Your Guide to MUDRA Loans Interest Rate, Documents and More

Updated on: 14 Dec 2021 // 20 min read // Business Loans
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Are you running a Micro, Small, or Medium Enterprise? Whether, it is in the infancy phase or an adolescence state, chances are that you require some financial assistance to accomplish your business goals, or to fulfil your financial obligations. Either way, relying on Government Loan Schemes for small businesses can prove to be of great help. One such project is the Micro-Units Development and Refinance Agency Loan, also known as MUDRA Loan or MUDRA Yojana.

For the uninitiated, MUDRA Loan is essentially a financial initiative launched by the Government of India, on April 8th, 2015, under the Pradhan Mantri Jan Dhan Yojana. The scheme aims at offering collateral free credit to the 577 crores + micro, small and medium businesses, currently functioning across the nation.

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Let us take a closer look at the intricate details of this Noteworthy Loan Scheme for small businesses.

Key Objectives of the MUDRA Loan

The MUDRA Loan was launched to meet a wide array of objectives, the most prominent of which are as follows:

  • To lay down the policy guidelines for financing small/ micro enterprises.

  • To encourage the registration of all the Microfinance Institutions as well as related entities for regulating easy lending for small and micro enterprises.

  • To promote the development and growth of small businesses.

  • To aid the establishment, and expansion of companies in the lower income groups.

  • To make finance accessible for people belonging to unbanked groups, and to offer help in reducing the cost of funding for them.

  • To provide assistance in lending preference to people belonging to SC/ST categories.

  • To regulate Microfinance Institutions, for trading, manufacturing, and service.

MUDRA Loan Interest Rates and Loan Limits

MUDRA Loans are divided into three distinct categories, based on the stage of business growth. The level of your business primarily determines your eligibility limit. Let us take a quick look at these categories and unfold their characteristics.

  • Shishu

As the name indicates, this category is for businesses in their nascent stage, wherein they can avail a loan amount of up to Rs. 50,000. The interest in this category of loans is 12% per annum, while the repayment period is four years.

  • Kishor

This category is designed for established businesses that are in need of working capital. The loan amount offered under this category is between Rs. 50,000 and Rs. 5 lakh. In this case, the interest is determined by the bank which is providing the loan, on the basis of the applicant’s repayment history. The repayment tenure is also dependent on the alternatives available with the bank.

  • Tarun

Designed for well-established businesses requiring additional funds for business expansion, Tarun category offers loan amounts of up to Rs. 10 lakh. As is the case with ‘Kishor,’ the interest for ‘Tarun’ is also determined by the bank which is offering the loan, on the basis of the repayment history. The repayment tenure is also dependent on the alternatives available with the bank.

As of today, 60% of the MUDRA Loans are slated to be offered under ‘Shishu,’ while the remaining constitute loans under ‘Kishor’ and ‘Tarun’ combined.

Institutions offering MUDRA Loans

Currently, MUDRA Loans are disbursed by:

  • 27 Public Sector Banks,
  • 31 Regional Rural Banks,
  • 17 Private Sector Banks,
  • 36 Microfinance Institutions,
  • 25 Non-Banking Financial Institutions,
  • and 4 Co-Operative banks

Purpose of MUDRA Loans

The loan amount disbursed under these loans can be used for one of the following objectives –

  • Purchase of a Car
  • Purchase of a Commercial Vehicle
  • Purchase of a Two-wheeler
  • As Working Capital
  • Purchase or Set Up of Plant and Machinery
  • Revamping of Business Space

Eligibility for MUDRA Loans

In order to procure a MUDRA Loan, you must own a non-farm business which generates income through trading, manufacturing or services. Besides, the credit need of your business must be less than Rs. 10 lakh. Moreover, you should not be a defaulter to any financial institution in the past.

You can conveniently apply for a business loan under this scheme, by approaching any of the financial institutions facilitating the Mudra finance. Ensure application form is duly filled. In addition to the form, you must submit the following MUDRA Loan documents:

  • Quotation for the Vehicle/Machinery/Item to be purchased
  • Details, price as well as the supplier details of the Vehicle/Machinery/Item
  • Identity Proof of Business
  • Address Proof of the Business
  • Category Proof if any

If approved, you will not require a processing fee or collateral for disbursement of the Mudra Loan.

Also Read: Learn all about Government Loan Schemes for Small Businesses

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