No, collateral is not required for a Mudra loan. Under the Pradhan Mantri Mudra Yojana (PMMY), all loans up to ₹10 lakh are collateral-free as per Reserve Bank of India (RBI) guidelines. Lenders cannot ask for any security or third-party guarantee.

What is a Mudra Loan?

The Pradhan Mantri Mudra Yojana (PMMY) was launched in April 2015 by the Government of India to support micro and small enterprises, particularly in the non-farm and non-corporate sectors. The scheme is monitored by MUDRA Ltd., a subsidiary of SIDBI (Small Industries Development Bank of India).

The objective is to extend collateral-free institutional credit to:

  • Small shopkeepers

  • Street vendors

  • Service providers

  • Artisans

  • Food processors

  • Repair workshops

  • Small manufacturers

Is Collateral Required for Mudra Loan?

✅ 100% No – Collateral is NOT Mandatory

According to RBI’s Master Circular on Lending to MSME Sector and PMMY guidelines:

“Banks shall not insist on collateral security in the case of loans up to ₹10 lakh extended to units in the MSE sector.”

This policy ensures that small business owners who lack assets or property can still access formal credit.

Credit Guarantee through CGFMU

Even though no physical collateral is required, banks are protected through:

  • Credit Guarantee Fund for Micro Units (CGFMU)

  • Managed by NABARD and backed by the Indian Government

  • Offers risk coverage to banks in case of loan defaults

This eliminates the need for lenders to seek security from the borrower while protecting their own interests.

Who Can Offer Mudra Loans?

Mudra loans are available through multiple lending institutions:

  • Public Sector Banks (SBI, PNB, Bank of Baroda, etc.)

  • Private Banks (ICICI, HDFC, Axis Bank, etc.)

  • Regional Rural Banks (RRBs)

  • Micro Finance Institutions (MFIs)

  • Non-Banking Financial Companies (NBFCs)

  • Small Finance Banks (SFBs)

All these institutions must follow PMMY norms and cannot demand any collateral from borrowers.

The Mudra loan scheme is truly transformative for India’s small and micro businesses. By eliminating the need for collateral, it opens up credit access for individuals who might otherwise be excluded from the financial system. Whether you’re starting a business or growing one, the PMMY provides a safe, structured, and collateral-free way to fund your dreams.