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Pradhan Mantri Mudra Yojana (PMMY): Features, ROI and much more

Updated: Dec 26, 2023

Pradhan Mantri Mudra Yojna

In India, one of the biggest challenges faced by the Non-Corporate Small Business Segment (NCSB) which comprises proprietorship, partnership firms, small manufacturing units, service sector units, shopkeepers, etc is lack of financial support. To resolve this issue, the Prime Minister of India (Government of India) launched the Pradhan Mantri Mudra Yojana (PMMY) on April 8, 2015 (Union Budget for FY 2016).

In this scheme, MUDRA stands for Micro Units Development and Refinance Agency Ltd., which is a financial institution set up for the development and refinancing of micro-unit enterprises. MUDRA is liable for refinancing Financiers (such as Commercial Banks, NBFCs, Micro Finance Institutions, Small Finance Banks, Regional Rural banks and so on) who will further finance or provide loans to Micro or small business entities engaged in manufacturing, trading, service activities and Agri-allied activities (like poultry, dairy, fishery, sericulture, apiculture and so forth).

Category of Loan Schemes

There are different loans available as per the stage of growth and funding needs of the borrower i.e., micro unit or entrepreneur. The financial limit of these schemes:

Shishu: Up to Rs 50,000

Kishor: Rs 50001 – Rs 5 lakhs

Tarun: Rs 500001 – Rs 10 lakhs


Mudra card offers working capital finance in the form of Cash Credit or Overdraft to the borrower. It is a RuPay Debit Card through which borrowers can withdraw cash from an ATM or business correspondent or use it in a Point-of-sale Machine. It provides credit facilities to the borrower in a hassle-free and flexible manner.

Features of MUDRA Loan

1. Lenders: PMMY Loans apply to all banks all over India.

2. Borrower: Borrower/ Applicant must be an Indian citizen. Applicants can be any Individual, proprietary concern, partnership firm, private limited company or any other such entity can apply for a MUDRA loan.

3. Type of loan: Generally, MUDRA loans are unsecured as banks have been mandated not to emphasize or urge on collateral. Lenders provide loans based on the proposal only.

4. Nature of Facility: Working Capital and Term Loan.

5. Maximum Amount: Under the PMMY scheme, the maximum loan amount is Rs 10 lakh.

6. Terms and Conditions: The T&C of loan (including repayment terms) will be structured as per the rules and regulations of the lender and broad guidelines of the Reserve Bank of India.

7. Processing Charges: The lender may or may not levy upfront fees or processing charges on the borrower which differs from one lender to another. For instance, the Bank of Baroda charges zero processing fee for the MUDRA loan.

Benefits of the MUDRA Loan Scheme

1. No collateral is required for obtaining loan which is a significant constraint faced by small and medium enterprises while raising funds through loan.

2. No minimum loan amount under the Mudra scheme which enables borrower to borrow any amount needed for the business.

3. Mudra loan scheme offers longer repayment tenure which provides borrower abundant time for repayment. For example, the Bank of Baroda offers Working capital loan borrowers with one year repayment period.

Rate of Interest charged by MUDRA

MUDRA offers its customers access to finance at reasonable and affordable price which are declared by Member Lending Institutions (Banks & Financial Institutions) from time to time as per RBI Guidelines. By using different innovative financing means (such as technology) to reduce the cost of funding for the borrower. Here are the market interest rates offered by different lenders:

Bank of Maharashtra: 9.30% pa

Union Bank of India: 10.55% pa

Tamilnad Mercantile Bank: 9.35% pa

State Bank of India: Linked to MCLR

IDBI Bank: Linked to Bank’s Base Rate and Rating

It is to be kept in mind that while choosing the lender for loan, interest rate is not the sole criteria, along with it multiple other considerations needs to be checked such as tenure, repayment terms, loan amount and so on.

How to Apply for Mudra Loan?

A borrower can apply for Mudra Loan both online and offline.

1. Application form: The applicant needs to fill out the application form either by visiting the nearest branch or bank’s website and provide details about the loan category, business enterprise and funds required by the applicant.

2. Documentation: Along with the application form, the applicant needs to submit documents such as an Aadhar Card, PAN card, Business ID, Address Proof and so on as per the guidelines of the lender.

3. Verification: The lender will evaluate and verify the loan application before approving the application.

4. Disbursement of Funds: Once the application is approved, the bank will disburse the funds in the new Mudra Loan Account of the borrower with a Mudra Card.

To get more detailed information about the MUDRA Loan provided by the lender, the applicant may contact the lender

While applying for the Loan, the borrower should perform due diligence compare offerings made by different lenders and choose the one that caters for the needs of the borrower most appropriately.

For other interesting conceptual topics please visit our other contents:

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