As India celebrates 10 years of the Pradhan Mantri Mudra Yojana (PMMY), its role in transforming the financial ecosystem—particularly the banking sector, from one marked by opacity, inefficiency, and delays to a model of transparency and inclusivity—has been profound. Before 2014, countless small enterprises languished outside the formal credit system. PMMY changed that narrative by unlocking collateral-free loans, empowering millions of entrepreneurs, and turning micro dreams into macro impact.
By targeting the bottom of the pyramid, PMMY has demonstrated that banks can simultaneously drive financial inclusion and foster innovation, all while expanding business and customer bases, earning profits, reducing non-performing assets (NPAs), and achieving these goals without compromising one for the other.
Leap Toward Digital Integration of Informal Sector
The PMMY ambitiously targeted the vast informal sector—small businesses in India that traditionally relied on high-cost informal credit. Indian banks were nudged to be leaner and more efficient in their service delivery, utilizing Aadhaar-enabled payment systems (AEPS), mobile banking apps, and internet banking. They prioritized and transitioned quickly toward online systems for loan applications and disbursements. Platforms like UdyamiMitra and bank-specific tools streamlined the entire process, moving it from branch counters to digital interfaces.
This move accelerated India’s financial inclusion by streamlining credit access for micro-entrepreneurs, seamlessly connecting them to formal banking. Its tiered loan structure—Shishu (up to Rs. 50,000), Kishore (Rs. 50,001 to Rs. 5 lakh), Tarun (Rs. 5,00,001 to Rs. 10 lakh), and now Tarun Plus (up to Rs. 20 lakh)—supports businesses at every growth stage.
A vast network of banks, regional rural banks (RRBs), small finance banks, non-banking financial companies (NBFCs), and microfinance institutions (MFIs), backed by MUDRA’s refinancing support, ensured scalability. PMMY, along with PM Jan Dhan Yojana, ensured that previously unfunded and underserved people reaped benefits from the formal banking system.
Presently, about 50% of the 52 crore PM Mudra loan accounts are held by SC/ST and OBC communities and 11% by minorities. This speaks volumes about the empowerment of the marginalized. The loan ticket size rose from Rs. 38,000 in FY16 to Rs. 1.02 lakh in FY25, reflecting a significant deepening of credit access and business scaling among beneficiaries.
A Win-Win for Banks & MSMEs
The PMMY facilitated smarter risk management for Indian banks. Before 2014, Indian banks struggled with NPAs from large corporations. Some often fudged balance sheets to cope. Revenue streams were scarce, forcing banks to lend out of compulsion, which changed after the launch of PMMY in 2015.
The scheme paid off, and the banks shifted focus and turned to the resilient micro-enterprise segment. PMMY opened a profitable avenue with stronger risk management for the banks. Loans up to Rs. 20 lakh, backed by refinance and credit guarantees, lowered default risks. The NPAs of scheduled commercial banks (SCBs) dipped from 11% in March 2020 to 4% by March 2024. It proved more lucrative for micro, small, and medium enterprises (MSMEs) as concessional collateral-free credit access added to their attractiveness. Very soon, these small businesses became ideal hubs for aspiring entrepreneurs.
Similarly, even under the Mudra loan category, NPAs declined to 3.4% in the 2023-24 fiscal, reflecting that the mass lending of loans had not been at the cost of credit discipline. Instead, stringent checks and balances in the financial system were uniformly adopted as best practices for the priority sector.
Banks got a good deal as it reduced their concentration risk from big corporates, and the nation gained. Localized supply chains expanded, and small-scale innovation flourished. A “start-small-grow-big” mindset took root. The count of exporting MSMEs has jumped from 52,849 in 2020-21 to 1.7 lakh in just four years, by the end of 2024-25. Entrepreneurship became more democratic across India.
MSMEs now drive 30% of the Gross Value Added (GVA) and over 45% of exports (as of Feb 2025). Their exports soared from Rs. 4 lakh crore in 2020-21 to Rs. 12 lakh crore in 2024-25. For banks, PMMY opened a profitable avenue. For MSMEs, it delivered accessible credit. It’s a clear win-win rooted in smarter risk management.
Priority Sector Lending (PSL): A Reimagined Opportunity
There is no doubt that PMMY has fueled economic growth, employment, and self-reliance. By FY2025, it had sanctioned over Rs. 33 lakh crore, which proves that for Indian banks, these microloans—ranging from Rs. 50,000 (Shishu) to Rs. 20 lakh (Tarun Plus)—are no longer just a compliance burden but strategic growth levers. Fulfilling Priority Sector Lending (PSL) targets has been made easier for banks through PMMY.
Banks now dodge penalties and cut costs with smarter lending. Refinancing from MUDRA and credit guarantees lower risks. Low-cost digital tools track credit histories and sharpen decisions. Banks have easier and quicker access to potential beneficiaries’ data as they align more with India’s financial inclusion push. This is evident in the 12 public sector banks, which have achieved strong topline growth, lower NPAs, and improved return on equity (ROE). Most of them have shown strong profit growth, with net profits rising five-to-nine-fold over the last decade, coinciding with the 10-year journey of PMMY.
PMMY has transformed PSL into a profitable venture. It has synced banks’ gains with India’s self-reliance goals. Microloans thus lift both the underserved and banks, adding more harmony to the relationship.
Conclusion
PMMY’s decadal anniversary serves as a testament to India’s commitment to fostering a more inclusive and resilient financial system, one that supports the nation’s economic ambitions while empowering its citizens through accessible and innovative financial solutions. More than a scheme, it’s a pillar of India’s self-reliance, aligning with the nation’s vision of homegrown solutions for sustained economic growth, leading to a Viksit Bharat.
The views and opinions expressed here belong solely to the author and do not reflect the views of BlueKraft Digital Foundation.
