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MUDRA LOAN

Mudra loans are provided under the Pradhan Mantri Mudra Yojana (PMMY) to encourage entrepreneurship and strengthen India’s small business ecosystem. These loans are categorized into Shishu, Kishor, and Tarun, based on the stage and funding needs of the business, ensuring that entrepreneurs at every level get the support they require. One of the major advantages of Mudra loans is that they are collateral-free, making them easily accessible to first-time business owners, women entrepreneurs, and individuals from rural and semi-urban areas. The scheme not only promotes self-employment and job creation but also contributes to economic growth by empowering millions of small enterprises to scale up their operations efficiently and confidently.

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Description

Mudra loans are categorized into three schemes: 

Shishu: This scheme provides loans up to ₹50,000 to micro-enterprises in their early stages. It targets entrepreneurs who need a small amount of capital to start their ventures.

Kishor: Under this scheme, loans ranging from ₹50,000 to ₹5,00,000 are provided to businesses that have already started and need funds for expansion.

Tarun: This scheme offers loans ranging from ₹5,00,000 to ₹10,00,000 to established businesses looking for further growth and development.

These loans are typically collateral-free and are available through various banks, microfinance institutions, and non-banking financial companies (NBFCs) that are

registered under the Mudra Yojana scheme. The government aims to promote entrepreneurship and boost economic growth by providing accessible credit facilities to small businesses through the Mudra loan scheme.


Frequently Asked Questions

Browse practical answers curated by our CA and CS desks for MUDRA LOAN.

Purpose & Applicability
Key Requirements & What To Include
Procedure & Compliance
Benefits, Risks & Best Practices

Purpose & Applicability

The Pradhan Mantri MUDRA Yojana (PMMY) is a government initiative that provides financial support to non-corporate, non-farm micro and small enterprises engaged in manufacturing, trading, or service sectors.

New or existing micro-enterprises, proprietorships, partnerships, small businesses, and individuals running income-generating activities in eligible sectors can apply.

The scheme was launched to provide easy access to credit for small entrepreneurs who lack collateral or a formal credit history, promoting financial inclusion and entrepreneurship.

Activities like setting up or expanding manufacturing units, trading businesses, service enterprises, equipment purchases, and allied agricultural services are eligible.

Key Requirements & What To Include

The applicant must be an Indian resident running a legitimate business in an eligible sector, not a defaulter to any bank, and applying within the loan limit set by the scheme.

  • Shishu: Loans up to ?50,000
  • Kishore: Loans above ?50,000 and up to ?5 lakh
  • Tarun: Loans above ?5 lakh and up to ?10 lakh

No, MUDRA loans are primarily collateral-free, especially for smaller loan amounts under the “Shishu” category.

Required documents include identity and address proof, business registration or license (if applicable), bank statements, project report, and basic KYC documents.

Procedure & Compliance

Applicants can approach any participating bank, NBFC, or microfinance institution with the necessary documents and apply under the appropriate loan category.

Repayment terms vary by lender and category but generally range from 3 to 7 years, including a possible moratorium period.

The borrower must use funds strictly for business purposes, maintain repayment discipline, and adhere to the terms set by the lender.

Violating terms or defaulting on repayments can result in penalties, withdrawal of benefits, or recovery actions by the lending institution.

Benefits, Risks & Best Practices

Benefits include collateral-free credit, simple processing, lower interest rates compared to informal loans, and financial empowerment for small entrepreneurs.

Borrowers should ensure timely repayment, maintain business viability, and use funds only for business-related purposes to avoid future complications.

Avoid applying without a clear business plan, misusing funds, neglecting repayment schedules, or failing to maintain records of business expenses.

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