Understanding Mudra Loan Interest Rates With Its Key Insights

Securing financial support is crucial for the growth of small businesses, and the Mudra loan has become a reliable aid for countless entrepreneurs across India. Understanding the mudra loan interest rate is essential for anyone considering this option, as it directly influences the overall affordability of the loan. 

This post will discuss how these rates are determined and what you need to know to make an informed decision about applying for a Mudra loan.

Overview of Mudra Loan Interest Rates

The interest rates for Mudra loans are intentionally set to support small business owners by maintaining affordability. These rates vary by lender and the specific loan category within the Pradhan Mantri Mudra Yojana (PMMY). Typically linked to the Marginal Cost of Funds based Lending Rate (MCLR), the rates may also incorporate additional charges such as service fees imposed by banks or non-banking financial companies (NBFCs). This variability ensures the financing terms can adapt to different business needs and financial situations, providing an adapted approach to each borrower.

Factors Influencing Mudra Loan Interest Rates

Several factors contribute to the determination of interest rates for Mudra loans:

  • Lender’s Policy: Each financial institution’s lending policy influences how it sets interest rates.
  • Loan Amount: The amount borrowed can affect the rate, with larger amounts attracting lower interest rates.
  • Repayment Period: Longer repayment periods might come with higher interest rates to offset the risk of extended lending.
  • Borrower’s Credit Profile: An applicant’s credit history and business performance can significantly impact the rates offered. Those with a strong credit history may receive more favourable rates.

Mudra Loan Interest Rate and Charges

Understanding the interest rates and additional charges associated with Mudra Loans is essential for borrowers to grasp the full financial impact of their loan. Below is a detailed breakdown of the interest rates and charges for different enterprise types and loan amounts:

Loan Amount Range

Enterprise Type

Interest Rate Calculation

Up to Rs. 50,000

Micro Enterprises

MCLR + Service Provider Charge


Small Enterprises

MCLR + Service Provider Charge

Rs. 50,001 to Rs. 2 lakhs

Micro Enterprises

MCLR + SP Charge + Bank Loan


Small Enterprises

MCLR + SP Charge + Bank Loan

Rs. 2 lakhs to Rs. 10 lakhs

Micro Enterprises

MCLR + SP Charge + Bank Loan


Small Enterprises

MCLR + SP Charge + Bank Loan

This table provides a clear view of how interest rates are formulated based on the loan amount and the type of enterprise. The rates are generally anchored to the Marginal Cost of Funds based Lending Rate (MCLR), with additional charges that could include service provider fees and bank-specific loans. This tiered approach ensures the financing cost is aligned with the borrowing capacity and needs of different business sizes.

Exploring the Categories of Mudra Loans

Mudra loans are divided into three categories, each tailored to different stages of a business’s development:

  • Shishu: Covers loans up to Rs. 50,000 for businesses in their initial stages.
  • Kishore: Offers loans from Rs. 50,000 up to Rs. 5 lakhs for businesses looking to expand.
  • Tarun: Provides loans from Rs. 5 lakhs to Rs. 10 lakhs for well-established businesses aiming for further growth.

The interest rates may differ from one category to another, generally increasing with the loan amount.

How to Get the Best Mudra Loan Interest Rate

Securing the best possible interest rate can significantly reduce the cost of your business loan. Here are some tips:

  • Maintain a Good Credit Score: A high credit score can greatly improve your chances of securing a lower interest rate.
  • Compare Different Lenders: Don’t settle with the first offer you get; compare what different lenders are offering.
  • Negotiate with the Lender: Sometimes, it is possible to negotiate a better rate if you have a strong negotiation position.
  • Opt for the Right Loan Category: Choose the loan category that fits your business needs and financial capacity.

Benefits of Competitive Interest Rates

Lower interest rates mean reduced monthly payments and lead to significant long-term savings on the total interest paid. This financial relief allows business owners to allocate more capital towards essential growth initiatives like marketing, upgrading technology, and improving infrastructure. 

Consequently, securing a competitive mudra loan interest rate is crucial for enhancing your business’s operational efficiency and expanding market reach, contributing directly to its sustainability and success in an increasingly competitive environment.


The interest rate on a Mudra loan plays a crucial role in determining how beneficial this financial support will be for your business. By understanding the factors that influence these rates and how they vary across different loan categories, you can better prepare for your application and optimise your chances of getting favourable terms. 

Remember, every percentage point saved on interest enhances your business’s ability to thrive and expand.