Mudra Loan Yojana: Shishu, Kishore, Tarun and Tarun Plus Explained

The Mudra loan yojana, officially the Pradhan Mantri MUDRA Yojana (PMMY), gives collateral-free business loans of up to ₹20 lakh to small, non-farm enterprises in India. It covers shopkeepers, tailors, food vendors, repair shops, small manufacturers and service providers. Moreover, you do not apply to MUDRA itself. Instead, you borrow from a bank, small finance bank, NBFC or microfinance institution that lends under the scheme.

This guide explains each loan category, who qualifies, what it costs and how to apply without getting stuck. Additionally, it shows real EMI figures, so you can judge the repayment before you walk into a branch.

Quick answer: Mudra loan yojana offers collateral-free loans in four slabs: Shishu (up to ₹50,000), Kishore (₹50,000 to ₹5 lakh), Tarun (₹5 lakh to ₹10 lakh) and Tarun Plus (₹10 lakh to ₹20 lakh, only for borrowers who repaid an earlier Tarun loan). Banks, NBFCs and MFIs lend under the scheme at their own interest rates.

What Is Mudra Loan Yojana?

The Government of India launched the Pradhan Mantri MUDRA Yojana in April 2015 to fund the “unfunded” small businesses that banks often ignored. MUDRA stands for Micro Units Development & Refinance Agency Ltd. It works as a refinance agency under SIDBI. In other words, it supports lenders, and lenders support you.

As a result, the loan contract under the Mudra loan yojana is always with your bank or lender. MUDRA’s role is to refinance those loans and set the rules. Meanwhile, the Credit Guarantee Fund for Micro Units (CGFMU) guarantees these loans, which is why lenders can skip collateral.

Who lends under the Mudra scheme?

Member Lending Institutions disburse every Mudra loan. These include:

• Public and private sector banks, such as SBI, Bank of Baroda, PNB, Canara Bank and HDFC Bank
• Regional Rural Banks and cooperative banks
• Small Finance Banks
• Non-Banking Financial Companies (NBFCs) and Microfinance Institutions (MFIs)

Because each lender prices the loan on its own, two banks can quote different rates for the same profile. Therefore, comparing at least two lenders is worth the effort. You can browse our business loan and scheme guides for bank-specific walkthroughs as they go live.

Mudra Loan Yojana Categories: Shishu, Kishore, Tarun and Tarun Plus

The Mudra loan yojana sorts loans by the stage of your business. As a result, each slab matches a typical need, from buying a first sewing machine to expanding a small workshop.

How Tarun Plus works

Tarun Plus came from the Union Budget 2024-25 announcement on 23 July 2024. The higher limit took effect on 24 October 2024. However, it is not open to everyone. Only borrowers who took a Tarun loan earlier and repaid it successfully can apply. Additionally, CGFMU now guarantees these larger loans, so they stay collateral-free.

Who Is Eligible for a Mudra Loan?

The Mudra loan yojana targets income-generating micro enterprises. Broadly, you qualify if you meet these conditions:

• You are an Indian citizen, or the business is a proprietorship, partnership or similar non-corporate unit.
• Your activity is in manufacturing, processing, trading or services, or in an activity allied to agriculture.
• You have a viable business plan with a clear source of repayment.
• You are not a defaulter with any bank, and your credit history is acceptable.
• Your loan need fits within ₹20 lakh, and within ₹10 lakh unless you qualify for Tarun Plus.

Eligible and ineligible activities

Note that individual lenders add their own checks. For example, most banks review your CIBIL score, existing EMIs and the stability of your income. Consequently, under the Mudra loan yojana a clean credit file matters as much as the scheme rules.

Mudra Loan Interest Rate, Fees and Repayment

The Mudra loan yojana does not fix one interest rate. Instead, each lender links its rate to an internal benchmark and adds a spread based on your risk. Public sector banks are usually cheaper than NBFCs and MFIs. Therefore, always ask for the rate in writing, along with all charges.

• Interest: varies by lender, profile and tenure. Expect private lenders and MFIs to cost more than public sector banks.
• Processing fee: many banks waive it for Shishu loans, while Kishore and Tarun loans may carry a fee as per bank policy.
• Tenure: lenders commonly allow repayment over 3 to 7 years, sometimes with a short moratorium.
• Collateral: none required. The loan is covered under CGFMU.
• MUDRA card: a RuPay debit card that lets you draw working capital as needed, so you pay interest only on what you use.

Mudra loan yojana EMI examples

The table below uses the standard EMI formula. Rates are illustrative, not quotes. To try your own numbers, use the free Mudra loan EMI calculator.

A simple rule helps here. Therefore, keep your total EMIs below about 40–50% of the business’s monthly surplus. Otherwise, one weak month can push you into a default.

Documents Required for Mudra Loan Yojana

Paperwork under the Mudra loan yojana is lighter for Shishu loans and grows with the loan size. Still, preparing everything in advance speeds up approval.

For Kishore and above, a clear project report makes a real difference. You can build one in minutes with our free project report maker, which prepares cost of project, profitability, DSCR and break-even tables.

How to Apply for Mudra Loan Yojana: Step by Step

You can apply for the Mudra loan yojana at a branch, through a lender’s app or website, or through SIDBI’s Udyamimitra portal. Moreover, the steps below work for any route.

1. Fix the amount and purpose. List what you will buy and get written quotations.
2. Prepare a short business plan. Include expected sales, costs and how the EMI will be paid.
3. Register your business. A free Udyam registration helps, and some lenders ask for it.
4. Choose two or three lenders. Compare interest, processing fee and tenure.
5. Submit the application. Attach KYC, business proof, quotations and bank statements.
6. Attend verification. The bank may visit your shop or unit and ask about your plan.
7. Sign and receive funds. Disbursement usually goes to the supplier or your business account.

Mudra Loan Yojana vs PMEGP vs CGTMSE

However, the Mudra loan yojana is not the only route to collateral-free credit. In fact, two other schemes often fit better, depending on your project size and whether you want a subsidy.

If a subsidy matters to you, check your numbers with the PMEGP loan calculator. For bigger loans, the CGTMSE fee calculator shows the guarantee cost year by year.

Why Mudra Applications Get Rejected

Branch managers see the same Mudra loan yojana mistakes again and again. Fortunately, most of them are easy to fix before you apply.

• Vague purpose: “business expansion” with no quotation or plan.
• Weak repayment logic: the EMI is larger than the realistic monthly surplus.
• Poor credit record: past defaults or many recent loan enquiries.
• Mismatched documents: different names or addresses across KYC papers.
• Wrong category: asking for Tarun Plus without a repaid Tarun loan.
• No business footprint: no bank transactions, registration or premises to verify.

Moreover, overstating sales rarely helps. Bankers compare your claims with your bank statement and local benchmarks. A modest, believable projection usually wins.

Mudra Loan Yojana for Women Entrepreneurs

Women run a large share of the micro units that use the Mudra loan yojana. In fact, the scheme’s design suits home-based and small-shop businesses that women often start, such as tailoring, beauty services, tiffin services and handicrafts.

Some lenders also offer a small interest concession to women borrowers under their own policies. However, the concession is not uniform. Therefore, ask each bank whether it offers a women-specific Mudra rate, and get the answer in writing.

• Start small: a Shishu or Kishore loan builds a credit record quickly.
• Use the MUDRA card: it keeps working capital flexible when sales are seasonal.
• Keep business and home accounts separate: this makes your bank statement far more convincing.

What Happens If You Cannot Repay a Mudra Loan?

A Mudra loan is collateral-free, but it is still a loan. If you miss EMIs for more than 90 days, the bank classifies the account as a non-performing asset (NPA). As a result, your CIBIL score falls, and future borrowing becomes difficult for years.

Instead of going silent, talk to your branch early. Banks can reschedule EMIs, extend the tenure or restructure the loan in genuine cases. Meanwhile, the CGFMU guarantee protects the lender, not the borrower. In other words, the guarantee does not cancel your liability.

Mudra Loan Yojana in Numbers

Overall, the scale of the Mudra loan yojana shows how widely banks now use it. According to the Ministry of Finance, more than 52 crore Mudra loan accounts received sanctions worth over ₹33.65 lakh crore in the scheme’s first ten years, up to April 2025.

For a new borrower, therefore, these numbers carry a simple message. Banks are familiar with Mudra files, so a well-prepared application moves faster than many people expect.

Is a Mudra Loan Right for Your Business?

Consider a tailor in Indore who wants two industrial machines and fabric stock worth ₹2 lakh. A Kishore loan at 11% over three years costs about ₹6,548 a month. If the extra machines add ₹15,000 of monthly profit, the loan pays for itself with room to spare.

Now compare a café owner who needs ₹30 lakh for a full fit-out. Clearly, the Mudra loan yojana cannot cover that amount. Therefore, a CGTMSE-backed term loan or PMEGP, if eligible, fits better. In short, match the scheme to the size and stage of your plan.

Frequently Asked Questions About Mudra Loan Yojana

Getting the Most from Mudra Loan Yojana

Mudra loan yojana works best when you treat it as a business tool, not a windfall. Start with the smallest amount that achieves your goal. Build a clean repayment record. Then move up the slabs, from Shishu to Kishore to Tarun, and finally Tarun Plus if your business keeps growing.

Before you apply, run your numbers once more. Check the EMI on the Mudra EMI calculator, prepare a short report with the free project report tool and explore more free business tools. For other funding routes, return to the Business Reports homepage for fresh guides each week.