🌟 Mudra Loan Yojana 2025: A Complete Guide for Small Business Owners in India

Last Updated on July 17, 2025 10:29:11 PM by Vivek Makwana

1. 🏦 What is the Mudra Loan Yojana?

The Pradhan Mantri Mudra Yojana (PMMY) is a flagship scheme by the Government of India, launched in April 2015, that provides unsecured business loans to non-corporate micro and small enterprises (MSEs). These loans are offered through banks, NBFCs, and MFIs, and are aimed at empowering small businesses with credit up to Rs20 lakh.

2. 📜 Why Was Mudra Loan Introduced?

According to the NSSO 2013 survey, India had 5.77 crore small/micro units, mostly owned by people from SC, ST, and OBC categories. Over 90% of these businesses lacked access to formal banking. They relied on informal lenders, leading to high-interest loans and limited growth. The Mudra scheme was introduced to bridge this financial gap and empower first-generation entrepreneurs.

3. 🧩 Categories of Mudra Loans

Mudra Loans are divided into 4 segments based on the loan amount:

This categorization helps tailor credit based on the stage of business development.

4. ✅ Who Can Apply? (Eligibility)

The following legal entities are eligible to apply:

• Individuals
• Proprietorship firms
• Partnership firms
• Private Ltd. companies
• Public companies
• Other legally recognized entities

Important Notes:

• Applicant must not be a defaulter to any bank/financial institution.
• Should have a satisfactory credit track record.
• May require skills or experience in the chosen business activity.
• Educational qualification depends on the business nature.

5. 🎯 What Are the Loan Purposes?

The Mudra Loan Scheme under PMMY is specially designed to empower micro and small entrepreneurs by providing them with access to institutional finance. The scheme emphasizes productive and income-generating activities, not personal consumption. Let’s dive deep into the specific purposes for which Mudra loans can be utilized:

🛠️ 1. Purchasing Equipment or Machinery

One of the key uses of Mudra loans is to help small businesses and startups acquire essential tools, machines, or vehicles that are necessary for their operations. For example:

• A tailoring shop can use funds to buy industrial sewing machines.
• A mechanic workshop might invest in vehicle lifts or diagnostic equipment.
• A food business could purchase kitchen appliances or tandoors.
• A construction worker might finance a concrete mixer or drilling machine.

These purchases directly improve productivity and service quality, helping entrepreneurs scale up faster.

🏭 2. Setting Up New Business Units

For aspiring entrepreneurs who have a business idea but lack the capital to start, Mudra provides the support to:

• Rent or renovate a commercial space.
• Procure initial inventory or raw materials.
• Buy basic infrastructure like furniture, fittings, POS systems, etc.
• Set up shops, mobile vans, kiosks, or even small-scale manufacturing units.

Whether you’re opening a beauty salon, a mobile repair shop, or a dairy unit, Mudra loans under the Shishu and Kishor categories are perfect to kickstart your venture.

💼 3. Working Capital for Daily Operations

Working capital is the lifeblood of any business, and Mudra loans can be used to meet:

• Short-term cash flow needs like purchasing raw materials or stock.
• Paying utility bills, rent, or wages during lean periods.
• Managing seasonal demands such as festival sales or bulk orders.
• Ensuring timely supply chain operations.

To simplify this, borrowers can opt for the Mudra Card, a RuPay debit card linked to their sanctioned OD (Overdraft) limit, allowing flexible withdrawals and digital payments as per business needs.

📣 4. Marketing and Promotion Expenses

Today’s businesses thrive on visibility. Whether you operate offline or online, marketing is key to growth. Mudra funds can be used for:

• Designing flyers, banners, hoardings, or local ads.
• Building a website or online store for digital presence.
• Running Facebook or Google ads to promote your services.
• Packaging, branding, and creating logos or uniforms to enhance professionalism.

This helps MSMEs reach new customers, build trust, and grow revenue streams in competitive markets.

📈 5. Expansion of Existing Small Businesses

Entrepreneurs with an existing setup can use Mudra loans to take their business to the next level. Common uses include:

• Opening a second branch or outlet.
• Increasing production capacity by upgrading machinery.
• Adding new services or product lines.
• Hiring additional staff or delivery personnel.
• Extending working hours with better infrastructure (e.g., lights, air conditioning).

Loans under the Tarun and Tarun Plus categories (Rs5 to Rs20 lakh) are well-suited for such expansion needs.

❌ Not Allowed: Personal Consumption or Non-Business Use

It is important to note that Mudra loans are strictly meant for business purposes. You cannot use the funds for:

• Personal purchases (TVs, gold, phones)
• Home renovation
• Education or wedding expenses
• Any speculative or investment activity

Any misuse may lead to rejection of future loans and legal action by the lending institution.

6. 📄 Documents Required for Mudra Loan

Here are common documents required:

• Aadhar Card, PAN Card
• Business registration or license
• Bank statements (last 6–12 months)
• Proof of address (business and personal)
• Photographs
• A well-prepared business plan
• Quotation or invoices (if applying for equipment loan)

(📌 Document list may vary by bank/NBFC)

7. 💳 Mudra Card: Smart Credit Access

The Mudra Card is a powerful tool provided under the Pradhan Mantri Mudra Yojana (PMMY), designed to offer flexible access to working capital for small business owners. Issued as a RuPay debit card, the Mudra Card functions like an overdraft facility linked to the borrower’s Mudra loan account. It enables entrepreneurs to withdraw funds as needed, rather than receiving a lump sum, which helps manage daily business expenses more efficiently. This feature is particularly beneficial for small shopkeepers, street vendors, hawkers, service providers, and rural artisans who require real-time credit access to buy inventory, pay suppliers, or handle emergencies.

With the Mudra Card, business owners can also track their transactions easily through digital banking apps or passbooks, improving transparency and control over business finances. Moreover, it encourages cashless and digital transactions, in line with India’s Digital India initiative, by allowing seamless use at ATMs, PoS machines, and online platforms. The card is accepted nationwide and can be used multiple times within the sanctioned limit, making it a smart and secure alternative to traditional cash loans. Overall, the Mudra Card is a user-friendly innovation that strengthens financial inclusion and empowers micro-entrepreneurs with hassle-free credit access.

8. 💰 Interest Rate, Processing Fees & Repayment

🔢 Interest Rates:

• Determined by individual banks or NBFCs
• Must be reasonable, based on RBI guidelines
• Interest for Shishu loans is often lower

💼 Processing Fees:

• Often waived for Shishu loans
• Minimal charges for Kishor and Tarun categories

📆 Repayment:

• Term Loans: Paid in EMIs with moratorium based on business cash flow
• OD/CC Limits: Reviewed annually, repayable on demand

9. 🔐 Security & Collateral Guidelines

For loans up to Rs10 lakh, no collateral is required under RBI MSME guidelines.

However, lenders may:

• Create a charge over business assets
• Use CGTMSE or Mudra Guarantee for risk coverage
• Ask for DPN (Demand Promissory Note)

✅ This makes Mudra a collateral-free loan option for millions.

10. 📝 How to Apply for Mudra Loan

Apply Only Offline

1. Visit your nearest bank branch (public/private/RRB/Co-op).
2. Ask for PMMY/Mudra Loan application form.
3. Submit the filled form with documents.
4. Attend any interviews or verifications.
5. Wait for sanction and disbursal.

Option B: Apply Online

Visit Bank Official Site:

1. State Bank Of India
2. HDFC Bank
3. IndusInd Bank
4. Canara Bank
5. Union Bank of India
6. Punjab National Bank

🛑 Note: Not all banks offer full online processing. Some may still require in-person verification.

11.📊 Mudra Loan Disbursement Highlights for FY 2023-24

As per official data, Rs5.41 lakh crore worth of Mudra loans were sanctioned in FY 2023-24 across all lending institutions. Here’s a breakdown:

Important Note: The official bank-wise data is available only up to the financial year 2023–24 on Pradhan Mantri Mudra Yojana (PMMY)

🏦 Top 5 Banks by Total Disbursement Amount (Rs Crore)

📁 Disbursement by Loan Category

🧾 Loan Type Breakdown (FY 2023-24)

• Public Sector Banks (e.g., SBI, BOB, PNB): Rs1.17 lakh crore
• Private Sector Banks (e.g., IndusInd, Axis, HDFC): Rs1.74 lakh crore
• RRBs (Regional Rural Banks): Rs35,661 Cr
• NBFC-MFIs: Rs75,175 Cr
• Small Finance Banks: Rs45,190 Cr

12. 🤔 Frequently Asked Questions (FAQs)

Q1: Is there any subsidy under Mudra Loan?

No direct subsidy, but interest may be subsidized under special schemes (e.g., Stand-Up India, state-specific programs).

Q2: What’s the maximum Mudra loan I can get?

You can apply up to Rs20 lakh under Tarun Plus category.

Q3: Can a student apply?

Yes, if they have a viable business idea and necessary skills. Some banks may ask for co-applicants.

Q4: What if my credit score is low?

Some banks may still consider your application if there is no history of default and your plan is solid.

Q5: How long does approval take?

Usually 1–2 weeks, depending on the lender and documentation.

13. 🏁 Final Thoughts

The Mudra Loan Yojana 2025 is a game-changing initiative for small entrepreneurs, youth, women, and self-employed individuals. Whether you’re a street vendor, a freelancer, a beauty parlour owner, or running a local factory, Mudra empowers you with access to credit without collateral.

If you have the drive to start or grow a business, Mudra can be your financial backbone. With simplified processes, digital tools like Mudra Card, and supportive interest rates, it’s the right step towards Atmanirbhar Bharat.