What is a MUDRA Loan? Everything You Need to Know

Share on:

Pradhan Mantri Mudra Yojana (MUDRA Loan)

Looking for a MUDRA Loan for your business?

Setting up a new business or establishing a start-up can be an uphill task. Indian government launched the Pradhan Mantri Mudra Yojana (PMMY) in 2016 to help non-corporate small business segments meet their short-term capital needs. MUDRA loans, as the lending schemes under the PMMY umbrella are popularly called, can be availed to meet your working capital needs. In addition to the MUDRA loan, the Government of India has Stand-up India and Start-up India initiatives to promote entrepreneurship in the country.

In this page, we are going to look only at MUDRA Loans.

What is a MUDRA Loan?

MUDRA loan schemes are offered under the Pradhan Mantri MUDRA Yojana (PMMY) to help micro units such as unfunded individuals, proprietors, partnerships running small manufacturing units, food service units, repair shops, small industries, fruit and vegetable shops and machine operators get funds to meet their working capital needs.

The acronym MUDRA stands for Micro Units Development and Refinance Agency Ltd., which is a Non-Banking Finance Company (NBFC) set up to support the development of the micro sector in India.

What are the Types of MUDRA Loans Offered by Indian Banks?

MUDRA Loans are divided into three variants and offered depending on various factors such as the type of business, size of business, etc. The quantum of loan also depends on the type of loan applicable to the business. The three types of MUDRA loans are:

  • Shishu Loan: The Shishu (Hindi for ‘baby’) loan is meant for start-ups and first-time entrepreneurs. Entrepreneurs who want to start a business can also avail this loan. The maximum loan amount offered by the bank under this loan is up to Rs. 50,000
  • Kishore Loan: The Kishore (Hindi for ‘adolescent’) loan is meant for entrepreneurs with existing businesses who want to expand their business. The maximum loan amount offered by the bank under this loan is from Rs. 50,001 up to Rs. 5 lakh
  • Tarun Loan: The Tarun (Hindi for ‘young adult’) loan is meant for entrepreneurs with established micro units (who want to expand their business) meeting certain eligibility criteria. The maximum loan amount offered by the bank under this loan is from Rs. 5,00,001 up to 10 lakh

What are the Eligibility Criteria for MUDRA Loans?

The MUDRA loan scheme is meant for individuals / proprietors / partnerships running small manufacturing units, fruit and vegetable shops, food service units, repair shops, small industries, etc. that fit the micro unit definition in the MSME framework. The applicant must be in the age group of 18 to 65 years.

What are the Features of MUDRA Loans?

Some of the important features of the MUDRA Loans are mentioned here for your reference:

  • Loan Amount: The maximum loan amount sanctioned by Indian banks is up to Rs. 50,000 for Shishu (MUDRA) loans, from Rs. 50,001 up to Rs. 5 lakh for Kishore (MUDRA) loans and from Rs. 5,00,001 up to 10 lakh for Tarun (MUDRA) loans
  • Interest Rate: The interest rate for this loan depends on the existing guidelines issued by RBI
  • Repayment & Moratorium Period: These loans need to be repaid within 7 years after the moratorium ends. The moratorium period for MUDRA loans is 6 months
  • Security: This is a collateral-free loan. However, the bank asks for a CGTMSE cover as security for this loan
  • Borrower Contribution to Total Cost (Margin Money): The banks may charge anywhere from 15% to 20% margin for these loans (Note: Margin money refers to the amount the borrower contributes to the overall amount required. The bank covers the rest. So, if the total amount needed is Rs. 20 lakh, you will have to contribute 20% which comes to Rs. 4 lakh. The bank will provide a balance of Rs. 16 lakh.)
  • Processing Charges: Banks do not levy processing charges on MUDRA loans
  • MUDRA Card: The borrower can use the MUDRA card, issued against the MUDRA loan account, to manage the working capital limit. Multiple withdrawals are allowed with this card up to the total loan amount

Which Indian Banks Offer MUDRA Loans?

Public sector banks, private sector banks, small finance banks, Micro Finance Institutions (MFIs), Non-Banking Finance Companies (NBFCs), Regional Rural Banks and Commercial banks can offer MUDRA loans after getting permission from RBI. As of August 2020, the Indian Banks offering MUDRA loans are:

Now that you know about MUDRA Loans, you might want to know more details about MUDRA loan schemes offered by different Indian banks for start-ups and small businesses. Please visit our MSME Loans page for details on such loans, if you are interested.

Seraphinite AcceleratorOptimized by Seraphinite Accelerator
Turns on site high speed to be attractive for people and search engines.