Large scale industries have never had any difficulty in securing credit for their enterprises, because of the perception that they offer the highest employment opportunities to the general population. It is shocking to find out that, large industries employ only 1.25 crore people countrywide. It is the small scale industries which falls under the unorganized sector that employs around 12 crore people in the country. Despite this fact, they always experience a shortage of credit facilities. It is to combat this situation that the Prime Minister envisaged the Micro Units Development & Refinance Agency Ltd (MUDRA) scheme.

MUDRA bank, the formation of which was announced by Hon'ble Finance Minister Shri Arun Jaitley during the Union Budget session of FY 2015-16, was formed with the main goal of empowering small businesses and entrepreneurs. Accordingly, it was launched by the Hon'ble Prime Minister Shri Narendra Modi on 8th April, 2015. There are several provisions under the scheme to assist the MSME sector, that will fully meet customer needs and will effectively cover certain locations that ordinary banks are unable to cover. 

What Is The MUDRA Scheme?

Mudra is a refinancing scheme, offered to banks and microfinancing institutions. This scheme is an entirely-owned subsidiary of SIDBI and provides banks and microfinancing institutions with refinancing facilities against the loans they have provided to small businesses to promote the development of these micro-units. This scheme is primarily aimed at MSME units across the country. It was established with the sole purpose of funding and saving small entrepreneurs from abuse by money lenders and helping 1.5 crore new entrepreneurs in developing small businesses.

The Mudra scheme offers loans that do not need collateral. Under this arrangement there is no fixed rate of interest on the loans availed. Interest is charged at the base rate plus 1–7%. This can also be higher, depending on the risk involved and the profile of the customer.

Loans of up to Rs.10 lakhs are available through Commercial Banks, RRBS, Cooperative Banks, NBFC, MFI, etc. to eligible companies. The borrowers can approach nearby branches of the lending institutions or apply online for loans under the MUDRA scheme.

Why Is MUDRA Being Hailed As A Great Scheme For MSMEs?

The MUDRA scheme has been a boon to the MSME sector by giving collateral free financing to these budding enterprises. 

  • Refinance support to banks and NBFCs to facilitate higher funds available for lending

  • Onward lending to business entities involved in manufacturing, trading, services, tractor financing, agriculture and allied activities, and two-wheeler loans

  • MUDRA also empowers MSME entities through financial literacy and other social support services in addition to financial assistance

  • MUDRA has three loan schemes under it – Sishu loan up to Rs. 50,000, Kishore loan up to Rs. 5 lakhs and Tarun loan up to Rs. 10 lakh

What Are The Benefits Of The MUDRA Scheme?

In our nation there are so many remote places where the poor are unable to access normal and ordinary banks. The MUDRA scheme’s main objective is to take financial aid to such remote places and serve those people who are in great need of a banking service. This scheme will provide all banking services such as savings accounts, loans, credit cards and some other special benefits to deserving beneficiaries. The authorized capital of MUDRA at present is Rs.1000 crores and paid up capital is Rs.750 crore, fully subscribed by SIDBI. More capital is expected to enhance the functioning of MUDRA.

Micro Finance is an economic development tool that seeks to provide people at the bottom of the pyramid with income-generating opportunities. This covers a range of programs that include many other credit plus services, financial literacy, and other social support services in addition to providing credit.

SIDBI would be responsible for developing and refinancing all sectors of micro-enterprises by supporting financial institutions engaged in lending to micro/small businesses engaged in manufacturing, trading and service activities. MUDRA will partner with banks, MFIs and other government/regional lending institutions to provide microfinance funding to the country's micro-enterprise sector.

What Are Some Of The Advantages Of The MUDRA Loan Scheme?

The MUDRA Yojana scheme offers the following advantages over other MSME financing schemes in the market: 

  • There is no collateral needed for this loan, so you can borrow without losing any personal or business property.

  • In the event of default, the government assumes responsibility for paying the loan.

  • This loan is most beneficial to entrepreneurs looking to set up their micro enterprise.

  • You can use this loan to fund, develop and expand your company with up to Rs.10 lakh funding.

  • The MUDRA Yojana scheme is available for small businesses in both urban and rural areas.

  • Women borrowers can get better benefits due to lesser interest rates.

  • The tenor of the loan may be extended to even 7 years, or you may choose to repay your loan within a shorter period of time.

  • Helps you to meet the working capital needs of your company.

  • Being part of the Pradhan Mantri Jan-Dhan Yojana, this loan also allows you to take advantage of the overdraft facility balance of up to Rs.5000.

  • One can also apply for a MUDRA debit card that provides them with hassle-free instant access to funds.

What Are Some Salient Features Of The MUDRA Yojana Scheme?

  • The loan scheme comes in 3 schemes - Shishu, Kishore and Tarun schemes . The loan amount is capped at Rs.50,000, Rs.5 lakh and Rs.10 lakh for each scheme respectively.

  • The scheme offers very affordable and reasonable interest rates, approximately 8.40 – 12.45%.

  • A nominal processing fee may be charged, as per the MUDRA Yojana details specified in your lender’s loan fine print. Most lenders generally waive off the fee for the ‘Shishu’ category.

  • The repayment tenure for this loan is fixed based on your cash flow capacity and the declared assets. A few lenders place a cap of 5 years on the loan tenure. You can also avail refinance from MUDRA for a maximum of 36 months.

Which are the sectors that are covered under the MUDRA Yojana scheme?

  • Transport: for purchase of vehicles such as rickshaws, 3 wheelers, small goods vehicles, taxis, etc.

  • Personal services like men’s saloons, beauty parlours, gymnasiums, boutiques, dry cleaning, medicine shops, tailoring shops, etc.

  • Food products production and packing facilities like papad making, jam making, sweet shops, ice cream making, canteen services, etc.

  • Agriculture and allied services like pisciculture, poultry, livestock, Agro-processing, bee keeping, rearing, etc.

  • Textile: Handloom, khadi activity traditional embroidery, vehicle accessories, etc.

  • Business: Traders, shopkeepers, service enterprises, non-farm income activities, etc.

What are the important credit schemes under the Pradhan Mantri MUDRA Yojana?

The MUDRA Yojana has a few different schemes under different categories. 

Micro-credit scheme: Micro-enterprises, self-help groups and joint-liability groups can get up to Rs.1 lakh through micro-finance institutions. 

Women Enterprise Program: This program, also known as the Mahila Uddyami Yojana, offers interest rate concessions of up to 0.25% on loans to women business owners at affordable rates.

Refinance scheme for Banks: This scheme allows borrowers such as commercial banks, regional rural banks, and scheduled cooperative banks to refinance loans up to Rs.10 lakh if they have provided micro-enterprises credit based on requirements.

Mudra Card overdraft: This card provides beneficiaries to make the most of overdraft facilities in addition to allowing debit transactions and withdrawals from ATMs. It also makes a mechanism for cash-credit to access working capital financing.

Credit Guarantee Fund: This fund was created to provide finance to increase accessibility and ease of lending to micro units.

Equipment Finance Scheme: This scheme provides limited equipment finance with an emphasis on enabling businessmen to buy and update their machinery.

How To Apply For MUDRA Scheme?

The MUDRA scheme offers a very simple way of applying to the finance scheme. To make it easier, the scheme is streamlined into 3 categories: 

  • Shishu: Start-ups seeking a loan up to an amount of Rs. 50,000 can apply for a loan under this classification. The rate of interest would be 10–12%.
  • Kishor: Unestablished business units seeking a loan amount of Rs. 50,000 up to Rs.5 lakhs can apply for a loan in this category and will have to bear an interest rate of 14–17%.
  • Tarun: Established businesses looking for expansion of their existing unit can apply for a loan under this category with funding of up to INR 10lacs. The interest rate ranges above 16%. 

The loan processing is as below: 

  • The applicant prepares a business proposal

  • Select the category (Shishu, Kishor, Tarun) under which he wants to apply

  • Visit a private or public bank where you can apply for a Mudra loan

  • Submit a completed loan application form together with recent passport size photographs, identity proof and proof of address

  • Complete any other formalities required by the bank

Once you are deemed eligible by the bank to secure a loan under the Mudra Scheme, the loan is disbursed in the form of a pre-loaded Mudra Card that comes personalized with your name on it. This is a RuPay debit card that is attached to the Pradhan Mantri Jan Dhan Yojana Savings Account and allows you to conveniently withdraw from any ATM when purchasing for your business. The cash withdrawal limit is set at Rs.25,000 per day and includes cash credit and current deposit accounts as well.

End note:

Due to their lack of credible financial information and the assumption that it does not produce as much revenue, the MSME sector has long been ignored. As a result, this very strong sector's growth has suffered because of lack of access to capital. The Mudra scheme solves this very issue by providing them with convenient access to free services. With the support of MUDRA Yojana, women entrepreneurs and those who belong to Scheduled Castes, Scheduled Tribes or Other Backward Classes can get the funding required to earn a decent living through micro-enterprises. PM Modi revealed on May 29, 2018 that financial institutions have extended loans up to Rs.6 lakh crore to more than 12 crore recipients, 28 percent of whom are first-time entrepreneurs. The Government plans to mobilise an additional amount of Rs.1 lakh crore into the market most of which will be directed towards the Shishu category.


  1. Who are the primary beneficiaries of the Mudra Scheme?

The Mudra scheme is primarily aimed at the MSME sector. 

  1. What is the maximum finance available under the Mudra Scheme?

The Mudra scheme offers financial aid of up to Rs.10 lakhs, without any collateral. 

  1. What are the loan categories under the Mudra Scheme?

Under the Mudra scheme, there are 3 categories - Shishu, Kishore and Tarun schemes. The loan amount is capped at Rs.50,000, Rs.5 lakhs and Rs.10 lakhs for each scheme respectively.

  1. What is the average interest rate under the Mudra Scheme?

The scheme offers very affordable and reasonable interest rates, which ranges from about 8.40% to 12.45%. 

  1. Where should one apply for loans under the Mudra Scheme?

Eligible applicants can apply for loans at their nearest public sector or private sector banks. Most banks are enabled to process loans under the Mudra Scheme.