What is collateral security in mudra loan

Collateral security refers to an asset or property pledged by a borrower to secure a loan. However, under the Pradhan Mantri Mudra Yojana (PMMY), Mudra loans are entirely collateral-free. This means:

• Borrowers are not required to provide any personal or business assets, such as property or gold, as security.
• The Reserve Bank of India (RBI) mandates that banks should not insist on collateral for loans up to ₹10 lakh in the micro-enterprise sector.
• The government acts as a guarantor through the Credit Guarantee Fund for Micro Units (CGFMU) to protect lenders in case of default.