MUDRA vs CGTMSE: Loan or Guarantee, Which One Do You Need?
Reviewed by: WeCredit Research Team
MUDRA and CGTMSE are not rivals. MUDRA (PMMY) is a loan category for small non-farm businesses, with collateral-free loans up to Rs. 20 lakh. CGTMSE is a guarantee that backs a bank loan to a micro or small enterprise, with a ceiling of Rs. 10 crore, and you never apply to it directly.
Quick answer: if you need up to Rs. 20 lakh for a small shop, workshop, service or trading unit, ask a bank for a Mudra loan. If you need more than that, or your bank wants security you cannot give, ask the bank whether it will cover the loan under CGTMSE. In both cases the lender decides. WeCredit does not sanction government scheme loans, so confirm details on the official sources listed below.
MUDRA vs CGTMSE at a Glance
| Point | MUDRA (PMMY) | CGTMSE |
|---|---|---|
| What it is | A loan category, delivered by banks, NBFCs and microfinance lenders, with refinance support from MUDRA Ltd. | A credit guarantee scheme run by the Credit Guarantee Fund Trust for Micro and Small Enterprises |
| Does it lend money? | Lenders lend under the Mudra label | No. It only guarantees credit given by member lenders |
| Size | Up to Rs. 20 lakh across four categories | Guarantee support up to Rs. 10 crore from 1 April 2025 |
| Collateral | Collateral-free up to Rs. 20 lakh | Guarantees credit given without collateral or third-party guarantee |
| Who applies where | You apply to the lender | You apply to the lender, never to CGTMSE |
| Extra cost for you | Interest set by the lender | Annual guarantee fee, 0.37% to 1.20% a year by slab, which the lender may pass on |
| Best for | Small and micro units that need working capital or equipment | Larger micro and small enterprise loans, up to the Rs. 10 crore ceiling |
What MUDRA Actually Is
Pradhan Mantri MUDRA Yojana (PMMY) started on 8 April 2015. Per a Government of India release from April 2026, it had crossed 57 crore accounts and Rs. 40.07 lakh crore of loans by 27 March 2026. Loans are made to non-corporate, non-farm micro and small enterprises in manufacturing, trading and services, plus allied agricultural activities. Members of the scheme include scheduled commercial banks, regional rural banks, small finance banks, NBFCs and microfinance institutions. MUDRA Ltd. refinances them. A credit guarantee fund for micro units, run by NCGTC, backs PMMY loans.
| Mudra category | Loan size | Who it suits |
|---|---|---|
| Shishu | Up to Rs. 50,000 | Very small or early-stage businesses, including people with no credit history or collateral |
| Kishor | Above Rs. 50,000 to Rs. 5 lakh | Businesses above the Shishu limit, up to Rs. 5 lakh |
| Tarun | Above Rs. 5 lakh to Rs. 10 lakh | Businesses that need above Rs. 5 lakh, up to Rs. 10 lakh |
| Tarun Plus | Above Rs. 10 lakh to Rs. 20 lakh | Borrowers who have repaid an earlier Tarun loan (launched 2024) |
The official release does not state an interest rate. Each lender sets its own, so compare offers. For the full Mudra process read the SBI e-Mudra loan guide.
What CGTMSE Actually Is
CGTMSE guarantees credit that member lending institutions give to micro and small enterprises without collateral or third-party guarantees. It deals only with those lenders. The guarantee supports the lender’s credit risk. You still need to repay the loan on the terms in your sanction letter.
The guarantee ceiling rose from Rs. 5 crore to Rs. 10 crore from 1 April 2025. Cover for women-led enterprises was raised from 85% to 90%. Enterprises in identified credit-deficient districts get an additional 5% cover and a 10% discount on the fee. The standard annual guarantee fee was cut by half, to as low as 0.37% a year. Read the full explainer in CGTMSE explained: guarantee fee, eligibility and lenders.
| Credit facility slab | Annual guarantee fee |
|---|---|
| Up to Rs. 10 lakh | 0.37% |
| Above Rs. 10 lakh to Rs. 50 lakh | 0.55% |
| Above Rs. 50 lakh to Rs. 1 crore | 0.60% |
| Above Rs. 1 crore to Rs. 2 crore | 0.85% |
| Above Rs. 2 crore to Rs. 5 crore | 1.00% |
| Above Rs. 5 crore to Rs. 8 crore | 1.10% |
| Above Rs. 8 crore to Rs. 10 crore | 1.20% |
These rates are from CGTMSE Circular 251/2024-25 for guarantees approved or renewed on or after 1 April 2025. The circular does not say who bears the fee, so ask your lender in writing whether it will be added to your cost. The share of each loan that CGTMSE guarantees differs by category and is set in the scheme guidelines, so ask your lender for the figure that applies to you.
How They Work Together
One loan can carry both labels in everyday talk, because a lender can sanction a Mudra loan and also look for guarantee cover for its own protection. Which guarantee a lender uses for a given Mudra loan is the lender’s own decision. What matters to you is simple: the amount, the interest rate, any fee passed on to you and whether collateral is taken. Check each in the sanction letter.
There is also a separate rule that helps small borrowers. Under the RBI Master Direction dated 9 February 2026, scheduled commercial banks may not take collateral on MSE loans up to Rs. 20 lakh. That matches the Mudra ceiling, but it applies to any eligible MSE loan from those banks, not only Mudra.
Worked Example: Which Route for Which Borrower
Borrower A runs a tailoring unit and needs Rs. 8 lakh for machines and fabric stock. That sits in the Tarun band. Suppose the lender offers 11% a year for 5 years. This rate is only an assumption for the example, because the actual rate is the lender’s. The monthly EMI would be about Rs. 17,394, total repayment about Rs. 10.44 lakh and total interest about Rs. 2.44 lakh. No guarantee fee is shown to the borrower unless the lender chooses to pass one on.
Borrower B runs a packaging unit and needs Rs. 40 lakh for a new line. This is above the Mudra ceiling. The bank may offer a term loan, and if it covers the loan under CGTMSE, the slab above Rs. 10 lakh to Rs. 50 lakh carries a 0.55% annual guarantee fee. On Rs. 40 lakh that would be Rs. 22,000 a year if charged on the full amount, which your lender will confirm. If the lender passes it on, add it to your yearly cost before you compare offers.
Is MUDRA or CGTMSE Right for You? A Checklist
- Is your need Rs. 20 lakh or less? Start with a Mudra request at your bank.
- Is your business a non-farm activity in manufacturing, trading or services, or an allied agricultural activity? Mudra covers these.
- Is your need above Rs. 20 lakh, up to Rs. 10 crore? Ask the lender whether it covers the loan under CGTMSE.
- Are you a woman-led enterprise? Ask your lender about the 90% CGTMSE cover.
- Is this your first loan with no credit history? Shishu loans are open to people with no credit history or collateral.
- Do you have a Udyam registration? Lenders often ask for it. See the Udyam registration guide.
Documents to Keep Ready
Neither scheme has a borrower form of its own. The lender sets the list, and for a Mudra or CGTMSE-backed request it commonly includes:
- Aadhaar and PAN of the owner, with address proof
- Udyam registration certificate, or the lender’s alternative business proof
- Bank statements for the period the lender asks for
- A quotation for machines or stock if the loan is for equipment or inventory
- Business address proof, such as a shop licence or rent agreement
- A project note or working-capital estimate, if the lender asks for one
Step-by-Step: How to Apply for Either
- Decide the amount you need and what it will fund.
- Register on the Udyam portal if you have not already.
- Visit or contact a bank, regional rural bank, small finance bank, NBFC or microfinance lender that takes part in the scheme.
- Say clearly that you want a collateral-free loan, and ask if the lender will use a credit guarantee.
- Submit your documents. The lender appraises your repayment capacity.
- Read the sanction letter for the rate, tenure, any fee passed on to you and confirmation that no collateral is taken.
- Accept only after the terms match what you were told. Be wary of anyone who asks for money to arrange a scheme loan.
Why Applications Get Stuck, and the Fix
| What goes wrong | Why it happens | What to do |
|---|---|---|
| Lender says it does not do Mudra or CGTMSE | Only member lenders take part | Try another bank or NBFC that lists the scheme |
| Weak repayment record or thin bank statements | A guarantee does not replace the lender’s appraisal | Show clean statements and a realistic cash-flow estimate |
| Amount asked is too high for turnover | The lender sizes the loan to your cash flow | Ask for a smaller first loan, then enhance later |
| Business not eligible | Mudra is for non-farm enterprises | Check farm-sector schemes instead |
| Tarun Plus refused | It needs an earlier Tarun loan repaid | Build the repayment record first |
For deeper reasons, see why business loans get rejected. Government schemes without security are compared in collateral-free government loans.
Other Options to Compare
| Mudra | CGTMSE-backed loan | Private MSME loan | |
|---|---|---|---|
| Who sets the rate | Lender | Lender | Lender |
| Collateral | None up to Rs. 20 lakh | None on guaranteed credit | Depends on lender |
| Extra fee for you | Check the lender’s terms | Guarantee fee may be passed on | Processing and other fees |
| Size | Up to Rs. 20 lakh | Up to Rs. 10 crore | Varies by lender |
For a detailed look at private lending, read MSME loan providers in India. If you have very little capital, see starting a business with little or no money.
Common Mistakes
- Looking for a CGTMSE application form. Borrowers do not apply to CGTMSE.
- Treating Mudra as a subsidy. It is a loan you repay with interest.
- Assuming a guarantee means automatic approval.
- Paying an agent to arrange a scheme loan. Apply directly to lenders, and use the official sites listed below because lookalike sites exist.
- Not asking who pays the CGTMSE fee.
Frequently Asked Questions
Is Mudra the same as CGTMSE?
No. Mudra is a loan category. CGTMSE is a guarantee that supports a bank’s loan. They solve different problems.
Can I apply to CGTMSE directly?
No. CGTMSE deals only with its member lending institutions. You apply to a lender.
What is the maximum Mudra loan?
Rs. 20 lakh under Tarun Plus, which is open to borrowers who repaid an earlier Tarun loan. Without that history the top band is Tarun, up to Rs. 10 lakh.
What is the maximum CGTMSE guarantee?
Rs. 10 crore, raised from Rs. 5 crore from 1 April 2025.
Does a Mudra loan need collateral?
Mudra loans up to Rs. 20 lakh are collateral-free, per the official release. The lender still checks whether you can repay.
Do I pay the CGTMSE guarantee fee?
It depends on the lender. The fee runs from 0.37% to 1.20% a year by slab. Ask in writing whether it will be added to your cost.
Does WeCredit sanction Mudra or CGTMSE loans?
No. WeCredit does not sanction government scheme loans. We explain how schemes work and help you compare options. Confirm current terms with the lender and the official source. See also our government business loan eligibility guide, the JanSamarth portal guide and the government loan schemes hub.
Official Sources
- PIB document on Pradhan Mantri MUDRA Yojana, April 2026
- PIB release on CGTMSE, Ministry of MSME, 23 July 2026
- CGTMSE Circular 251/2024-25 on annual guarantee fee
- Credit Guarantee Scheme guidelines, Office of the DC (MSME)
- CGTMSE official website
- Udyam registration portal
WeCredit does not sanction government scheme loans. Confirm current limits, fees and terms with your lender and the official sources above.
