Why in the News?

April 8, 2025, marks the 10th anniversary of Pradhan Mantri MUDRA Yojana (PMMY), launched to fund micro and small enterprises.

About the Pradhan Mantri MUDRA Yojana (PMMY)

The PMMY, launched in 2015 is a Central Sector Scheme designed to provide financial support to non-corporate, non-farm small and micro-entrepreneurs previously excluded from the formal financial system.
MUDRA stands for Micro Units Development & Refinance Agency Ltd., a financial institution established to support the development and refinancing of micro-enterprises
It aims to foster grassroots entrepreneurship and remove barriers to accessing loans, especially for businesses that lack collateral.

1. Shishu: Loans up to ₹50,000 for new or small businesses.
2. Kishore: Loans ranging from ₹50,000 to ₹5 lakh for growing enterprises.
3. Tarun: Loans from ₹5 lakh to ₹10 lakh for more established businesses with greater capital needs.
4. TarunPlus: Loan limit up to ₹20 lakh for more established and larger businesses (since July 2024).

Collateral-Free Loans: PMMY loans do not require any collateral, making them accessible to those without assets.
Member Lending Institutions (MLIs): These include Public Sector Banks, Private Sector Banks, Regional Rural Banks, Micro Finance Institutions (MFIs), Non-Banking Financial Companies (NBFCs), and Small Finance Banks (SFBs).
Credit Guarantee: Loans are backed by the Credit Guarantee Fund for Micro Units (CGFMU), which was established in 2015 to provide security to financial institutions offering loans under PMMY.
MUDRA Card: A MUDRA card is issued to manage the working capital portion of the loan, providing convenience to the borrower.

MUDRA 2.0 (launched in Union Budget 2024) is an upgraded version of the original PMMY, designed to extend its outreach, particularly in rural and semi-urban areas.
This version introduces additional services such as financial literacy programs, business mentorship, and comprehensive business support, aiming to improve the overall impact of the scheme.
Enhanced Credit Guarantee Scheme (ECGS) is a new feature introduced to encourage more lending to small and microenterprises by reducing the risk for financial institutions.

Massive Loan Disbursement: Over ₹32.61 lakh crore disbursed through 52 crore loans, benefitting millions.
Inclusivity: 69% of loans are held by women, 51% by SC/ST and OBC entrepreneurs.
Job Creation: Promoted self-employment and business growth in rural and semi-urban areas.
MSME Credit Growth: Lending increased from ₹8.51 lakh crore in FY14 to ₹27.25 lakh crore in FY24.
International Recognition: Praised by IMF for expanding financial access, especially for women-led businesses.

Increase in NPAs: Rising defaults due to lack of collateral.
Disbursement Delays: Some banks face challenges in meeting loan targets.
Fraud Risk: Collateral-free loans are susceptible to misuse and fraud.
Larger Loan Limits: Higher limits under TarunPlus raise default risks for banks.
Default Risk: Some borrowers exploit the system through “evergreening” tactics.

[UPSC 2016] Pradhan Mantri MUDRA Yojana is aimed at

(a) bringing small entrepreneurs into the formal financial system.

(b) providing loans to poor farmers for cultivating particular crops.

(d) funding the voluntary organizations involved in the promotion of skill development and employment generation.