Mudra Yojana: Shishu, Kishore, Tarun Categories and ₹20 Lakh Loan Limit

Mudra Yojana is the Government of India’s flagship credit programme for non-corporate, non-farm micro and small enterprises. The Pradhan Mantri MUDRA Yojana (PMMY) was launched on 8 April 2015 by Prime Minister Narendra Modi to “fund the unfunded” — the millions of micro-entrepreneurs who run shops, tea stalls, beauty parlours, small workshops, and last-mile delivery businesses but had no formal credit access. Mudra Yojana works through a refinancing institution, MUDRA (Micro Units Development and Refinance Agency Ltd), and a network of partner banks, non-banking financial companies, and microfinance institutions.

Mudra Yojana has cumulatively sanctioned over ₹33.6 lakh crore through more than 53 crore loan accounts between launch and February 2026. It is the single largest formal channel of microcredit in India, accounting for nearly 75 per cent of all loans of under ₹10 lakh sanctioned to non-corporate borrowers. This explainer covers the design of Mudra Yojana, the three classic categories — Shishu, Kishore, Tarun — the new Tarun Plus tier with a ₹20 lakh ceiling introduced in 2024, partner institutions, NPA concerns, and the current disbursement pattern.

Origin: Why Mudra Yojana Was Needed

The NSS 70th Round (2013) found that only 4 per cent of non-corporate, non-farm enterprises had access to institutional credit. The other 96 per cent depended on moneylenders, friends and family, or trade credit, all at significantly higher cost. The financial inclusion gap was concentrated in micro enterprises — about 6.34 crore units according to the NSS Enterprise Survey, employing nearly 12 crore workers.

The Vinod Rai Committee on the Micro and Small Enterprises Refinance Agency had recommended a dedicated refinance institution in 2014. The Union Budget 2015-16 announced MUDRA Bank as a subsidiary of SIDBI with a corpus of ₹20,000 crore and a credit guarantee fund of ₹3,000 crore. The Pradhan Mantri MUDRA Yojana was the lending scheme operated through this refinance window.

The Three Classic Categories

Mudra Yojana classifies loans into three categories named after stages of childhood — Shishu (infant), Kishore (adolescent), and Tarun (youth). The three categories correspond to graduating loan sizes that match the lifecycle of a micro-enterprise.

Shishu Category

Shishu covers loans up to ₹50,000. It is designed for nascent enterprises — a vegetable cart, a roadside tailoring unit, or a small home-based food business. Shishu has been the dominant category in numbers — about 84 per cent of all PMMY accounts since launch — but a much smaller share by value. The Centre has prioritised Shishu lending for first-time borrowers, women entrepreneurs, and SC/ST enterprises.

Kishore Category

Kishore covers loans above ₹50,000 and up to ₹5 lakh. This is the working-capital and modest-expansion tier — for traders graduating from a single counter to a slightly larger shop, or a vehicle repair business buying its first piece of equipment. Kishore accounts make up about 13 per cent of total PMMY accounts and around 35 per cent of disbursement value.

Tarun Category

Tarun covers loans above ₹5 lakh and up to ₹10 lakh. This category targets micro enterprises crossing into formal book-keeping and basic mechanisation — small auto-component units, food processing micro-units, or beauty parlours setting up multiple chairs. Tarun is the smallest by number of accounts (about 3 per cent) but the largest by value at launch design.

Tarun Plus: The 2024 Enhancement

Mudra Yojana’s most consequential reform in nearly a decade was announced in the Union Budget 2024-25 on 23 July 2024. The Finance Minister introduced a new tier called Tarun Plus for entrepreneurs who had previously borrowed and successfully repaid a Tarun loan. Tarun Plus raised the maximum loan ceiling under Mudra Yojana to ₹20 lakh, doubling the previous Tarun cap.

Tarun Plus is not open to first-time borrowers. The eligibility is tied to a repayment track record — the entrepreneur must have completed a Tarun loan cycle and demonstrated regular repayment. This conditional graduation design is one of the few examples in Indian banking of a step-up product targeted explicitly at “good repayers” of microcredit. The Ministry of Finance notified operational guidelines in October 2024 and lending under Tarun Plus began from 1 November 2024.

By February 2026, over 1.4 lakh borrowers had availed Tarun Plus loans worth about ₹18,500 crore.

Partner Institutions

Mudra Yojana works through a wide network of Member Lending Institutions (MLIs). The four categories of MLIs are: scheduled commercial banks (public sector banks, private sector banks, foreign banks, and regional rural banks); small finance banks; non-banking financial companies (NBFCs); and microfinance institutions (MFIs).

Scheduled commercial banks remain the dominant channel. Public sector banks account for about 43 per cent of cumulative disbursement, private sector banks for 26 per cent, regional rural banks for 11 per cent, NBFCs and MFIs for 20 per cent. Among individual lenders, State Bank of India, Bank of Baroda, Bank of India, and Canara Bank lead the public-sector list. In the private sector, Bandhan Bank — by virtue of its microfinance roots — has the highest PMMY exposure.

MUDRA Ltd itself does not lend directly. It refinances MLIs, gives interest subvention support during stress events (such as the 2 per cent Shishu interest subvention during COVID-19), and operates a Credit Guarantee Fund for Micro Units (CGFMU) that protects MLIs against default up to a cap.

Credit Guarantee Fund

CGFMU, set up under the National Credit Guarantee Trustee Company, provides portfolio-level credit guarantee cover to MLIs on their PMMY loans. The cover is 50 per cent of the loan amount with a ceiling on cumulative pay-outs. CGFMU has helped private banks and NBFCs scale PMMY lending without taking the full default risk on micro-enterprises.

NPA Concerns

The non-performing asset (NPA) ratio of Mudra Yojana has been the subject of recurring debate. RBI’s Financial Stability Report (June 2025) put the PMMY NPA ratio at 3.4 per cent, up from 2.3 per cent in 2019-20 but lower than the broader MSME segment NPA of 4.2 per cent.

NPAs vary widely by category. Tarun loans, with larger ticket sizes and better-vetted borrowers, have NPA below 2 per cent. Kishore is at about 2.8 per cent. Shishu has the highest stress at about 4.3 per cent, partly because of the smallest borrowers’ vulnerability to local demand shocks and the cost of recovery being often higher than the loan value itself.

The Standing Committee on Finance (2024) flagged the rising Shishu NPA and recommended a graded interest subvention for Shishu and a streamlined small-amount recovery framework. The Reserve Bank has separately tightened classification norms for small-ticket loans, with effect from April 2025.

Target Groups

Mudra Yojana targets four specific groups in its operational guidelines. First, women entrepreneurs — about 68 per cent of PMMY accounts have been held by women, the highest gender share of any major credit programme in India. Second, Scheduled Caste, Scheduled Tribe, and Other Backward Class borrowers, who together account for about 51 per cent of PMMY accounts. Third, minority community borrowers — about 11 per cent of accounts. Fourth, first-time entrepreneurs, with no prior formal credit history.

The Niti Aayog evaluation (2024) found that 22 per cent of PMMY borrowers were first-generation entrepreneurs, and that 36 per cent of Mudra-supported units had added at least one paid employee within two years of taking the loan. Average loan size has climbed from ₹39,000 in FY 2015-16 to ₹85,000 in FY 2024-25, reflecting both inflation and a shift towards Kishore and Tarun lending.

Current Disbursement Pattern

In FY 2024-25, Mudra Yojana sanctioned ₹5.42 lakh crore through 6.8 crore accounts — the highest annual sanction since launch. The top five states by total sanctioned amount were Tamil Nadu (₹68,500 crore), Karnataka (₹52,200 crore), West Bengal (₹49,800 crore), Uttar Pradesh (₹47,300 crore), and Maharashtra (₹46,600 crore).

The composition of sanctions has shifted over the decade. In 2015-16, Shishu accounted for 64 per cent of sanctioned value; by 2024-25 it was 26 per cent, with Kishore at 41 per cent and Tarun plus Tarun Plus at 33 per cent. Lenders attribute the shift to maturing borrower book and the policy nudge towards larger, more diligently-appraised loans.

Mudra Card

The Mudra Card is a debit card-like instrument linked to a working capital component of a PMMY loan, typically Kishore or above. It functions like a credit card with daily interest accrual on usage. Adoption has been slow — only about 18 per cent of eligible borrowers have used the card — and the Finance Ministry has asked MLIs to push wider adoption from FY 2026-27.

Place in the Financial Inclusion Architecture

Mudra Yojana complements three other policy planks. Pradhan Mantri Jan Dhan Yojana built the bank account base; Aadhaar gave each account a unique identifier; PMMY layered credit on top. The Stand-Up India scheme operates for larger SC/ST and women loans between ₹10 lakh and ₹1 crore. PM SVANidhi targets street vendors with smaller ticket sizes. Together they cover the micro-credit landscape between ₹10,000 and ₹1 crore.

For UPSC and policy purposes, the key analytical thread is that Mudra Yojana shifted micro-credit from a moneylender-dominated, high-cost market to a partially formalised, interest-capped market. Whether it has also raised firm productivity is an open question — most studies show employment effects, but productivity gains are concentrated in Kishore and Tarun borrowers, not in Shishu.

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