SYLLABUS

GS-3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment and Inclusive growth and issues arising from it.

Context: Recently, the Pradhan Mantri MUDRA Yojana (PMMY) has completed 11 years, marking a decade of expanding financial inclusion and grassroots entrepreneurship. 

About Pradhan Mantri MUDRA Yojana (PMMY)

• PMMY was launched on April 8, 2015, to provide financial support to micro and small enterprises. 

• The scheme aims to “Fund the Unfunded” by extending institutional credit to non-corporate, non-farm small businesses. 

• It seeks to promote financial inclusion, entrepreneurship, and self-employment, especially among underserved sections. 

• Mission: To create an inclusive, sustainable, and value-based entrepreneurial culture, in collaboration with our partner institutions, in achieving economic success and financial security.

• Financial Inclusion Framework: PMMY operates within the three pillars of financial inclusion: 

• Banking the Unbanked – expanding access to banking services. 
• Securing the Unsecured – providing insurance and social security. 
• Funding the Unfunded – enabling access to credit. 

• Key Features: 

• PMMY provides collateral-free loans up to ₹20 lakh for income-generating activities. 
• Loans are classified into four categories based on business stage: 

1. Shishu (up to ₹50,000) – for early-stage businesses. 
2. Kishor (₹50,000–₹5 lakh) – for growing enterprises. 
3. Tarun (₹5–10 lakh) – for the expansion stage. 
4. Tarun Plus (₹10–20 lakh) – for advanced growth stage. 

• Loans are extended to non-corporate, non-farm micro and small enterprises and are classified as MUDRA loans.
• Interest rates are regulated by RBI guidelines with flexible repayment options. 
• Loans are provided through banks, NBFCs, and microfinance institutions (MFIs). 

Significance/Achievements of PMMY

• Deepening Financial Inclusion: With 57.79 crore loans and ₹40.07 lakh crore disbursed, PMMY has formalised credit access for millions and reduced dependence on informal lending systems. 

• Boost to First-Time Entrepreneurship: Nearly 12.15 crore first-time borrowers receiving ₹12 lakh crore reflects the scheme’s critical role in expanding India’s entrepreneurial base. 

• Employment & Micro-Economy Expansion: The dominance of Shishu loans (74% of accounts) indicates strong support for micro-enterprises, driving self-employment and local economic activity. 

• Women-led & Socially Inclusive Growth: With 67% women beneficiaries and 51% from SC/ST/OBC categories, PMMY has strengthened gender empowerment and inclusive development. 

• MSME Scaling & Credit Deepening: The rise in annual sanctions from ₹1.37 lakh crore (2015–16) to ₹5.65 lakh crore (2025–26), along with the Kishor–Tarun loan mix, shows a shift from survival to growth-oriented financing, supporting MSME expansion and the Viksit Bharat 2047 vision.

Challenges and Shortcomings of PMMY

• Rising NPAs and Credit Risk: The NPA rate under PMMY for Scheduled Commercial Banks has increased from 5.47% in March 2018 to 9.81% in March 2025, reflecting growing repayment stress in the scheme. 

• However, the NPA rate relative to disbursed loans remains moderate at 2.19% (March 2025), indicating that overall risk is still manageable but rising. 

• Nature of Collateral-Free Lending: Since PMMY loans are collateral-free and targeted at new and small entrepreneurs, they inherently carry higher credit risk compared to traditional lending, especially when borrowers lack prior credit history. 

• Financial Illiteracy and Poor Credit Discipline: As only 27% of Indian adults meet basic financial literacy standards (National Centre for Financial Education), leading to poor fund utilisation, weak business planning, and low repayment behaviour.

• Diversion and Misuse of Funds: Instances of loan diversion for personal consumption instead of productive business use have contributed to repayment defaults and asset quality concerns. 

• Structural Issues in MSME Financing: MSMEs continue to face constraints such as a lack of collateral, limited access to consultancy services, high borrowing costs, and inadequate financial information, which affect their repayment capacity. 

Way Forward

• Graduation-based Credit Scaling: With the introduction of Tarun Plus, PMMY should institutionalise a “graduation pathway” to transition successful borrowers into higher credit brackets and formal MSME financing, preventing credit ceilings and enabling enterprise scaling.

• AI & Fintech-driven Credit Underwriting: Banks and NBFCs should leverage AI-based predictive analytics using GSTN and UPI data, along with digital platforms like LOKOS and Digital Aajeevika Register, to improve credit assessment, enable real-time income tracking, and reduce NPAs.

• Convergence with SHG & Women-led Initiatives: Integrating PMMY with schemes like Lakhpati Didi Scheme and SHG ecosystems can enhance credit absorption and support women-led enterprises through market linkages such as SHE-Marts.

• Inclusion of Gig & Platform Workers: Expanding PMMY coverage under reforms like EASE 8.0 banking reforms to include gig and platform workers by recognising digital platforms as valid workplaces can deepen financial inclusion and formalise the urban informal economy.

Sources:
PIB
Mudra
Business Standard
Researchgate