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Micro-business owners hear about Mudra loans but do not know the bands or what the lender still checks.
Mudra offers collateral-free loans in bands of up to ₹50,000, ₹5 lakh, ₹10 lakh and, for repeat borrowers, ₹20 lakh; lenders still assess income and repayment capacity.
Pick the band that fits the need, keep business receipts flowing through one account, clear existing overdue EMIs and avoid returned debits before applying.
A right-sized Mudra application supported by a bank statement that shows steady income and manageable obligations.
A Mudra loan is a collateral-free loan under Pradhan Mantri Mudra Yojana (PMMY) for non-farm micro businesses such as small shops, workshops, tailoring units and service providers. Banks, NBFCs and microfinance lenders give these loans in bands named Shishu, Kishore and Tarun, plus Tarun Plus for borrowers who have repaid a Tarun loan.
PMMY was launched on 8 April 2015. MUDRA, the Micro Units Development and Refinance Agency, refinances lenders under the scheme.
What are the bands?
The Union Budget 2024-25 raised the scheme ceiling from ₹10 lakh to ₹20 lakh, and the new Tarun Plus band was notified in October 2024.
| Band | Loan size | Typical borrower |
|---|---|---|
| Shishu | Up to ₹50,000 | A new street vendor, home-based business or first-time borrower |
| Kishore | Above ₹50,000 to ₹5 lakh | An established small shop or unit wanting to grow |
| Tarun | Above ₹5 lakh to ₹10 lakh | A growing business needing equipment or more stock |
| Tarun Plus | Above ₹10 lakh to ₹20 lakh | A borrower who has taken and repaid a Tarun loan |
The loan can be a term loan for equipment or a working-capital limit, sometimes given through a Mudra card that works like a debit card against the limit. Interest rates are set by each lender within RBI rules, so they vary.
Does collateral-free mean no credit check?
No. Collateral-free means the lender does not take your shop, house or gold as security. Lenders are covered instead by the Credit Guarantee Fund for Micro Units (CGFMU). But the lender still has to believe you can repay. It typically checks:
- Credit history. No current default to any bank or lender.
- Business proof. Udyam registration, shop licence or GST registration where applicable.
- Bank statements. Usually six to twelve months, read for regular income, existing EMIs, returned debits (payments that bounced for lack of funds) and cash deposits.
- A short business plan. What the money is for and how it will earn.
For a small borrower without audited accounts, the bank statement is often the strongest evidence available.
Worked example: a ₹3,00,000 Kishore request
Fatima runs a tailoring unit in Lucknow and applies for ₹3,00,000 under Kishore to buy two industrial machines.
Her lender reads twelve months of statements:
- Average monthly credits: ₹38,000, mostly UPI from customers.
- Existing EMI: ₹2,500 a month on a mobile phone loan.
- Returned debits: one in twelve months, three months ago, cleared the next day.
Suppose the new loan runs for 36 months at 12 percent a year. The EMI is about ₹9,964. Total EMIs would be ₹9,964 + ₹2,500 = ₹12,464, which is about 33 percent of ₹38,000 of monthly credits (₹12,464 ÷ ₹38,000 = 0.328).
Many lenders are comfortable with obligations of that size relative to income, but each lender sets its own policy. The single returned debit is noted but not decisive. If her credits had been ₹20,000, the same EMIs would take 62 percent of income, and the lender would likely offer a smaller amount.
How can you strengthen a Mudra application?
- Route customer payments into one account so the income is visible.
- Clear any overdue EMI before applying.
- Avoid bounced payments in the three months before you apply.
- Ask for the band that matches the real need, not the maximum.
Are there fees on a Mudra loan?
Many banks waive processing fees on Shishu loans, and fees on larger bands vary by lender. Ask for every charge in writing before you sign, including any guarantee fee the lender passes on. Be wary of agents who promise a guaranteed Mudra loan for a fee: applications go directly to lenders or through the official portals, and no middleman can promise approval.
What to read next
- Next in this series: What is CGTMSE and how does it help an MSME get a loan without collateral?
- Cash flow analysis from MSME bank statements
- MSME credit without audited financials
- Bank statement analysis for MSME lenders
TransactIQ helps MSME lenders read small-borrower bank statements, including co-operative and PSU bank formats, into income, obligation and cash-flow signals.