# Introduction

Many entrepreneurs in India seek to fulfill their dream of starting their own businesses. One of the critical elements for embarking on such a venture is having sufficient investment to boost initial operations. To help such entrepreneurs, the Government initiated the MUDRA loan, a financial program developed by the Micro Units Development & Refinance Agency Ltd (MUDRA). Among the crucial aspects of any loan is the interest rate; therefore, understanding how to calculate the MUDRA loan interest rate is of great importance.

## Understanding MUDRA Loan

Before we delve into calculating the **MUDRA loan interest rate**, it’s important first to understand MUDRA full form and its key features. MUDRA stands for Micro Units Development and Refinance Agency Ltd, which was established under the Pradhan Mantri MUDRA Yojana (PMMY). The primary focus of MUDRA is to provide financial funds to non- corporate, non-farm sector income-generating activities of micro and small enterprises.

MUDRA loans are designed to facilitate small and micro enterprises with capital they need. The loans are classified into three categories: Shishu, Kishor, and Tarun, which lend up to₹50,000, ₹5 lakhs, and ₹10 lakhs respectively.

## Calculating MUDRA Loan Interest Rate

Now, let’s shift our focus towards understanding how to calculate the MUDRA loan interest rate. The interest rate on the MUDRA loan is not fixed and differs according to the bank, the borrower’s credit history, and the category of the loan – Shishu, Kishor, or Tarun.

## Here is how you can calculate the interest rate:

### Step 1: Identify the Principal Amount

The principal is the money borrowed under the **MUDRA loan**. Depending on the category of your loan (Shishu, Kishor, or Tarun), your principal amount will differ. Once you have this figure, you can proceed to the next step.

### Step 2: Understand the Term of the Loan

This is the time period for which you borrow the money. It’s significant to remind that the tenure on a MUDRA loan can range up to 5 years.

### Step 3: Identify the Interest Rate

The MUDRA loan interest rate depends on the bank and usually varies between 8.40% to 12.45% per annum. You need to confirm the exact interest rate with your bank.

### Step 4: Calculate the Interest

Once you have all the variables, you can calculate the interest payable. It’s calculated by multiplying the principal amount, the loan term, and the interest rate, then divided by 100.

For example, if you’ve borrowed ₹5 lakhs for a term of 3 years with an interest rate of 10%, your calculation would be:

Interest = (5,00,000*3*10)/100 = ₹1,50,000.

To get the total amount payable (principal + interest), add the loan amount to the interest calculated. In the above case, the total amount payable would be:

Total payable = Principal amount + Interest

= 5,00,000 + 1,50,000

= ₹6,50,000.

## Conclusion

MUDRA loans are a great initiative aimed at nurturing entrepreneurship in India. They provide an excellent opportunity for small and micro business units to flourish. Understanding your MUDRA loan’s interest rate allows you to plan your finances better and offers a clear picture of the amount you will have to repay. It also further helps to compare loans offered by different banks and prepare yourself for the financial commitment you are about to undertake. It’s always recommended to have a clear understanding of all the components involved before availing a loan to ensure that the repayment process is smooth and hassle-free.