From Renaissance Florence, where merchant bankers like Medicis financed small traders and catalysed birth of modern capitalism, to 19th-century America, where railroads were built on bonds and borrowing, one principle has held true: credit, not capital or charity, is the real engine of enterprise. Access to timely, affordable credit enables ambition to become action.
In India, this principle found new expression on April 8, 2015, with launch of the Pradhan Mantri MUDRA Yojana (PMMY). In the last decade, PMMY has effectively mainstreamed the millions excluded from formal finance.
In just a decade, PMMY has sanctioned over 52 crore loans worth ₹32.61 lakh crore, powering a silent transformation across India’s small towns and rural heartlands. These loans have gone to tea sellers, tailors, broom-makers, mobile repairers, salon owners, all micro-entrepreneurs who form backbone of India’s informal economy.
Under PMMY, women account for 68 per cent of all beneficiaries, and over 50 per cent of accounts are held by SC, ST, and OBC entrepreneurs, making PMMY one of the most socially inclusive credit programmes globally. The average loan size has grown nearly threefold, from ₹38,000 in FY16 to ₹1.02 lakh in FY25, reflecting increasing scale and confidence.
Notably, share of Kishor loans (₹50,000-₹5 lakh) rose from 5.9 per cent in FY16 to 44.7 per cent in FY25, and uptake of Tarun loans (₹5-10 lakh) and Tarun Plus (₹10-20 lakh) signals evolution from micro to small businesses.
Geographical spread
The geographical distribution of PMMY disbursals, led by Tamil Nadu (₹3.23 lakh crore), Uttar Pradesh (₹3.14 lakh crore), and Karnataka (₹3.02 lakh crore), demonstrates that access to institutional credit can unlock latent entrepreneurial potential across diverse economic geographies. High uptake reflects both underlying state capacity and presence of enabling institutional ecosystems. In labour-surplus States like Uttar Pradesh, disbursal trends suggest a shift toward credit-enabled self-employment in response to constrained formal job absorption.
Going beyond numbers, PMMY has several lessons for Global South. First, of foundational barriers to financial inclusion in Global South is exclusion of micro-enterprises from formal credit due to lack of collateral and documentation. PMMY addresses this by institutionalising collateral-free loans through a regulated network of financial intermediaries. However, PMMY’s effectiveness is significantly enhanced when paired with Jan Dhan Yojana (PMJDY), which created basic financial identity and universal bank accounts necessary for credit access. Together, these schemes resolve both liquidity and access constraints and enable a shift from informal to formal financial systems.
Second, PMMY’s tiered design, Shishu, Kishor, and Tarun, offers a life-cycle-based credit path for microenterprises to grow into small businesses. By linking loans to formal banking via PMJDY, it brings borrowers into digital, auditable systems early, enabling credit history building and lowering lender monitoring costs. This model is especially relevant for Global South economies.
Third, integration of PMMY with PMJDY has empowered previously excluded groups, especially women, SC/ST/OBCs, and minorities, by enabling their access to financial instruments. This dual policy intervention enhances both instrumental and intrinsic freedoms, particularly economic agency.
Fourth, the multi-institutional delivery model, via banks, NBFCs, and MFIs, combined with near-universal bank account coverage, exemplifies institutional layering that enhances last-mile delivery and systemic resilience.
Fifth, by expanding entrepreneurship to non-elite actors, model operationalises Lewis dual-sector framework, enabling surplus labour absorption and structural transformation.
NPA niggle
Finally, in November 2023, KPMG’s impact assessment of PMMY reported a year-on-year rise in both number and value of NPAs, with CAGR of 22.5 per cent and 36.6 per cent between FY17 and FY22. Public sector banks had highest NPA incidence, 22.6 per cent by accounts and 16.9 per cent by disbursal, while NBFCs fared better at 1.3 per cent and 0.5 per cent, respectively. Among loan categories, Shishu segment consistently had the most NPA accounts, whereas Kishor loans contributed highest NPA value since FY18.
Critics often cite rising NPAs as a flaw, but this overlooks two points. First, the data spanCovid-19 period, which naturally elevated defaults. Second, from a developmental finance perspective, defaults are a structural byproduct of credit deepening in informal, high-risk markets. These NPAs reflect systemic frictions, not just borrower risk, and are inherent to state-led financial inclusion models, where state internalises quasi-fiscal risks to expand market access.
Importantly, high NPA levels have not led to scheme’s rollback. This indicates a deliberate policy equilibrium where state accepts default risks as trade-offs for employment generation, livelihood creation, and microenterprise formalisation, prioritising development over strict financial viability.
The tolerance of such risk levels reflects a political economy calculus in which financial viability is subordinated to distributional and developmental imperatives.
The writer is a public policy professional. Views expressed are personal
Published on April 15, 2025
