Mudra loans power millions of small businesses, fuelling India's growth

By expanding the list of beneficiary businesses, the scheme is increasing support for micro and small enterprises and helping India in achieving its ambition to become a $5 trillion economy

For the country’s 57.7 million micro and small enterprises, the launch of the Pradhan Mantri Mudra Yojana (PMMY) a decade ago on April 8, 2015, was a watershed moment. Aimed at bridging prevailing credit gaps through collateral-free business loans, this initiative has been instrumental in empowering millions of first-time entrepreneurs and small business owners with formal credit access.

 

Focused on funding the unfunded, PMMY was launched with three categories of Mudra loans, Shishu, Kishor and Tarun, providing a maximum of ~50,000, ~500,000 and ~10 lakh by way of financial assistance to eligible borrowers. Each loan category was designed to cater to micro, small and medium enterprises (MSMEs) at different growth stages, offering them finance for acquiring capital assets and/or working capital, and marketing-related requirements. A fourth category called Tarun Plus was added in FY25 to address higher capital requirements of existing Mudra borrowers. Available with a limit of up to ~20 lakh, Tarun Plus Mudra loans are proving influential in encouraging MSMEs to pursue business expansion. Additionally, with the loan-repayment tenure and schedule being based on the business’s cash flow and economic life of the assets being created, Mudra loans have successfully eliminated the need for informal credit sources.

 

Available at branches of commercial banks, nonbanking financial companies and microfinance institutions, and other partnering financial intermediaries, over 520 million Mudra loans worth ~32.61 trillion have been sanctioned under PMMY since April 2015. While the share of Kishor loans has grown from to 44.7 per cent in FY25 from 5.9 per cent in FY16, Tarun loans have been gaining momentum over the last few years. Women borrowers accounted for 68 per cent of Mudra loans, underscoring the effectiveness of the PMMY initiative in improving financial inclusion and enhancing women empowerment. What’s more, 50 per cent of Mudra accounts belong to Scheduled Caste, Scheduled Tribe and Other Backward Class entrepreneurs.

 

Being collateral-free, Mudra loans enable micro and small enterprises to grow their businesses in a sustainable manner and they have created an inclusive entrepreneurial culture that is bound to catalyse further economic growth momentum.

 

MSMEs’ share in total bank credit has increased to 20 per cent from 15.8 per cent in the past decade, highlighting the impact of Mudra loans in expanding financial access. In this journey, banks and regional rural banks have played a pivotal role in promoting inclusivity and driving entrepreneurship. Through their vast network of branches, these banks have been championing awareness programmes, processing applications and disbursing credit to millions of small business owners, many of them availing of formal credit for the first time. Moreover, they have been simplifying processes, addressing field-level challenges while also ensuring minimum turnaround time for loan applications under the PMMY scheme.

 

While the inclusion of allied agricultural activities in the PMMY scheme proved to be a game-changer by benefiting small-scale manufacturing units located in rural and semi-urban areas, the extension of the scheme to homestays in the Union Budget 2025 could boost tourism in the near future. Thus, by expanding the list of beneficiary businesses, the PMMY is gradually strengthening the backbone of the economy and is working towards further increasing the support for micro and small enterprises. Aligning perfectly with the vision of an Atmanirbhar Bharat, PMMY has transformed into a movement that is building resilience and economic self-reliance within the broader economy. With the next phase envisioning new lending products through technology-enabled risk assessment, PMMY is firmly supporting India in achieving its $5-trillion economy ambition by helping realise millions of entrepreneurial dreams.

 

The writer is MD & CEO, Indian Overseas Bank