Mudra Loan Explained: Shishu, Kishor, Tarun & Tarun Plus

The Pradhan Mantri Mudra Yojana (PMMY), commonly called a Mudra loan, is a Government of India scheme offering collateral-free loans to small and micro, non-farm businesses. It's structured in tiers based on how much funding your business needs, rather than as a single fixed loan product.

The four categories

Shishu: loans up to ₹50,000, aimed at very early-stage or small businesses
Kishor: loans from ₹50,001 up to ₹5 lakh, for businesses with some operating history
Tarun: loans from ₹5 lakh up to ₹10 lakh, for more established small businesses
Tarun Plus: loans from ₹10 lakh up to ₹20 lakh — this tier was introduced for entrepreneurs who have previously taken and successfully repaid a Tarun-category loan

The loan limit under PMMY was raised to ₹20 lakh with the introduction of Tarun Plus; if you've seen older information citing a ₹10 lakh ceiling, that reflects the scheme before this expansion.

Collateral and guarantee

Mudra loans are collateral-free at the borrower level. Lenders are supported by the Credit Guarantee Fund for Micro Units (CGFMU), which provides risk coverage to the bank or NBFC — this is what allows them to lend without asking for property or other security.

Who can apply

Any non-corporate, non-farm small or micro enterprise involved in manufacturing, trading, services, or allied agricultural activities (such as dairy, poultry, or food processing) is eligible. Mudra loans are available through commercial banks, regional rural banks, small finance banks, NBFCs and microfinance institutions.

Note: Interest rates under Mudra are not fixed by the government — each lender sets its own rate, generally linked to their MCLR or base rate, plus a margin. Rates vary meaningfully across lenders, which is worth comparing before you commit.

Choosing the right tier

It's tempting to apply for the highest tier you might qualify for, but lenders scrutinise larger loan categories more closely — Tarun and Tarun Plus applications typically require more documentation and a clearer business plan than Shishu or Kishor. If you're newer to formal borrowing, starting at the tier that matches your actual current need (and stepping up later) is often a smoother path than over-reaching on the first application.

"Mudra is designed as a ladder, not a single loan — Tarun Plus exists specifically for businesses that have already proven themselves at the Tarun level."

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