MUDRA Scheme: Boon For Micro Enterprises in India

General Studies Paper-3

Context: Micro Units Development and Refinance Agency (MUDRA) Ltd and Pradhan Mantri Mudra Yojana (PMMY) completed 10 years on April 8, 2025.

About PM Mudra Yojana

• Mudra Vision: PMMY was initiated with the vision to ‘Fund the Unfunded’ – aiming to empower micro and small enterprises (MSEs) by facilitating access to collateral-free institutional credit of up to ₹10 lakh.
• The loans are disbursed through three products:
  • Shishu: Loans up to ₹50,000 for budding entrepreneurs.
  • Kishore: Loans between ₹50,000 and ₹5 lakh for growing businesses.
  • Tarun: Loans between ₹5 lakh and ₹10 lakh for established enterprises.
  • Target: Small businesses in manufacturing, trading, processing, and services—a major employment segment after agriculture.
• Collateral-free credit up to ₹20 lakh is provided by Member Lending Institutions (MLIs) i.e. Scheduled Commercial Banks (SCBs), Regional Rural Banks (RRBs), Non-Banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs).

MUDRA Scheme: Decade of Impacts

• Credit Flow: Around ₹57,000 crore in 2013 (Before MUDRA)
  • ₹32 lakh crore in 2014-15 and ₹5.41 lakh crore in the last nine years.
• Financial Inclusion: Over 52 crore loans worth ₹61 lakh crore have been sanctioned since its inception.
  • Around 30% of units financed under MUDRA were new or fresh to financing.
• Focus on Women and Marginalized Groups: Approximately 68% of loan accounts under the scheme belong to women, and 50% are loans to SC/ST and OBC entrepreneurs.
  • About 70% of the borrowers were women in the first year.
• Wide Accessibility: Loans are provided through a network of banks, NBFCs, MFIs, and other financial institutions, ensuring broad coverage across urban and rural areas.
• Economic Empowerment: The scheme has supported small businesses across sectors like retail, food processing, and services, fostering self-employment and job creation.
  • States like Tamil Nadu, Uttar Pradesh, and Karnataka have seen significant disbursals, contributing to regional economic growth.
• Some Major Achievements:
  • Empowerment of Nano Entrepreneurs: A significant chunk of beneficiaries are street vendors, artisans, and small service providers.
  • Women-Led Enterprises: More than 29 crore loans have been granted to women, boosting female entrepreneurship.
  • Digital Integration: PMMY integrated with platforms like Jan Dhan accounts and Aadhaar, ensuring transparency and efficiency in credit delivery.

Case Studies of Transformation

• Renu Devi from Bihar, who started a tailoring business with a ₹40,000 Shishu loan, now employs 3 others and runs a boutique.
• Naveen from Karnataka used a Tarun loan to set up a vehicle repair shop and expanded into auto parts retail.

Challenges

• Rising NPAs: Public Sector Banks have reported rising Non-Performing Assets (NPAs) under Mudra loans (NPA in these loans are around 2.2%).
• Lack of Impact Evaluation: There is insufficient third-party auditing or impact assessment of PMMY at scale.
• Success claims are mostly based on disbursement volumes rather than actual outcomes.
• Over-leveraging and Misutilization: Instances of borrowers using loans for consumption rather than productive use have raised concerns about loan effectiveness.
• Limited Tarun Loans: While most disbursements are under the Shishu category (low-ticket), Tarun loans have remained relatively underutilized—undermining high-growth potential entrepreneurs.

Future Roadmap

• Deepen Credit + Capability Linkages: Integrate MUDRA with Skill India, Start-Up India, and Livelihood Missions to offer a comprehensive entrepreneurial ecosystem.
• Promote Financial Literacy: Embed credit counselling and digital literacy modules during loan disbursal to reduce defaults and enhance productive utilization.
• Encourage Tarun Category Lending: Design interest subvention, risk-sharing frameworks, or credit guarantee mechanisms to incentivize higher-value lending.
• Digitize Microcredit Processes: Expand UPI-linked MUDRA cards, mobile-based applications, and e-verification for faster processing, real-time tracking, and reduced transaction costs.
• Institutionalize Mentorship Networks: Facilitate local mentorship cells under the aegis of District Industries Centres (DICs) or MSME clusters for handholding new entrepreneurs.

Conclusion

• The PM Mudra Yojana has emerged as a silent revolution — empowering millions to dream big, act bold, and build their livelihoods.
• As India strides towards a $5 trillion economy, the scheme remains crucial in democratising capital, energising local enterprise, and scripting grassroots success stories across its villages and cities.