Is a Mudra loan collateral-free?

Yes. Mudra loans are given without any collateral or third-party guarantee. The lending bank is protected instead by a credit guarantee, and micro and small units are covered under schemes such as CGTMSE. This is the whole point of the scheme: it lets small units that own no property still access formal credit. You should never be asked to pledge your house, land or gold for a genuine Mudra loan.

What are the three Mudra loan categories?

There are three categories based on the loan amount. Shishu covers loans up to ₹50,000, aimed at very small and new units. Kishor covers loans above ₹50,000 and up to ₹5 lakh, for businesses that have started and want to grow. Tarun covers loans above ₹5 lakh and up to ₹10 lakh, for established micro units scaling up. You apply under the category that matches the amount you need.

Who is eligible for a Mudra loan?

Any Indian citizen running or starting a non-farm, income-generating micro business in manufacturing, trading, services or allied agriculture activities can apply. That includes shopkeepers, artisans, small manufacturers, food stalls, repair shops, salons, transport operators and more. You should not be a defaulter with any bank, and the business should be a viable micro enterprise with a credit need of up to ₹10 lakh.

How do I apply for a Mudra loan?

You apply through a lending institution: public and private sector banks, regional rural banks, small finance banks, NBFCs and microfinance institutions all offer Mudra loans. Visit the branch or the lender's portal, or use the Udyamimitra platform, fill the Mudra application form, and submit your KYC, business proof and a simple plan of how you will use the funds. There is no separate government office, the bank is your point of contact.

Is there any subsidy on a Mudra loan?

Mudra itself is not a subsidy. It is a refinance and guarantee scheme, so you repay the full loan with interest. What it offers is access to formal, collateral-free credit at reasonable bank interest rates rather than a moneylender's rate. Interest rates vary by lender and by your profile. Some state or sector schemes may add their own benefits on top, but the core Mudra loan is a normal repayable loan.

Mudra Loan: Eligibility, Categories & How to Apply (2026)

If you run a small shop, a food stall, a repair business, a salon or a tiny manufacturing unit and you need money to grow but own nothing to pledge, the Mudra loan was designed for you. It is one of the most useful credit schemes in India for micro businesses, and yet many owners either have not heard of it or think it is complicated. It is not. This guide explains what a Mudra loan is, the three categories, who qualifies, what documents you need, why it needs no collateral, and exactly how to apply through a bank.

What is a Mudra loan?

Mudra stands for Micro Units Development and Refinance Agency. The loan is offered under the Pradhan Mantri Mudra Yojana, usually shortened to PMMY, a central government scheme launched to fund small, non-corporate, non-farm businesses. The idea is simple: millions of tiny enterprises in India are viable and hardworking but cannot get a bank loan because they have no property to offer as security. Mudra fixes that by letting banks lend to them without collateral, backed by a government guarantee.

A Mudra loan can fund working capital, buying equipment, stock, a vehicle for business use, or setting up a small unit. It covers manufacturing, trading, services and activities allied to agriculture such as dairy or poultry. Crop loans and pure farming are not covered. The maximum loan under the scheme is ₹10 lakh.

The three categories: Shishu, Kishor and Tarun

Mudra loans are split into three categories, named after stages of growth. You do not choose a category by preference, you fall into one based on how much you need to borrow.

Shishu: Loans up to ₹50,000. This is the starter tier, meant for brand new and very small units taking their first step.
Kishor: Loans above ₹50,000 and up to ₹5 lakh. For a business that has already started and now wants stock, tools or space to grow.
Tarun: Loans above ₹5 lakh and up to ₹10 lakh. For an established micro unit ready to scale up meaningfully.

Run your business, get paid faster

IndiaCRM does GST invoicing, khata, leads and reports in one free app, the records you need for loans and licences too. See IndiaCRM or create your free account.

Who qualifies for a Mudra loan

Eligibility is deliberately broad, because the whole point is financial inclusion for the small end of the economy. You qualify if you are an Indian citizen with a non-farm, income-generating micro business, or a plan to start one, and a credit need of up to ₹10 lakh.

Kind of business: Shopkeepers, traders, artisans, small manufacturers, food vendors, service providers, transport operators and allied-agriculture units all qualify.
Clean record: You should not be a defaulter with any bank or financial institution.
Viability: The business should be a genuine micro enterprise that can generate income and repay the loan.
No minimum turnover barrier: Even brand-new units can apply under Shishu, which is what makes it different from most business loans.

Documents you need

The paperwork for a Mudra loan is light, especially in the Shishu category. Keep these ready and the process moves quickly.

Identity and address proof: Aadhaar, PAN, voter ID or passport, plus recent photographs.
Business proof: Any registration you have, such as GST, Udyam registration, a shop licence, or a rent agreement for the premises.
Quotation of items to be bought: If you are buying machinery or equipment, a supplier quotation.
Bank statements: For larger Kishor and Tarun loans, the last 6 to 12 months of statements.
A simple business plan: A short note on what you do and how you will use the money, mainly for Kishor and Tarun.

Why it needs no collateral

A Mudra loan is collateral-free by design. You do not pledge your home, land, gold or any asset. The bank is comfortable lending because micro and small loans are covered by credit guarantee schemes, notably CGTMSE, which reimburses the lender if a covered loan goes bad. This protection is what allows a first-generation entrepreneur with no property to still walk into a bank and get funded. If any lender demands security or a bribe for a Mudra loan, that is a red flag, the scheme does not require it.

How to apply for a Mudra loan

There is no separate Mudra office. You apply through a lending institution, and almost every kind of formal lender participates: public and private sector banks, regional rural banks, small finance banks, NBFCs and microfinance institutions.

Choose a lender: Start with the bank where you already hold your current account, since your history is already there.
Get the form: Ask for the Mudra application form at the branch, or apply online through the lender's portal or the Udyamimitra platform.
Attach documents: Submit your KYC, business proof, quotations and, for larger amounts, statements and a short plan.
Assessment and sanction: The bank checks your details and viability, sanctions the loan, and may issue a Mudra card, which works like a credit facility for your working capital.

Interest, repayment and the Mudra card

A Mudra loan is a normal loan, so you repay it with interest. The rate is decided by each lender within the guidelines and depends on your category, your profile and the loan type. Working capital under Mudra is often given as a Mudra card, a RuPay debit card linked to a cash credit limit, which lets you draw and repay flexibly and pay interest only on what you actually use. Term loans for buying equipment are repaid in EMIs over the agreed tenure. Because there is no collateral, the lender leans heavily on your business record to decide the amount, so steady bank inflows and filed GST returns work strongly in your favour. Pay your instalments on time from the first month, since a clean Mudra repayment record builds the credit history that helps you graduate from Shishu to Kishor to Tarun and eventually to a larger business loan.

The stronger and cleaner your business records, the faster and larger your sanction. That is where keeping organised books pays off directly. IndiaCRM gives a micro business proper GST invoices, a khata ledger and simple reports for free, so when you sit across from a loan officer you have real numbers to show rather than a diary. If you have not set up the basics yet, our guides on getting a GST number and opening a business current account pair naturally with a Mudra application, and the fuller business loan guide covers what to do once you outgrow Mudra.