Pradhan Mantri Yojana Scheme Explained

Posted on: Sep 3, 2025 | 3 mins | Written by: HDFC ERGO Team

Pradhan Mantri Yojana Scheme Explained

Starting a small business or being self-employed can be challenging, especially when it comes to getting the funds. Many people either lack sufficient collateral to offer as security or struggle to obtain loans from banks. To make things easier, the government launched the Pradhan Mantri Mudra Yojana (PMMY) in 2015. This flagship scheme helps start-ups and small businesses get the money they need to grow.

What is Pradhan Mantri Mudra Yojana (PMMY)

The Pradhan Mantri Mudra Yojana (PMMY) is a major scheme launched by the Government of India to support small businesses. Under this scheme, loans of up to INR 20 lakhs are offered to small businesses. This includes those engaged in manufacturing, trading, services, and allied agricultural activities, such as poultry, dairy, and beekeeping.

These loans are provided by approved banks and financial institutions to small, non-corporate entities. This includes a wide range of people, such as shopkeepers, street vendors, small factory workers, truck drivers, repair shop owners, food sellers, artisans, and more — basically, anyone running a small business to earn a living. Along with financial assistance, having a health insurance policy is also important for these individuals to safeguard their well-being and manage unexpected medical expenses.

Objectives of Pradhan Mantri Mudra Yojana

The objectives of the Pradhan Mantri Yojana scheme are:

• To provide easy loans to small businesses and startups, especially in rural and underdeveloped areas.

• To create local jobs by helping micro-enterprises grow and hire more people.

• To support women entrepreneurs by giving them better access to funding.

• To bring informal or unregistered businesses into the formal economy so they can grow and be recognised officially.

• To empower underprivileged groups by giving them the financial support they need to start their own businesses.

• To reduce dependence on moneylenders by offering safer and more affordable loan options.

• To help non-farm businesses like those in trading, services and manufacturing with the funds they need.

Loan Categories Under PMMY Scheme

The Pradhan Mantri Mudra Yojana offers loans under four categories, based on the stage and needs of the business:

• Shishu:

Offers loans of up to INR 50,000 for new businesses.

• Kishore:

Gives loans from INR 50,001 to INR 5 lakh for businesses that are growing and need more funds.

• Tarun:

Gives loans from INR 5 lakh to INR 10 lakh for established businesses looking to expand further.

• Tarun Plus:

Gives loans from INR 10 lakh to INR 20 lakh to entrepreneurs who have successfully repaid their earlier Tarun loan and now need higher funding.

Eligibility Criteria of PMMY Scheme

The following is the eligibility criteria for the Pradhan Mantri Mudra Yojana scheme:

• The applicant must be an Indian citizen and at least 18 years old.

• The applicant must either run or plan to start a small business in areas such as manufacturing, trading, services, or activities related to agriculture (e.g., dairy, poultry).

• They must apply as an individual or legal business entity, such as:

• Sole proprietor (individual business owner)

• Partnership firm

• Private limited company

• Public limited company

• Any other legally recognised business form

• The applicant must not have a history of loan defaults with any bank or financial institution. They should have a good credit track record.

• The person applying should possess the basic knowledge and skills necessary to run the business. In some cases, a certain level of education may be needed, depending on the type of business.

PMMY Loan Application Process

You can apply for a PM Mudra loan either online or offline. Here's how:

Online Process:

1. Go to the official website of any participating bank or financial institution.

2. Fill out the Pradhan Mantri Mudra Yojana (PMMY) loan application form with accurate business details.

3. Upload the necessary documents.

4. Wait for the verification process. If approved, the loan amount will be sent to your bank account.

Offline Process:

Visit the nearest branch of a participating bank and apply for a PM Mudra loan in person.

Documents Required under PMMY

Here are the documents you need to submit when applying for a PM Mudra loan:

• Filled PMMY application form.

• ID proof like Aadhaar card, PAN card, or Voter ID.

• Address proof such as utility bills, Aadhaar card, or passport.

• Business proof, like a trade licence, registration certificate, or similar documents.

• Quotation or estimate for the machinery or items you plan to buy.

• Bank statements from the last six months.

• Recent passport-sized photos.

These are the basic documents that you must submit. However, depending on your loan amount and type of business, the bank may ask for additional documents.

Benefits of Pradhan Mantri Mudra Yojana

Here are the main benefits of the Pradhan Mantri Mudra Yojana loan:

1. Brings small businesses into the formal system: It brings small and informal businesses into the official banking system. This helps improve their credit history and transparency, which can help them grow in the long run.

2. Designed for India’s needs: The entire scheme is tailored to meet India’s social and economic conditions, with a focus on the specific needs of small business owners.

3. Supports lenders with refinancing: MUDRA provides funds to banks, NBFCs, and microfinance institutions, enabling them to offer more loans to small businesses. This boosts lending and keeps the system running smoothly.

4. Easier access to credit: One of the biggest benefits of the scheme is that small business owners can obtain loans easily, without needing to provide collateral. This helps them avoid relying on informal moneylenders.

5. Lower interest rates: Thanks to refinancing and risk-sharing mechanisms, these loans often come with lower interest rates, making them more affordable for borrowers.

6. Creates jobs: When small businesses grow with Mudra loans, they often hire more people, helping create jobs in the community.

Conclusion

If you are starting a new business or want to grow your existing one, the Pradhan Mantri Mudra Yojana scheme can provide the financial support you need. It offers easy, collateral-free loans at affordable rates through banks and other lenders. This makes it easier for new and small entrepreneurs to become financially independent.

Along with financial support for your business, it is also important to take care of your health. That is where health insurance comes in. It helps cover unexpected medical costs and protects your savings, so your business plans can stay on track even if you face a health emergency.

FAQ

1. Who can apply for a Mudra loan?

Anyone running a small business or planning to start one, like shopkeepers, small manufacturers, artisans and service providers, can apply for a Mudra loan.

2. What is the highest loan amount one can get under the PMMY scheme?

One can avail of loans of up to INR 20 lakh under the scheme.

3. What is the interest rate for Mudra loans?

The interest rate for Mudra loans is deregulated. The government has asked the approved banks and financial institutions to charge reasonable interest rates.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

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