Micro, Small and Medium Enterprises (MSMEs) are the backbone of any country’s economy. They are not just creators of employment opportunities but also vital forces driving local economic activities and contributing significantly to the overall development of the nation. However, a large segment within this sector, such as street vendors, small shopkeepers, cottage industries, and self-employed individuals – the micro-units – have long faced a severe problem in obtaining loans from the banking system. Banks traditionally prioritised larger loans for those who could provide adequate collateral, leaving these small entrepreneurs unable to meet their financial needs, thus hindering their business growth. The Central Government launched the Pradhan Mantri Mudra Yojana with a firm resolve to change this situation and provide financial support to this ‘unfunded’ segment of the unorganised sector.
*’Mudra’ – A Key Step Towards Financial Inclusion:
The unorganised sector in India is vast, providing livelihood to crores of people. Due to the lack of connection with the formal financial system, entrepreneurs in this sector could not access the financial resources needed to expand their businesses, adopt new technology, or create new jobs. This not only increased economic inequalities but also acted as a hurdle to the nation’s overall economic growth. The main objective behind the Mudra Yojana is to change this scenario, integrate the unorganised sector into the formal economy, and enable them to achieve financial empowerment by providing easy and affordable loans. It is a crucial step towards achieving financial inclusion.
*’Mudra Yojana’ Objectives:
The Pradhan Mantri Mudra Yojana was launched on *April 8, 2015* . Its primary objective is to provide collateral-free loans of up to ₹10 lakh to micro and small enterprises. *The Micro Units Development and Refinance Agency Limited* ( *MUDRA* ) institution was specially established to supervise this scheme and provide refinance (recurrent loan assistance) to the financial institutions implementing it. Commercial Banks, Regional Rural Banks, Cooperative Banks, Small Finance Banks, Non-Banking Financial Companies, and Micro Financial Institutions provide Mudra loans to beneficiaries. Based on business needs, loans were initially divided into three categories:
*A) Shishu : Loans up to ₹50,000 for those starting a new business.
*B) Kishor : Loans from ₹50,001 to ₹5,00,000 for expanding existing businesses.
*C) Tarun : Loans from ₹5,00,001 to ₹10,00,000 for modernisation of growing businesses.
*Increase in Maximum Limit:
A significant update is that, as per the announcement made in the Union Budget 2024-25, the maximum limit of Mudra loans has been increased from ₹10 lakh to ₹20 lakh effective from October 2024. Along with this, a new category called ‘Tarun Plus’ has been introduced for those who have taken and successfully repaid loans under the Tarun category, allowing them to obtain loans ranging from ₹10 lakh to ₹20 lakh. Credit Guarantee Fund for Micro Units (CGFMU) guarantee is available for loans up to ₹20 lakh, reducing the collateral burden.
*Beneficiary Eligibility:
Indian citizens who are engaged in or wish to start micro and small enterprises in the manufacturing, trading, services, or allied agricultural activities (excluding crop cultivation) are eligible. Street vendors, small shopkeepers, repair shop operators, owners of transport vehicles (like auto-rickshaws, trucks), small manufacturing units, artisans, service providers (e.g., barber shops, beauty parlours, tailors), food vendors, fruit and vegetable vendors, dairy farming, poultry farming, beekeeping, fisheries, grading and packaging of fruits and vegetables, and other allied agricultural activities fall under the purview of Mudra loans. Individuals, partnership firms, and private limited companies are also eligible if they fall within the micro or small enterprise category.
*Mudra on the Path of Progress:
Mudra Yojana has achieved tremendous progress across the country and brought financial stability to the lives of crores of people.
*Official statistics available up to April 2025 reveal the widespread impact of this scheme:
Since the launch of the scheme, more than 52 crore loan accounts (which can be considered beneficiaries) have been created, indicating that the scheme has reached a significant portion of the Indian population. Loans amounting to over ₹33 lakh crore have been sanctioned through these accounts, signifying the massive financial resources channelled into the micro-business sector. From a perspective of social justice and empowerment, Mudra has been a game-changer. Approximately 68% of the total beneficiaries are women, highlighting how Mudra has significantly contributed to women establishing their own businesses and achieving financial self-reliance. Socially vulnerable groups like Scheduled Castes, Scheduled Tribes, and Other Backward Classes have also benefited immensely; approximately 50% – 51% of the beneficiaries belong to these categories. In terms of the number of loan accounts disbursed, approximately 78% fall under the Shishu category (up to ₹50,000), indicating the scheme’s success in reaching the grass-roots level and those starting new ventures. However, the value of loans in the Kishor and Tarun categories is also substantial. These statistics prove that Mudra Yojana has not just remained a target-oriented scheme but has genuinely brought about change in the lives of crores of common people at the ground level.
*Implementation Mechanism:
The Central Government does not directly implement the Mudra Yojana for beneficiaries. Its implementation is supervised by Mudra Ltd, which allocates the necessary capital and refinancing funds to it. Banks, NBFCs, and MFIs use these funds to sanction loans to beneficiaries at the ground level. The active role of banks is crucial for the scheme’s success. Their extensive network and field-level operations have taken the scheme to the common people. There is no specific direct subsidy from the Central Government under the Mudra Yojana; it is a loan scheme, not a subsidy scheme. However, by providing refinance to banks at lower interest rates and extending credit guarantee for loans up to ₹20 lakh, the government indirectly helps ensure that interest rates on loans remain as affordable as possible. State Governments also play a key role in raising awareness about the scheme, identifying beneficiaries, and organising loan melas.
*Leading States:
States that are economically dynamic, such as Maharashtra, Tamil Nadu, Karnataka, Gujarat, and Uttar Pradesh, are at the forefront in terms of loan disbursement statistics, along with states like Bihar and West Bengal in terms of the number of beneficiaries. Which bank is leading in total loan disbursement changes over specific periods, but Public Sector Banks disburse the major share due to their extensive network. Our Telugu states, Andhra Pradesh and Telangana, are also actively participating in the implementation of Mudra Yojana. These states have achieved significant progress through self-help groups and small entrepreneurs. Many women, traditional artisans, and rural entrepreneurs in these states have benefited from Mudra loans. At the national level, the Telugu states are also contributing to the success of the scheme.
*Challenges Faced:
Despite achieving significant progress, the implementation of Mudra Yojana faces some challenges. A major criticism is the risk of rising Non-Performing Assets (NPAs – loans that are not repaid) for banks due to collateral-free loans and managing a large number of small-value accounts. Some beneficiaries are failing to repay loans, impacting banks’ financial health. Also, since a large percentage of loans are sanctioned under the Shishu category, critics argue that these small amounts are insufficient for genuine business expansion and only serve immediate small needs; the availability of Kishor and Tarun category loans is still not at the desired level. Lack of complete awareness in remote areas, complex application processes at some bank branches, and difficulties in collecting necessary documents are other challenges. There is a risk of funds being misused due to inadequate guidance on business management and lack of monitoring after the loan is disbursed. Banks’ hesitation in managing many small loan accounts also poses an obstacle.
*Solutions:
Despite some criticisms of the Mudra Yojana, its necessity and achieved progress are commendable. Overcoming the challenges is crucial for the scheme to be even more successful. Some measures that need to be taken are:
1. _Increasing awareness and simplification: Conduct extensive publicity and awareness programs in local languages and through digital media, along with ground-level campaigns. Simplify the application process and improve online portals to ensure faster loan sanction with fewer documents._
2. _Support and training for bankers: Provide necessary support and training to bankers on managing NPA risks and efficient operation. Encourage technological solutions to reduce their workload in managing small loan accounts. Special focus is needed on increasing Kishor and Tarun loans._
3. _Strengthening monitoring and support system: Provide basic guidance on business management and financial planning after the loan is disbursed. Establish a robust system to monitor the proper utilisation of loans and track repayments._
4. _Linkage with skill training: Link Mudra loans with self-employment oriented skill training programs so that eligible beneficiaries receive both necessary skills and financial assistance simultaneously to start a business._
5. _Active monitoring by State Governments: State-level authorities should continuously monitor the scheme’s implementation and promptly address coordination gaps between banks and beneficiaries.
*Conclusion:
Towards Financial Self-Reliance
The Pradhan Mantri Mudra Yojana is a revolutionary scheme in India’s economic journey. It has provided financial security to the unorganised sector and empowered crores of common citizens to transition from being mere employees to becoming entrepreneurs. The disbursement of over ₹33 lakh crore in loans and the creation of over 52 crore loan accounts, particularly benefiting women and vulnerable groups, clearly demonstrate its vast impact. With the increased loan limit to ₹20 lakh and new categories like Tarun Plus, the scheme is set to reach even more people. By effectively addressing the challenges and implementing the suggested solutions, Mudra Yojana will continue to be a lifeline for every small business in the country, undoubtedly playing a key role in building a strong and inclusive Indian economy. The concerted effort of the government, banks, state governments, and beneficiaries is required for the continued success of this financial revolution.
