Understanding the Mudra Loan Scheme: Eligibility & Process

Rani Tularam Khyali March 11, 2025

Introduction

The Micro Units Development and Refinance Agency (MUDRA) Loan Scheme is a flagship initiative by the Government of India aimed at providing financial support to Micro, Small, and Medium Enterprises (MSMEs) and entrepreneurs. Introduced in 2015 under the Pradhan Mantri Mudra Yojana (PMMY), this scheme enables small businesses to access collateral-free loans to expand their operations, invest in new technologies, and improve business efficiency.

In this article, we will provide a detailed understanding of the Mudra Loan Scheme, including eligibility criteria, loan categories, application process, benefits, and repayment terms.

1. What is the Mudra Loan Scheme?

The Mudra Loan Scheme provides unsecured business loans to small businesses, startups, and entrepreneurs. The loans are issued through various financial institutions such as banks, NBFCs, microfinance institutions, and regional rural banks.

Objectives of the Scheme:

Provide affordable credit to small businesses.
Encourage entrepreneurship and self-employment.
Support the growth of MSMEs in India.
Promote financial inclusion by offering credit to businesses without access to traditional loans.

2. Categories of Mudra Loans

Mudra Loans are categorized into three types based on the funding needs of businesses:

a) Shishu Loan (Up to ₹50,000)

Ideal for new startups and small businesses.
Used for starting a business, purchasing raw materials, or setting up infrastructure.

b) Kishore Loan (₹50,000 – ₹5 Lakhs)

Suitable for businesses in expansion mode.
Used for purchasing equipment, hiring employees, or increasing working capital.

c) Tarun Loan (₹5 Lakhs – ₹10 Lakhs)

Designed for established businesses.
Used for business expansion, large equipment purchases, or increasing production capacity.

3. Eligibility Criteria for Mudra Loan

To qualify for a Mudra Loan, businesses must meet certain eligibility criteria:

Who Can Apply?

Individuals, proprietors, partnership firms, or companies.
Small manufacturers, artisans, retailers, and traders.
Service sector businesses, including food processing, repair shops, and transport operators.
Agriculture-related businesses, such as dairy farming and poultry farming.

Basic Eligibility Requirements:

Applicant must be at least 18 years old.
Business should fall under non-corporate, non-farm small enterprises.
Must have a viable business plan.
Should not have defaulted on previous loans.

4. How to Apply for a Mudra Loan?

Applying for a Mudra Loan is a simple process and can be done online or offline.

Step-by-Step Application Process

Step 1: Prepare Required Documents

Before applying, gather the necessary documents:

Business Plan outlining funding needs and business objectives.
Identity Proof (Aadhaar Card, PAN Card, Voter ID, Passport).
Address Proof (Utility Bill, Rent Agreement, Property Documents).
Business Registration Documents (if applicable).
Bank Statements (last 6-12 months).

Step 2: Choose a Lender

Select a lender offering Mudra Loans, such as:

Public and private banks (SBI, PNB, ICICI, HDFC, etc.).
Microfinance institutions (MFIs).
Regional Rural Banks (RRBs).
Small finance banks and NBFCs.

Step 3: Submit the Application

Visit the nearest bank branch or apply online through the official PMMY portal.
Fill out the Mudra Loan application form.
Attach all required documents.

Step 4: Loan Approval & Disbursement

The bank will verify the documents and assess the business plan.
Upon approval, the loan amount is credited to the applicant’s business account.
The entire process usually takes 7-15 days, depending on the bank.

5. Benefits of Mudra Loan for MSMEs

The Mudra Loan Scheme offers numerous advantages to MSMEs and small businesses:

a) Collateral-Free Loan

No need for property or assets as security.

b) Low-Interest Rates

Affordable interest rates compared to private business loans.

c) Flexible Repayment Options

Loan tenure of up to 5 years, allowing easy repayment.

d) Helps in Business Growth

Funding for infrastructure, working capital, and technology upgrades.

e) Encourages Women Entrepreneurs

Special benefits and subsidies for women-led enterprises.

6. Important Things to Know Before Applying

a) No Processing Fee for Shishu Loans

There are no processing charges for Shishu category loans.

b) Proper Business Documentation is Essential

Ensure all documents are accurate and updated to avoid rejection.

c) Check Credit Score Before Applying

While Mudra Loans do not require a high credit score, a good credit history increases approval chances.

d) Beware of Fraudulent Agents

Apply only through registered banks and financial institutions.
Avoid paying any upfront fees to unauthorized agents.

7. Repayment and Interest Rates

Interest Rates

Interest rates vary from 8% to 12% per annum, depending on the bank and loan category.

Repayment Period

Flexible repayment tenure of up to 5 years.
No prepayment penalty for early repayment.

EMI Calculation

Applicants can use a Mudra Loan EMI Calculator available on bank websites to estimate monthly payments.

Conclusion

The Mudra Loan Scheme is a game-changer for MSMEs, providing easy access to finance for small businesses and startups. With its simple eligibility criteria, collateral-free nature, and affordable interest rates, this scheme has empowered thousands of entrepreneurs in India.

If you’re a small business owner looking for funding, consider applying for a Mudra Loan to expand your business, enhance operations, and achieve long-term growth.

For more details, visit the official PMMY website or approach your nearest bank to kickstart your entrepreneurial journey today!