MSME Finance · PM Mudra Yojana · India · 2026
Mudra Loan — collateral-free government-backed finance for micro businesses
Collateral-freeShishu / Kishor / TarunFor micro enterprisesGovernment-backed
Where: India
A Mudra loan funds a micro enterprise without collateral, across Shishu, Kishor and Tarun tiers.
Scheme
PM Mudra Yojana (PMMY)
Tiers
Shishu, Kishor, Tarun (+ Tarun Plus)
Apply via
Bank / NBFC / MFI / Jan Samarth
A Mudra loan is one of India’s most useful routes to small business finance: launched under the Pradhan Mantri Mudra Yojana (PMMY), it gives collateral-free loans to non-farm micro enterprises — shopkeepers, artisans, small manufacturers, service providers and first-time entrepreneurs — through banks, NBFCs and micro-finance institutions.
This guide explains how Mudra loans work in 2026: the Shishu, Kishor, Tarun and Tarun Plus categories, who is eligible, the indicative terms, the documents, and how to apply through your bank or the Jan Samarth portal. Rates and specifics are set by the lender and vary, so always confirm current terms.
✓Collateral-free✓Shishu/Kishor/Tarun tiers✓For non-farm micro units✓Working capital or equipment✓Govt credit guarantee✓Apply via bank or Jan Samarth
What is a Mudra Loan?
Mudra loans are structured in categories by amount: Shishu (the smallest, for very early-stage needs), Kishor (mid-size), and Tarun (larger, up to ₹10 lakh), with a Tarun Plus tier (up to ₹20 lakh) for borrowers who have successfully repaid a Tarun loan. The finance can be used for working capital, equipment, stock or business expansion.
The defining feature is that these loans are collateral-free, supported by a government credit guarantee, so lenders can fund micro units that lack security. The lender sets the interest rate (broadly in line with its MSME rates) and appraises your business idea, basic KYC and repayment ability. Timely repayment builds your credit history and unlocks larger tiers.
Features and benefits
Key features of a Mudra loan
A Mudra loan’s big advantages are no collateral and government backing, with amounts scaled to your stage via the Shishu/Kishor/Tarun tiers. It suits micro enterprises and first-time entrepreneurs who cannot access a regular business loan, and repaying on time opens higher tiers and a stronger credit profile.
| Scheme |
PM Mudra Yojana (non-farm micro enterprises) |
| Categories |
Shishu, Kishor, Tarun (+ Tarun Plus) |
| Collateral |
Not required (credit-guarantee backed) |
| Use |
Working capital, equipment, stock, expansion |
Interest rates, fees and charges
Indicative terms and charges
Mudra interest rates are set by the lending bank, NBFC or MFI (broadly within their MSME range) rather than a single fixed figure, and depend on the category, your profile and the institution. The headline benefit is no collateral and often low or nil processing fees under the scheme. Always confirm the current rate and any charges with the lender before you borrow.
| Interest rate |
Set by the lender (MSME range); no collateral |
| Processing fee |
Often low or waived under the scheme |
| Amounts |
Shishu (smallest) → Tarun (up to ₹10 lakh) → Tarun Plus (up to ₹20 lakh) |
| Guarantee |
Government credit guarantee backs the loan |
Note: Indicative only, not a quote. Mudra terms vary by lender and category and change over time — confirm the current rate, amount and eligibility with the bank or on the official/Jan Samarth portal.
Eligibility
Who is eligible
- ✓An Indian resident running or starting a non-farm micro enterprise — trading, manufacturing, services or allied activities.
- ✓A viable business idea/plan and basic KYC; a reasonable credit history helps.
- ✓Choosing the category (Shishu/Kishor/Tarun) that matches your funding need.
- ✗Agricultural activities are generally excluded (other schemes cover farming).
- ✗Large, established businesses better suited to a regular business or MSME term loan.
Documents you usually need
Keep these ready (as applicable)
- ✓Aadhaar and PAN (KYC of the applicant)
- ✓Business proof/plan and details of the funding need
- ✓Bank account details and any existing business records
- ✓Quotations/estimates for equipment or stock, where relevant
- ✓Category/other proofs as the lender or scheme asks
How to apply
1
Pick your category
Match your need to Shishu (smallest), Kishor or Tarun, and prepare a simple plan and KYC.
2
Choose a lender or the Jan Samarth portal
Apply at a bank/NBFC/MFI branch or through the official Jan Samarth portal, which routes eligible applicants to lenders.
3
Submit and get appraised
Provide your KYC, plan and estimates; the lender appraises your business and repayment ability. No collateral is required.
4
Sanction and disbursal
On approval, the loan is sanctioned collateral-free under the guarantee and funds reach your business account. Repay on time to unlock higher tiers.
EMI, repayment and prepayment
Repayment and building your credit
Repay in EMIs or per the working-capital terms. Timely repayment does double duty: it clears the loan and builds your credit history, which unlocks the next tier — repaying a Tarun loan can open Tarun Plus. Keep business and personal money separate, maintain simple records, and use digital payments to create a track record that eases larger borrowing later. Borrow within what your cash flow can comfortably service.
What decides your approval and your rate
Because a Mudra loan is collateral-free and scheme-backed, approval rests on a viable business, your basic KYC, and a reasonable credit history. A clear plan, honest records, and timely repayment of any past dues all strengthen your case.
Choose the right category for your need rather than over-borrowing, and remember the credit guarantee and low fees often make a Mudra loan far better value than a costly unsecured personal loan for business use. Ask the lender which category and terms you qualify for.
Smart tips before you borrow
✓Pick the right category✓Keep simple business records✓Repay on time for higher tiers✓Use digital payments✓Compare lenders’ rates✓Borrow within cash flow
Frequently asked questions
What is a Mudra loan?
A collateral-free loan under PM Mudra Yojana for non-farm micro enterprises, given through banks, NBFCs and MFIs across the Shishu, Kishor and Tarun categories (with a Tarun Plus tier). It funds working capital, equipment, stock or expansion for small businesses.
What are the Shishu, Kishor and Tarun categories?
They are amount-based tiers: Shishu is the smallest (early-stage), Kishor is mid-size, and Tarun is larger (up to ₹10 lakh), with a Tarun Plus tier (up to ₹20 lakh) for borrowers who have repaid a Tarun loan.
Is a Mudra loan collateral-free?
Yes. Mudra loans are collateral-free, supported by a government credit guarantee, so lenders can fund micro enterprises that lack security. This is one of the scheme’s main advantages.
What interest rate applies?
Rates are set by the lending bank, NBFC or MFI (broadly within their MSME range), not a single fixed figure, and vary by category and profile. Confirm the current rate with the lender — these are indicative, not quotes.
How do I apply for a Mudra loan?
Pick your category, prepare KYC and a simple plan, and apply at a bank/NBFC/MFI or through the official Jan Samarth portal. On appraisal, the loan is sanctioned collateral-free and funds reach your business account.
Who is eligible for a Mudra loan?
Indian residents running or starting a non-farm micro enterprise (trading, manufacturing, services), with a viable plan and basic KYC. Agricultural activities are generally excluded, and large established businesses suit a regular business loan better.
Final word
A Mudra loan is a genuinely accessible, collateral-free way for a micro entrepreneur to fund a business — scaled to your stage through the Shishu, Kishor and Tarun tiers and backed by a government guarantee. Pick the right category, keep clean records, apply through your bank or Jan Samarth, and repay on time to unlock higher tiers. Done well, it builds both your business and your credit history.
Disclaimer: This article is general financial information for awareness only and is not financial advice, a loan offer, or a recommendation of any lender. Interest rates, fees, eligibility and terms vary widely by lender, loan amount, tenure and your own credit profile, and change over time — the figures here are indicative ranges, not quotes. Always check the lender’s current rates and terms, read the sanction letter carefully, and compare offers before you borrow. Borrow only what you can comfortably repay.
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