non-corporate, non-farm micro enterprises, now up to ₹20 lakh.
- Four slabs apply – Shishu, Kishore, Tarun and Tarun Plus, the last reserved for successful prior Tarun borrowers since October 2024.
- Interest is bank-set, generally from around 9% to 12% or more – confirm the exact rate with your lender.
- Apply at PSBs, RRBs and private banks or online via JanSamarth, with CGFMU guarantee backing the loan.
Frequently asked questions
What is the maximum MUDRA loan amount now?
₹20 lakh under the Tarun Plus category, effective from October 2024. Earlier, the ceiling was ₹10 lakh under Tarun.
Who is eligible for Tarun Plus?
Borrowers who availed a Tarun loan earlier and repaid it successfully. First-time applicants must start at Shishu, Kishore or Tarun depending on their requirement.
Do I need to pledge collateral for a MUDRA loan?
No. PMMY loans are collateral-free, with the Credit Guarantee Fund for Micro Units backing the lender. The loan still has to be repaid in full.
What interest rate will I pay?
Each bank sets its own rate, and prevailing rates have generally run from around 9% to 12% or higher by category and profile. Ask for the current rate card at the branch or on JanSamarth.
Where can I apply for a MUDRA loan?
At public sector banks, regional rural banks and private bank branches, or online through the JanSamarth portal. A CSC-assisted application also works for first-time borrowers who need help with the form.
Disclaimer: Tax laws change frequently. Verify current rates and deadlines on the official portals (incometax.gov.in, gst.gov.in) or consult a qualified professional before acting.
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