PM Mudra Yojana: who qualifies and how to apply

What it is

MUDRA is a government initiative that supports lending to small, non-farm businesses through banks, small finance banks, NBFCs and microfinance institutions. Importantly, MUDRA does not usually lend to you directly. You apply to one of these lenders, and the loan is provided under the scheme.

The loans are for small business purposes such as shops, food services, small manufacturing, repair and transport businesses. Working capital and equipment purchases both qualify. Loans for agriculture and crop production are generally covered by other schemes.

The three categories

• Shishu: the smallest loans, for people just starting out, up to 50,000 rupees.
• Kishore: for businesses that are established but need more, from above 50,000 up to 5 lakh rupees.
• Tarun: for growing businesses, from above 5 lakh up to 10 lakh rupees. The limit for some categories has been raised in recent years, so check the current ceiling.

Who can apply

Individuals, proprietorships, partnership firms and small companies engaged in a non-farm income-generating activity, with a credit need under the scheme limit, can generally apply. You do not need collateral for a Mudra loan, though the lender will still assess your business plan and repayment ability, and a poor credit record can affect approval.

How to apply

• Prepare a simple business plan or description, and details of how you will use the money.
• Gather documents: identity and address proof, business proof (such as an Udyam registration or trade licence, if you have one), bank statements and, for an existing business, financial records.
• Apply at a bank or other participating lender, or through the government's online portal for the scheme, which routes your application to lenders.
• The lender assesses the application and, if approved, sanctions the loan. Some borrowers also receive a Mudra card, a debit card linked to a working capital account.

Things to know

• Interest rates are set by the lender and vary; the scheme does not fix one rate for everyone. Ask for the rate, fees and repayment schedule before you accept.
• Being eligible does not guarantee approval. Lenders make their own credit decisions.
• Be wary of agents who ask for money to "arrange" a Mudra loan. Applying through the scheme should not require paying a middleman.
• A registered business, for example an Udyam registration for micro enterprises, can make dealing with lenders easier.

A note on the numbers

Loan limits and terms under the scheme are revised by the government and lenders from time to time, so confirm the current details with the lender or the official portal. This is general information, not personal financial advice.