Latest update: Mudra Loan limit increased to Rs. 20 lakh
Finance Minister Nirmala Sitharaman announced in the Union Budget 2024-25 (23 July 2024) that the Mudra loan ceiling would be raised from ₹10 lakh to ₹20 lakh. The Ministry of Finance issued the formal notification on 24 October 2024, creating a new fourth category — Tarun Plus — for loans above ₹10 lakh and up to Rs. 20 lakh.
Tarun Plus is not open to all applicants. Only entrepreneurs who have previously taken and successfully repaid a Tarun-category loan (up to ₹10 lakh) are eligible. Loans under Tarun Plus continue to be collateral-free, covered under the Credit Guarantee Fund for Micro Units (CGFMU). Interest rates on Tarun Plus follow the same lender-determined framework as Tarun.
PMMY loan categories and interest rates
| Category | Loan amount | Indicative interest rate | Stage of business |
|---|
| Shishu | Up to Rs.50,000 | 9% to 12% p.a. in most banks; up to 18% p.a. in NBFCs/MFIs | New or just starting out |
| Kishore | Rs.50,001 to Rs.5 lakh | 8.60% to 14% p.a. in banks; up to 20% p.a. in NBFCs | Established business, looking to expand |
| Tarun | Rs.5,00,001 to Rs.10 lakh | 11.15% to 20% p.a. (as determined by lender) | Stable business, in growth phase |
| Tarun Plus | Rs.10,00,001 to Rs.20 lakh | Rate decided by lender; usually aligned with Tarun pricing | Expanded business (post successful Tarun repayment) |
Shishu Mudra Loan interest rate
Shishu loans up to Rs.50,000 are the most concessional under the PMMY scheme. As per RBI guidance, Member Lending Institutions generally align rates with their MCLR or base rate. Public sector banks typically charge 9% to 12% per annum. RRBs and Scheduled Commercial Banks cap rates at around 3.5% above the Mudra refinance rate, while NBFCs may charge up to 6% above the same refinance benchmark.
Kishore Mudra Loan interest rate
Kishore loans ranging from Rs.50,001 to Rs.5 lakh usually start from around 8.60% per annum in public sector banks for borrowers with strong credit profiles. The final rate is set by the lender under PMMY norms and depends on credit history, business experience, and nature of the enterprise.
Tarun and Tarun Plus interest rates
Tarun loans (Rs.5–10 lakh) and Tarun Plus loans (Rs.10–20 lakh) generally carry higher interest rates, typically between 11.15% and 20% per annum, reflecting higher loan exposure and lender discretion. Borrowers with a strong repayment record under Tarun may receive more favourable rates when upgrading to Tarun Plus.
Features of Pradhan Mantri Mudra Yojana (PMMY) Loans
- Interest rate: Varies from lender to lender and depends on the applicant’s profile, creditworthiness, and business requirements.
- Collateral-free loans: No security is required to be provided to the bank or lending institution.
- Loan categories: Shishu, Kishore, and Tarun.
- Loan amount: No minimum borrowing limit; maximum up to Rs.10 lakh.
- Repayment tenure: Ranges from 12 months to 5 years, and may be extended in specific cases at the lender’s discretion.
- Processing fee: Nil to nominal, depending on the lender.
- Foreclosure charges: No charges applicable in most cases.
- Concessional interest rates for women entrepreneurs: Preferential rates may be offered to women borrowers by participating lending institutions.
Factors affecting Mudra loan interest rates
Mudra loan interest rates are not fixed for all borrowers. The rate offered to an applicant depends on a mix of borrower-specific, lender-specific, and market-related factors.
Borrower-side factors
- Credit score: Higher credit scores generally attract lower interest rates.
- Business vintage and stability: Established and stable businesses are more likely to receive favourable pricing.
- Income and repayment capacity: Strong and consistent cash flows improve eligibility for better rates.
- Existing banking relationship: Long-standing customers may receive preferential pricing.
- Co-applicant or guarantor: A strong co-applicant can help secure a lower rate.
- Borrower category: Women entrepreneurs and applicants from SC/ST/OBC/Minority communities may be eligible for concessional rates at many lenders (up to 0.25% lower).
Loan-side factors
- Loan amount: Within defined bands, larger loans may attract slightly different rates depending on lender policy.
- Loan tenure: Longer repayment tenures may, in some cases, result in marginally higher rates.
- Loan purpose and sector: Lower-risk sectors (such as essential services and established trade activities) may receive better rates than higher-risk segments (such as entertainment or certain hospitality businesses).
- Mudra category: Shishu loans generally carry the most concessional rates, while Tarun and Tarun Plus loans attract comparatively higher rates.
Lender-side factors
- Lender type: Public sector banks usually offer lower rates, while NBFCs and MFIs tend to charge higher rates.
- Internal benchmarks: Many public sector banks link pricing to MCLR, RLLR, or EBLR, which move in line with RBI policy rates.
- Cost of funds: Institutions with lower funding costs are able to offer more competitive rates.
- Risk appetite: Each lender’s internal credit policy and asset quality outlook also influences pricing.
Market-side factors
- RBI repo rate: Changes in the repo rate affect floating-rate loans, making them more or less expensive.
- Mudra refinance rate: This influences the final pricing for Shishu and Kishore loans.
- Government schemes and subsidies: Periodic schemes may offer concessional rates for specific sectors or borrower categories.
- Sectoral guidelines: RBI priority sector lending norms can also impact loan pricing in certain segments.
Tips to get Mudra loans at affordable interest rates
- Compare offers from at least 4–5 lenders, including public sector banks and NBFCs, before applying. The same applicant may observe a difference of 200–400 basis points between the most competitive and median interest rates.
- Apply to the bank where you already maintain a salary or business account, as existing relationships often result in lower rates and quicker processing.
- Maintain a CIBIL score of 750 or above before applying, as even a small improvement in credit score can significantly influence the interest rate offered.
- Submit a well-documented and realistic business plan with clear cash flow projections, as a strong proposal reduces perceived risk for the lender.
- Use the Udyamimitra or Jan Samarth portals to apply across multiple lenders in a single application flow and compare available offers.
- Check eligibility under priority sector lending norms, as women entrepreneurs, SC/ST/OBC borrowers, and certain sector-based businesses may receive concessional rates.
- Opt for Shishu or Kishore categories if your funding requirement aligns, as these segments typically offer more concessional interest rates compared to higher loan brackets.
- If you have successfully repaid a Tarun loan, apply under Tarun Plus, as a strong repayment track record is a key factor in securing better pricing.
- Negotiate processing fees separately, as many public sector banks levy nil fees for Mudra loans, and such charges impact the overall cost of borrowing.
- Carefully review the sanction letter to confirm whether the interest rate is fixed or floating, and understand how and when it may be reset during the loan tenure.
Mudra Yojana sub-schemes affecting interest rates
The Pradhan Mantri Mudra Yojana (PMMY) operates several refinance and concessional mechanisms that influence the effective interest rate ultimately paid by the borrower:
- Refinance scheme for banks: Mudra provides refinance support to loans extended by Scheduled Commercial Banks, Regional Rural Banks, cooperative banks, and NBFCs. This reduces the lender’s cost of funds for Mudra lending and enables more competitive interest rates for borrowers. Regional Rural Banks and Scheduled Commercial Banks are typically capped at 3.5% above the refinance rate, while NBFCs are capped at 6% above it.
- Mahila Udyami Yojana (Women Enterprise Programme): Women borrowers may receive an interest rate concession of up to 0.25% on the prevailing Mudra rate at participating banks. This benefit is in addition to other concessions available under priority sector or social category lending norms.
- Credit for Micro-Enterprise (microfinance route): Small-ticket loans of up to Rs.1 lakh are provided through microfinance institutions, particularly for borrowers without formal banking history. Interest rates are comparatively higher, typically in the range of 18% to 24%, reflecting higher operational and delivery costs.
- Mudra Card: A RuPay debit card linked to the sanctioned working capital limit under the Mudra loan. Borrowers withdraw funds only as required and pay interest solely on the amount utilised, thereby reducing the effective interest cost compared to full upfront utilisation.
- Equipment Finance Scheme: A dedicated facility for micro-enterprises purchasing machinery or equipment. Interest rates and processing terms broadly align with the Kishore or Tarun categories, with disbursement often linked directly to supplier quotations, simplifying the funding process.
Documents required to apply for Mudra loan
To apply for a Mudra loan, you need to submit the following documents:
- Application form for Mudra loan
- Identity proof, which includes Aadhaar card, Pan card, Voter ID card, or passport copy
- Address proof, which includes Aadhaar card, electricity bill, telephone bill, or other utility bills
- Business plan or project report, which outlines the details of the proposed business or expansion plan
- Quotation of machinery or equipment, which provides an idea of the costs involved in purchasing the required machinery or equipment
- Bank account statement, which shows the financial transactions of the existing business (if applicable)
- Proof of continuation (a copy of an office electricity bill, sales tax certificate, trade license, etc., for existing businesses)
- Income tax return (for the previous year) or sales tax returns (for the previous year) (if applicable).
Mudra loan eligibility
The eligibility criteria of Mudra loans are extremely simple. Anyone meeting the following can apply for a Mudra loan under PMMY:
- Indian citizen, aged between 18 and 65 years
- Engaged in or planning to start a non-corporate, non-farm income-generating activity in manufacturing, trading or services
- Not a defaulter with any bank or financial institution
- Funding requirement within the Mudra ceiling of Rs. 20 lakh
Eligible business types
- Sole proprietorships and partnership firms
- Service-sector enterprises — beauty parlours, gyms, salons, courier, tailoring, repair shops
- Manufacturing units — textiles, food processing, light engineering, plastics
- Trading and shop-based businesses — retail, wholesale, distribution
- Transport operators — auto-rickshaws, taxis, small commercial vehicles, three-wheelers
- Agriculture-allied activities — dairy, poultry, beekeeping, pisciculture, agro-processing (not crop loans)
- Food service — restaurants, caterers, cloud kitchens, food vendors
- Vendors, artisans, machine operators, micro-enterprises
Member Lending Institutions (MLIs) under PMMY
Loans under the Pradhan Mantri Mudra Yojana (PMMY) are available through eligible Member Lending Institutions (MLIs), such as:
- Public sector banks
- Private sector banks
- State cooperative banks
- Regional rural banks
- Microfinance institutions (MFIs)
- Non-banking financial companies (NBFCs)
- Small finance banks (SFBs)
- Other financial intermediaries approved by Mudra Ltd. as member institutions.
You can also apply if you are a part of a business or as an individual operating as a
- Shopkeeper
- Food-service unit
- Small manufacturing unit
- Trade/Manufacturing sector unit
- Fruit and vegetable vendor
- Service sector unit
- Truck operator
- Repair shop
- Machine operator
- Artisan and more
In addition to the above, you should
- Have a good credit history.
- Have not defaulted on a loan.
- Have the required skills or experience to start, continue, or expand a business.
Additional read: PMEGP loan process and eligibility
Meet your higher capital needs with a business loan
Mudra works well for micro and small businesses operating under the Rs. 20 lakh ceiling. Established businesses needing higher amounts, faster approval, or more flexible repayment often need a different facility. A Bajaj Finserv Business Loan offers up to ₹80 lakh, online approval typically within 48 hours, minimal documentation, no collateral, and flexible tenures — suitable for businesses with sustained turnover whose funding needs have outgrown Mudra's scheme limits.
