Introduction
In April 2015, the Indian government introduced the Pradhan Mantri MUDRA Yojana (PMMY) to provide loans of up to Rs. 10 lakh (US$ 13.54 thousand) to non-corporate, non-farm small/micro enterprises. Through PMMY, the government aims to support and fund small business owners to help them generate/create jobs in sectors such as manufacturing, services, retail, and agriculture & allied industries.
The scheme was developed to aid unbanked citizens (who do not have a savings or checking account with a bank) by getting them into mainstream banking, assisting them with microcredits and empowering them to become self-reliant.
Moreover, this scheme, in collaboration with partner institutions, aims to cultivate an inclusive, sustainable, and value-based entrepreneurship culture to boost self-employment, create new jobs and contribute to the overall development of the economy.
Need for PM Mudra Yojana
According to a 2013 NSSO survey, India comprised ~5.77 crore small/micro units, wherein a majority were sole proprietorships/own account enterprises, which employed ~12 crore people. Of the total small/micro units, ~60% were owed by people from scheduled castes, scheduled tribes, and other backward classes. However, due to low credit availability, which was mostly generated from informal lenders such as friends and relatives. Providing micro/small business units with access to institutional finance will help create a significant potential for small businesses to generate employment opportunities and thereby, drive the country's economic growth.
In line with this, to support and boost the morale of aspiring young people who want to be first-generation entrepreneurs, in 2015, the government launched the MUDRA bank to ‘fund the unfunded’ small entrepreneurs. The initiative aims to empower ~58 million small businesses in India that account for just 4% institutional funding and employ >120 million people, many of whom are from low-income families.
PM Mudra Yojna Details
PM Mudra Yojana Loan is classified into the following 3 categories:
|
Categories |
Maximum Loan Amount |
Description |
|
Shishu |
US$ 677.07 (Rs. 50,000) |
|
|
Kishor |
US$ 6,770 (Rs. 5 lakh) |
|
|
Tarun |
US$ 13,540 (Rs. 10 lakh) |
|
In the past 5 fiscal years, from April 1, 2018, to March 31, 2023, Pradhan Mantri Mudra Yojana (PMMY) has facilitated the extension of over 28.89 crore loans, amounting to US$ 213.22 billion (Rs. 17.77 lakh crore) in sanctioned funds.
According to a study published by the Labour Bureau, under the Ministry of Labour and Employment, MUDRA loans generated 11.2 million additional jobs between 2015 and 2018, wherein 55% were self-employed jobs and 45% comprised new jobs, which were created in existing businesses. In the same period, women workforce accounted for 62% of the total estimated increase in jobs in India.
According to the report, prior to the MUDRA scheme, 39.3 million people were working in numerous small businesses; this number increased to 50.4 million between 2015 and 2018. In addition, the number of self-employed people increased to 31 million until 2018, from 25.9 million (before the scheme). Also, the number of hired employees rose from 13.4 million to 19.5 million until 2018.
PMMY: Target vs. Achievement
Source: MUDRA Annual Report FY23
In FY23, within the framework of PMMY, a sum totalling US$ 54.72 billion (Rs. 4.56 lakh crore) was approved across 6.23 crore loan accounts.
As of FY21 (until February 2021), PMMY disbursed 94% loans that were approved for micro and small enterprises (MSEs). Of the US$ 32 billion (Rs. 2.38 lakh crore) loans to 3.68 crore accounts, US$ 303,440 (Rs. 2.24 crore) was disbursed within 11 months in FY21.
PMMY Sanctions in FY23 by sub-categories of borrowers
Source: MUDRA Annual Report FY23
In FY23, Shishu loans had the largest share among all three categories, accounting for 69% of the total accounts and 31% of the total value. Further, Shishu loans sanctioned funds increased by 14.23% YoY.
Source: MUDRA Annual Report FY23
In FY23, women comprised 71.03% of borrowers based on the number of accounts and accounted for 47.74% of the total disbursement amount.
Women entrepreneurs are expected to play a significant role in transforming India into a self-reliant country. According to a report by Bain & Co. and Google, women entrepreneurs in India are expected to generate ~150-170 million jobs by 2030, accounting for > 25% of all new jobs available for India's working-age population.
Through PMMY, the government has offered numerous opportunities to women entrepreneurs. Between 2018 and 2023, ~67% loans, representing 19.22 crore accounts, with a total value of US$ 95.15 billion (Rs. 7.93 lakh crore) have been sanctioned to women entrepreneurs.
PMMY: Agency-wise Achievement in FY23
The Government of India established a target of disbursing 4.40 lakh crore rupees under PMMY for the fiscal year 2022-2023. This amount was allocated among different lending institutions, including banks, MFIs, and NBFCs, according to their coverage and presence across different regions of the country.
Source: MUDRA Annual Report FY23
The performance data demonstrates a 36% rise compared to the previous year in the overall effectiveness of the program administered by all lending institutions. This surge is primarily attributed to the heightened disbursement activity carried out in FY 2022-23 by NBFC-MFIs, SFBs, and Private Sector Banks.
Within the Public Sector Banks category, the State Bank of India (SBI) led the rankings by disbursing US$ 4.27 billion (Rs. 35,601.64 crore) across 15.40 lakh loan accounts. Following SBI were Punjab National Bank and Canara Bank, with disbursement figures of US$ 2.44 billion (Rs. 20,370.70 crore) and US$ 2.30 billion (Rs. 19,147.82 crore), respectively.
Budget allocation & highlights
In the Interim Budget 2025, the government allocated funds worth US$ 725.9 million (Rs. 6,050 crore) to the Pradhan Mantri MUDRA Yojana (PMMY).
Key developments:
- As of March 24, 2023, approximately 23.2 lakh crore rupees have been sanctioned across 40.82 crore loan accounts. Women entrepreneurs account for 68% of the scheme's accounts, while 51% of the accounts belong to entrepreneurs from SC/ST and OBC categories.
- The Ministry reported that as of March 31, 2021, over 29.55 crore loans worth US$ 186.23 billion (Rs. 15.52 lakh crore) have been sanctioned under PMMY since its launch in April 2015. Of these, more than 6.80 crore loans totalling US$ 62.40 billion (Rs. 5.20 lakh crore) have been extended to new entrepreneurs/accounts.
- In FY20, the performance of private sector banks significantly improved, with a sanction of US$ 12 billion (Rs. 91,780 crore), an increase of 43% YoY.
- This was attributed to the merger of SKS Microfinance (Bharat Finance Ltd.) with IndusInd Bank, which was the leading private sector bank with a sanctioned amount of US$ 5 billion (Rs. 38,199.43 crore), accounting for >41% of all private sector bank sanctions.
- The other key private sector banks, such as Bandhan Bank and IDFC Bank, also contributed to this space.
- Under the scheme, lending institutions issued a ‘Mudra Card’, a debit card, to loan borrowers on the RuPay platform to help them access working capital funds at an affordable rate. As of FY20, the total number of Mudra Cards in use stood at >1 million; ~4.26 lakh new Mudra Cards worth US$ 1.17 billion (Rs. 8,623 crore) were released.
- In September 2020, public sector banks (e.g., State Bank of India) launched 'eShishu Mudra' (a digital service) to streamline processing of loans for microenterprises and provide customers a digital personal loan.
- In June 2020, the Union Government approved a scheme, under the PMMY, to provide 2% relief on interest to small bank borrowers. As part of the scheme, all loan accounts, under the Shishu group of the MUDRA scheme, will be eligible for interest subvention gain for 12 months.
The Road Ahead
PMMY is a significant step towards achieving financial inclusion, boosting employment, and increasing the number of self-employed people.
However, in the past 1 year (since March 2021), the coronavirus pandemic has impacted the job market. Loss of employment in urban areas (due to the pandemic) has forced labourers to return to their rural native areas. Due to lack of work in such areas, some people are wanting to start small businesses to make a living, and the government is continuously taking measures to enable such businesses; this is boosting the demand for MUDRA loans. For example, in 2020, the government announced an interest subvention scheme for Shishu loans, as part of the Atmanirbhar Bharat (Self-reliant India) economic stimulus package. From FY18 to FY23, banks and financial institutions approved loans worth US$ 213.22 billion (Rs. 17.77 lakh crore), benefitting >28.89 crore beneficiaries in the country.
In addition, under PMMY, lending by private sector banks increased by 20% YoY in FY23. Therefore, the combined effort of the government and private sector is supporting the performance the PMMY scheme. Also, the rising number of beneficiaries benefiting from this scheme is indicative of the fact that India would further improve in its entrepreneurial capabilities and progress further in its self-reliance journey.
Partners
