The Pradhan Mantri Mudra Yojana (PMMY) is one of the most accessible funding schemes for small businesses in India. Since its launch in 2015, over 47 crore loans have been sanctioned under the programme. Yet most small business owners either don’t know it exists, apply incorrectly, or get discouraged by their first bank visit.

This guide covers the full picture: what Mudra loans actually are, the three categories, who qualifies, what documents you need, how to apply, and how to improve your chances of approval.

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What is a Mudra loan?

Mudra stands for Micro Units Development and Refinance Agency. It’s a government initiative that provides refinancing support to banks, NBFCs, and microfinance institutions so they can lend to micro and small businesses at affordable rates without requiring collateral.

In simple terms: the government takes on the risk so banks are willing to lend to you even if you don’t have property or assets to pledge.

The three Mudra loan categories

Category	Loan amount	Best for
Shishu	Up to ₹50,000	New businesses just starting out, street vendors, small artisans
Kishore	₹50,001 to ₹5 lakh	Businesses that need working capital or small equipment purchases
Tarun	₹5,00,001 to ₹10 lakh	Established businesses looking to expand operations

Shishu loans have the highest approval rates and often come with zero processing fees. If you’re starting out, begin here.

Who is eligible?

Eligibility is intentionally broad. You qualify if you are an Indian citizen with a non-farm business activity or a plan to start one. This includes shopkeepers, food vendors, tailors, salon owners, small manufacturers, transport operators, artisans, repair service providers, and freelancers with a business plan.

There is no minimum turnover requirement. There is no minimum income requirement. There is no collateral requirement. You do not need an existing bank relationship with the lender.

The only exclusion: farm-related activities like crop cultivation are not covered under PMMY. Allied agricultural activities like food processing, dairy, and fisheries are eligible.

Documents you need

The exact requirements vary slightly by bank, but this is the standard list:

• Completed Mudra loan application form (available at the bank)
• Passport-sized photographs (2)
• Identity proof: Aadhaar card, voter ID, PAN card, or driving licence
• Address proof: Aadhaar, utility bill, or rent agreement
• Business proof: if the business already exists — shop registration, Udyam registration certificate, GST certificate, or any licence
• Quotation for machinery or equipment (for Kishore/Tarun loans)
• Business plan or project report (especially for Kishore and Tarun categories)
• Bank statements for the last 6 months (if you have an existing account)
• Category certificate (SC/ST/OBC/minority, if applicable — for priority processing)

For Shishu loans, documentation requirements are minimal. Many banks approve them with just Aadhaar + a basic business description.

How to apply: step by step

Option 1: Walk into any bank branch. Every public sector bank, most private banks, regional rural banks, and many NBFCs and MFIs are authorised Mudra lenders. Walk in, ask for the Mudra loan desk or the MSME lending officer, and submit your application. This is still the most common and effective method.

Option 2: Apply online via Udyamimitra. Visit udyamimitra.in, create an account, fill in your details and loan requirement. The portal matches you with nearby lenders and forwards your application. It’s useful but slower than walking into a branch directly.

Option 3: Apply through a microfinance institution (MFI). If you’re in a rural or semi-urban area and don’t have easy bank access, MFIs that are Mudra lending partners can process your loan. Organisations like Bandhan Bank, Ujjivan, and many local MFIs participate.

How to improve your approval chances

Banks are incentivised to lend under PMMY, but they still assess basic creditworthiness. Here’s what improves your odds:

• Have a clean credit history. Check your CIBIL score before applying. A score above 650 helps significantly. If you have defaults on existing loans, clear them first.
• Prepare a simple business plan. Even a one-page document explaining what the business does, how the loan will be used, and projected revenue makes a strong impression. Most applicants don’t bother — this makes you stand out.
• Get your registrations in order. Having MSME/Udyam registration and GST registration (if applicable) signals that you’re serious. Both are free.
• Apply at a bank where you have a relationship. An existing savings or current account with the bank speeds up processing considerably.
• Start with Shishu. If you’re a first-time borrower, a Shishu loan is far easier to get approved. Repay it on time, and your next application for a Kishore or Tarun loan becomes much smoother.

Interest rates and repayment

Mudra loans don’t have a fixed interest rate set by the government. Each bank sets its own rate, typically between 8–12% per annum depending on the category, your credit profile, and the bank’s policy.

Repayment tenure is usually 3–5 years, with EMIs starting after a moratorium period (often 6 months to 1 year for Tarun loans). Shishu loans may have shorter tenures of 1–3 years.

There is no prepayment penalty — you can repay early without extra charges.

What if the bank rejects your application?

Banks cannot refuse a Mudra loan without giving a valid reason. If rejected, ask for the reason in writing. Common reasons include low credit score, incomplete documentation, or an unclear business plan. Fix the issue and reapply — either at the same bank or a different one. You are not limited to one bank.

You can also escalate to the bank’s grievance cell or file a complaint on the PMMY portal if you believe the rejection was unfair.

Mudra loan vs other MSME funding options

Feature	Mudra loan	CGTMSE-backed loan	PMEGP subsidy
Max amount	₹10 lakh	₹5 crore	₹50 lakh (mfg) / ₹20 lakh (svc)
Collateral	Not required	Not required	Bank loan portion may need
Subsidy	No	No (guarantee only)	15–35% of project cost
Best for	Micro businesses, first-time borrowers	Growing SMEs needing larger capital	New manufacturing/service enterprises

For a complete overview of all available schemes, read our guide to 10 government schemes every small business should know.

Frequently asked questions

Is Mudra loan only for new businesses?
No. Both new and existing businesses can apply. The Shishu category is designed for startups, while Kishore and Tarun are meant for existing businesses needing growth capital.

Can women entrepreneurs get priority?
Yes. PMMY has a special focus on women borrowers. Many banks have dedicated schemes and faster processing for women-owned businesses.

Do I need to register my business before applying?
Not necessarily for Shishu loans. But having Udyam registration and basic business documentation significantly improves your chances for all categories.

Can I get a Mudra loan if I already have another loan?
Yes, as long as you’re not a defaulter on existing loans. Your total borrowing will be assessed against your repayment capacity.

How long does approval take?
Shishu loans can be approved in 7–14 days. Kishore and Tarun loans typically take 2–4 weeks depending on documentation completeness and the bank’s processing speed.

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Last updated: March 2026. This guide is based on the latest PMMY guidelines and common bank practices across India.