PM Mudra Yojana- Significance & Challenges- Explained Pointwise

On 8 April 2025, India marks 10 years of the Pradhan Mantri MUDRA Yojana (PMMY). PM Mudra Yojana, the Flagship Programme of the Prime Minister aimed at Funding the Unfunded micro enterprises and small businesses. By removing the burden of collateral and simplifying access, MUDRA laid the foundation for a new era of grassroots entrepreneurship. Over the past decade, the scheme has disbursed over 52 crore loans worth ₹32.61 lakh crore.

What are the salient Features of the Scheme?

MUDRA was set up for development and refinancing activities relating to micro units. PMMY ensures collateral-free institutional credit up to Rs 20 lakh, which 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). Under the scheme, three categories of interventions have been formulated which include:

What are the achievements and impact of PM Mudra Yojana?

1. Massive Outreach & Entrepreneurial Shift: Since 2015, over 52 crore loans worth ₹32.61 lakh crore have been sanctioned under PMMY, shifting the mindset from job-seeking to job-creating, especially in small towns and rural India.

2. MSME Credit Surge: MSME lending rose from ₹8.51 lakh crore (FY14) to ₹27.25 lakh crore (FY24); projected to cross ₹30 lakh crore (FY25). Their credit share in total bank lending grew from 15.8% to nearly 20%, boosting grassroots enterprise and self-reliant growth.

3. Women Empowerment through Finance: Women make up 68% of all PMMY beneficiaries. Average disbursement per woman grew at 13% CAGR, and their incremental deposits at 14% CAGR, indicating rising financial empowerment and participation in the workforce.

4. Inclusive Growth for Marginalized Groups: 50% of accounts are held by SC/ST/OBCs and 11% by minorities. PMMY has helped integrate these communities into the formal financial system and entrepreneurial economy.

5. Shift Towards Growth-Stage Financing: The share of Kishor loans (₹50,000–₹5 lakh) grew from 5.9% (FY16) to 44.7% (FY25), indicating enterprise upscaling. Tarun loans (₹5–₹10 lakh) also show growing traction.

6. Rising Loan Sizes & Confidence: Average loan size increased from ₹38,000 (FY16) to ₹1.02 lakh (FY25). Loan disbursal grew 36% in FY23, reflecting revived entrepreneurial confidence and improved scale of operations.

7. Top Performing States and UTs: Leading states in total loan disbursals:

1. • Tamil Nadu: ₹3.23 lakh crore
   • Uttar Pradesh: ₹3.14 lakh crore
   • Karnataka: ₹3.02 lakh crore
     Jammu & Kashmir leads among UTs with ₹45,816 crore disbursed across 21 lakh+ accounts.

8. Funding the Unfunded Micro Sector: Micro enterprises—providing jobs to ~10 crore people—form the backbone of India’s non-corporate small business sector. PMMY has enabled credit access to this previously excluded informal economy, aiding livelihoods and economic mobility.

What is the significance of MUDRA Yojana?

1. Financial Inclusion for the Unbanked: Mudra Yojana bridges the credit gap for small entrepreneurs who lack collateral or formal credit history. E.g. 2021 RBI report highlighted that 70% of Mudra beneficiaries were first-time borrowers, indicating enhanced financial inclusion.

2. Democratization and Grassroots Development: Democratized credit in Tier-2, Tier-3 cities and rural areas and 1st-time entrepreneurs from marginalized communities.

3. Boosting Entrepreneurship & Employment: It has spurred self-employment, particularly in sectors like retail, food processing, and handicrafts. According to 2019 CMIE report, Mudra loans contributed to the creation of 1.12 crore net new employment opportunities between 2015 and 2018. Case Study: Lalita Devi (Varanasi) – A homemaker who started a small tailoring unit with a ₹50,000 Shishu loan, now employs five women.

4. A Gender-Inclusive Economic Policy: Played a crucial role in India’s rise in female labor force participation (from 23% in 2017-18 to ~41.7% in 2023-24, PLFS). Case Study: Shanti Devi (Rajasthan) – Used a Kishore loan to expand her papad-making business, increasing her monthly income from ₹5,000 to ₹25,000.

5. Supporting Informal Sector Growth: The scheme formalizes informal businesses by integrating them into the banking system. A 2022 SIDBI report noted that 30% of Mudra borrowers transitioned to formal credit lines after initial loans.

6. Alignment with SDGs: Supports SDG 8 (Decent Work and Economic Growth) and SDG 5 (Gender Equality).

7. Boost to Atmanirbhar Bharat: Facilitated local manufacturing, services, and self-reliance post-COVID.

What are the challenges faced by the micro enterprises?

1. Access to Finance: Many micro-entrepreneurs still struggle to secure loans due to lack of collateral, credit history, or banking access this led to informal debt traps due to lack of formal credit access. RBI Report (2023), found that ~30% of rejected Mudra loan applications were due to insufficient documentation.

2. Infrastructure Gaps: Poor roads, electricity, and digital connectivity limit business scalability this end up in lower productivity → Higher NPAs. E.g. World Bank (2022), only 60% of rural MSMEs have reliable electricity, affecting production.

3. Lack of Growth Orientation: Most Mudra loans (80% under Shishu category) support subsistence-level businesses, not scaling this causes Stagnation in income levels despite loan support. E.g. SIDBI Study (2023), only 5% of Mudra borrowers expanded beyond micro-enterprises.

4. Skill Development Gaps: Many borrowers lack business management, digital, or technical skills. It increases business failures despite funding. E.g. NSDC Report (2024), only 25% of Mudra beneficiaries received formal skill training.

5. Policy Advocacy Needs: Complex regulations and lack of awareness about subsidies/tax benefits. E.g. CAG Audit (2022), found that 40% of beneficiaries were unaware of GST exemptions for small businesses.

6. Lack of Market Development/Market Making: No structured market linkages for small entrepreneurs. E.g. NITI Aayog (2023), only 15% of Mudra-made products reach organized markets.

7. Knowledge Gaps: Entrepreneurs lack financial literacy, digital banking knowledge, and legal compliance awareness. E.g. SEBI Survey (2023): 60% of Mudra borrowers didn’t understand loan repayment terms.

8. Information Asymmetry: Banks lack real-time data on borrower credibility, leading to risk aversion. E.g. TransUnion CIBIL (2024), 35% of rejected loans were due to insufficient credit history.

9. Entry-Level Technologies: Most micro-entrepreneurs lack affordable tech tools (digital payments, inventory software). E.g. Deloitte Study (2023): Only 20% of Mudra businesses use digital tools.

What should be the way forward?

1. From Credit-Linked to Credit-Plus Model: Integrate PMMY with Skill India, Startup India, and One District One Product (ODOP). Provide digital tools, mentorship, and market linkages. E.g. South Korea’s KOSME (Korea SMEs and Startups Agency) provides integrated financial + non-financial support—credit, mentoring, training, and export promotion.

2. Sector-Specific Credit Targets: Promote MUDRA loans in agri-tech, renewable energy, health-tech, and EV-related MSMEs. E.g. Germany’s KfW Bank for Green and Tech SMEs, sets targeted credit lines for green energy, circular economy, and tech-driven startups.

3. Robust NPA Monitoring: India can implement AI-driven early warning systems, interactive financial literacy modules, and community-based loan circles for improving repayment culture..

4. Formalization and Tax Incentives: Encourage Mudra borrowers to register under UDYAM and file returns; link with GST and TReDS.

5. Stronger Data and Impact Audits: Annual performance audit by third-party bodies; public dashboards on employment and enterprise outcomes. E.g. UK’s British Business Bank.

6. Regional Credit Ecosystems: India can empower DLCCs (District Level Consultative Committees) to become “Credit Ecosystem Hubs”, linking PMMY with local Krishi Vigyan Kendras, RSETIs, and Common Service Centres (CSCs). E.g. Kenya’s Huduma Centres.

Conclusion

The Pradhan Mantri Mudra Yojana marks a significant step in democratizing credit and fostering grassroots entrepreneurship in India. Its 10-year journey is a story of empowerment, especially for women and the underserved. However, for India@2047, the success of PMMY must evolve from credit outreach to entrepreneurial outcomes, from quantity to quality of enterprises. With reforms in mentorship, monitoring, and integration with developmental schemes, PMMY can become the backbone of India’s self-reliant economy and inclusive growth strategy.