N4S:
The UPSC often frames questions on government schemes by combining policy intent with ground realities. Like in the 2014 PYQ on Aadhaar and NPR, it expects aspirants to not only explain a scheme’s objectives but also weigh its implications — development, equity, implementation concerns, and constitutional debates. That’s where aspirants often falter. They memorise features of schemes (like Shishu, Kishor, Tarun loans under MUDRA) but miss the critical lens — is the scheme truly solving the problem it set out to? Has it created lasting impact? What are the gaps? This article is crafted precisely to address that. It gives you more than a list of facts. It connects the dots — from “why MUDRA was needed” (to fight informal debt and promote self-employment), to “how the change played out” (like women SHGs starting tailoring units in Tiruchirappalli), and finally “where the system needs fixing” (rising NPAs and gender disparities in loan amounts). It helps you think in layers — the kind of thinking UPSC rewards.
This article examines the MUDRA scheme by connecting its policy goals with on-ground realities, which is exactly how UPSC frames questions. As seen in the 2014 question on Aadhaar and NPR, UPSC expects aspirants to go beyond listing features and assess a scheme’s actual impact.
Many aspirants memorise details like Shishu, Kishor, and Tarun loans but overlook critical issues such as effectiveness, inclusion, and long-term outcomes. This article addresses that gap. It explains why MUDRA was introduced, how it has played out through examples like women SHGs in Tiruchirappalli, and what challenges remain, including rising NPAs and unequal access. It encourages layered thinking that links intent, outcome, and reform — exactly the depth UPSC looks for in Mains answers.
PYQ ANCHORING
- GS 2: Two parallel run schemes of the Government viz. the Adhaar Card and NPR, one as voluntary and the other as compulsory, have led to debates at national levels and also litigations. On merits, discuss whether or not both schemes need run concurrently. Analyse the potential of the schemes to achieve developmental benefits and equitable growth [2014]
MICROTHEMES: Government Schemes and Policies
Back in April 2015, when the Pradhan Mantri MUDRA Yojana (PMMY) was launched, it promised to rewrite the credit story for India’s smallest entrepreneurs — the street vendor selling chaat, the tailor in a small town, the woman running a home-based pickle business. These were people who were often seen by banks as “too small to lend to,” surviving on high-interest informal loans or personal savings.
PMMY aimed to change that — to bring dignity to micro-entrepreneurship, to unlock dreams with formal credit, and to create a culture of self-employment beyond big cities and boardrooms.
Ten years later, the scheme has crossed major milestones in disbursal numbers and reach. But behind the celebration, some tough questions remain. Has MUDRA genuinely empowered the micro-entrepreneurs it set out to help? Is easy credit leading to sustainable growth — or just more debt ? And most importantly, is India building a robust support system beyond loans to help its smallest businesses thrive?
About Mudra Scheme // PRELIMS
| Feature | Details |
| Purpose | MUDRA was established to promote the development and refinancing of micro enterprises across the country. |
| Collateral-Free Loans | Loans are collateral-free (no need for security) and can go up to ₹20 lakh. |
| Who Provides the Loans (MLIs) | Loans are offered by Member Lending Institutions (MLIs), which include: |
| – Scheduled Commercial Banks (SCBs) | |
| – Regional Rural Banks (RRBs) | |
| – Non-Banking Financial Companies (NBFCs) | |
| – Micro Finance Institutions (MFIs) | |
| Loan Categories (Interventions) | The scheme has three categories of loans, depending on the business stage: |
| 1. Shishu – Loans up to ₹50,000 (for early-stage/startups) | |
| 2. Kishor – Loans from ₹50,001 to ₹5 lakh (for growing businesses) | |
| 3. Tarun – Loans from ₹5 lakh to ₹10 lakh (for well-established businesses ready to expand) | |
| Focus Areas | Supports income-generating activities in manufacturing, trading, services, and also agriculture-related activities. |
| Goal | To provide access to formal credit for small entrepreneurs, especially those in rural and underserved areas. |
Reasons of introducing Mudra Yojana
| Reason | Explanation |
| 1. Credit Gap for Small Businesses | Millions of small businesses in India were running without access to banks. They depended on moneylenders with high interest rates and tough terms. |
| 2. Encourage Job Creators, Not Job Seekers | The scheme promotes self-employment by enabling people to start or grow small businesses instead of waiting for government or private jobs. |
| 3. Boost to Financial Inclusion | It helps bring the informal sector into the formal financial system, especially marginalized communities, women, and rural entrepreneurs. |
| 4. Support the Non-Corporate Sector | Most of India’s economy runs on tiny, non-corporate setups (street vendors, repair shops, artisans, etc.) that were not bank-financed earlier. |
| 5. Fuel Grassroots Economic Growth | By helping small businesses grow, the scheme supports local jobs, incomes, and economic activity at the bottom of the pyramid. |
Change in the state of affairs brought by MUDRA
The MUDRA scheme transformed the state of affairs by giving small entrepreneurs, especially those in the informal and underserved sectors, access to formal, collateral-free, affordable credit — helping them grow, create jobs, and become financially empowered.
| Problem Before MUDRA | Change Brought by MUDRA |
| 1. No access to formal credit | Enabled collateral-free loans up to ₹10 lakh (later ₹20 lakh) through banks, NBFCs, and MFIs. |
| 2. Dependence on moneylenders | Replaced informal, high-interest borrowing with institutional credit at lower rates. |
| 3. Lack of customized support | Introduced Shishu, Kishor, Tarun categories based on business stage — startup to expansion. |
| 4. Marginalized groups excluded from banking | Brought SC/ST/OBCs (50%), women (68%), and minorities (11%) into the financial mainstream. |
| 5. Stagnant micro-enterprise growth | Encouraged upscaling of businesses — Kishor and Tarun loans grew significantly. |
| 6. No entrepreneurship culture in small towns/villages | Fostered a shift from job-seeking to job-creating, especially in rural and small-town India. |
| 7. Women were financially sidelined | Women became the majority beneficiaries, seeing higher average loan amounts and growing deposit trends. |
| 8. Informal sector lacked structure/support | Helped fund over 52 crore loans worth ₹32+ lakh crore, supporting ~10 crore jobs and building a credit history for many. |
IMPACT ASSESSMENT: REAL CHANGE OR HYPE ? /MAINS
The MUDRA scheme has brought visible change on the ground, but the impact is not uniform. While many success stories exist — especially in rural and semi-urban India — the scheme has also faced implementation and quality challenges.
Positive Changes
| Area of Impact | Examples & Outcomes |
| 1. Women-led Enterprises Grew | In Tamil Nadu’s Tiruchirappalli, women self-help groups used MUDRA loans to start tailoring units and food stalls. |
| 2. Local Entrepreneurship Boosted | In Uttar Pradesh, roadside vendors and small traders like tea sellers used Shishu loans (₹50,000) to formalize their setup. |
| 3. Credit History Creation | First-time borrowers (especially from SC/ST/OBC backgrounds) now have a credit record, allowing future financial access. |
| 4. Employment in Rural Areas | In Bihar and Odisha, MUDRA loans enabled small shops and service businesses, generating local employment. |
| 5. Upscaling by Existing Businesses | Many who started with a Shishu loan later moved to Kishor and Tarun categories, showing real business growth. |
Challenges and Criticism
| Issue | Reality on Ground |
| 1. Quality of Loans Questioned | A large share of loans are Shishu loans (small ticket), which may not always lead to real business transformation. |
| 2. Non-Performing Assets (NPAs) | NPAs under PMMY have risen to over 9%, indicating repayment stress in some cases due to poor business viability. |
| 3. Over-Indebtedness in Some Areas | In parts of Maharashtra and Telangana, multiple small loans have burdened borrowers, affecting creditworthiness. |
| 4. Lack of Business Support | Credit was given, but often without training or hand-holding, leading to poor business planning or misuse of funds. |
| 5. Gender Disparities in Usage | While women are 68% of beneficiaries numerically, a majority still get smallest loans (Shishu), reflecting inequality. |
MUDRA YOJANA: KEY ROLE IN REALISATION OF SDGs
| SDG Number | SDG Title | Contribution of MUDRA Yojana |
| SDG 1 | No Poverty | Provides micro-finance, lifting individuals from poverty by supporting micro-entrepreneurs. |
| SDG 5 | Gender Equality | 68% of beneficiaries are women, promoting their economic independence and financial inclusion. |
| SDG 8 | Decent Work and Economic Growth | Contributes to job creation and self-employment by providing financial support to micro-businesses. |
| SDG 10 | Reduced Inequality | Supports marginalized communities, with 50% of MUDRA accounts held by SC/ST/OBCs, and 11% by minorities. |
| SDG 9 | Industry, Innovation, and Infrastructure | Promotes small businesses in MSME sectors, fostering local industrial growth and infrastructure development. |
| SDG 12 | Responsible Consumption and Production | Encourages local production, supporting sustainable consumption patterns and small-scale industries. |
Way Forward
- Credit-Plus Model: Combine PMMY with schemes like Skill India, Startup India, and ODOP, offering digital tools, mentorship, and market connections. Example: South Korea’s KOSME provides financial and non-financial support, including mentoring and export promotion.
- Sector-Specific Targets: Focus MUDRA loans on sectors like agri-tech, renewable energy, health-tech, and EVs. Example: Germany’s KfW Bank offers targeted loans for green energy and tech startups.
- NPA Monitoring: Use AI-driven systems and community loan circles to improve repayment culture and prevent defaults.
- Formalization & Tax Incentives: Push borrowers to register under UDYAM, file returns, and link with GST/TReDS.
- Data & Impact Audits: Conduct annual audits and create public dashboards for enterprise outcomes. Example: UK’s British Business Bank.
- Regional Credit Ecosystems: Empower DLCCs to link PMMY with local centers like Krishi Vigyan Kendras, RSETIs, and CSCs. Example: Kenya’s Huduma Centres.
The MUDRA Yojana has made strides in democratizing credit and empowering women and marginalized communities. However, for India’s future, PMMY should evolve from mere loan distribution to fostering quality entrepreneurship, focusing on mentorship, monitoring, and sectoral integration.
#BACK2BASICS: MUDRA YOJANA
Achievements of MUDRA Yojana
- Massive Outreach & Mindset Shift: 52+ crore loans worth ₹32.61 lakh crore since 2015, encouraging people in small towns to start businesses.
- MSME Credit Growth: MSME loans grew from ₹8.51 lakh crore (2014) to ₹27.25 lakh crore (2024), with 20% of bank credit going to MSMEs.
- Women Empowerment: 68% of beneficiaries are women. Loan sizes growing at 13% annually, boosting financial independence.
- Inclusion of Marginalized Communities: 50% of accounts are held by SC/ST/OBCs, 11% by minorities, increasing formal financial inclusion.
- Growth-Stage Financing: 45% of loans are ₹50K–₹5 lakh, up from 5.9% in 2016, indicating business expansion.
- Rising Loan Size & Confidence: Average loan size increased from ₹38,000 (2016) to ₹1.02 lakh (2025), showing growing entrepreneurial confidence.
- Top Performing States & UTs: Tamil Nadu, UP, and Karnataka are top disbursers, with J&K leading among UTs.
- Funding the Micro Sector: Supports around 10 crore jobs, enhancing livelihoods and mobility.
Significance of MUDRA Yojana
- Financial Inclusion: 70% of beneficiaries are first-time borrowers, increasing access to credit.
- Democratizing Credit: Benefits first-time entrepreneurs from marginalized communities in rural and semi-urban areas.
- Boosting Entrepreneurship: MUDRA loans created 1.12 crore jobs (2015-2018). E.g., Lalita Devi started a tailoring business, now employing five women.
- Gender-Inclusive Policy: Increased female labor force participation from 23% to 41.7%. E.g., Shanti Devi expanded her papad-making business, increasing her income from ₹5,000 to ₹25,000.
- Supporting Informal Sector: Formalizes informal businesses. 30% of borrowers transitioned to formal credit lines.
- Aligning with SDGs: Supports SDG 8 (Decent Work) and SDG 5 (Gender Equality).
- Atmanirbhar Bharat: Promotes local manufacturing and self-reliance, especially post-COVID.
Challenges Faced by Micro-Enterprises
- Access to Finance: 30% of loan applications are rejected due to documentation issues.
- Infrastructure Gaps: Poor roads and unreliable electricity limit business scalability.
- Lack of Growth Orientation: 80% of loans support subsistence businesses, hindering growth.
- Skill Development Gaps: Only 25% of beneficiaries receive skill training.
- Policy Advocacy Needs: 40% of beneficiaries are unaware of tax exemptions like GST.
- Market Development Gaps: Only 15% of MUDRA products reach organized markets.
- Knowledge Gaps: 60% of borrowers don’t understand loan terms.
- Information Asymmetry: 35% of loan rejections are due to insufficient credit history.
- Entry-Level Tech Gaps: Only 20% of businesses use digital tools.
