Pradhan Mantri Mudra Yojana (PMMY)

Overview

The Pradhan Mantri Mudra Yojana (PMMY) is a Central Sector Scheme launched on 8 April 2015 to provide collateral-free loans up to ₹10 lakh (now ₹20 lakh under Tarun Plus) to non-corporate, non-farm small and micro enterprises. The scheme is implemented through MUDRA (Micro Units Development and Refinance Agency Ltd), a refinancing institution set up as a subsidiary of SIDBI (Small Industries Development Bank of India).

In its first decade (FY 2015-16 to FY 2024-25), PMMY has sanctioned over 52 crore loans worth ₹32.61 lakh crore, making it one of the largest micro-credit programmes in the world. Nearly 68% of all MUDRA loans have been sanctioned to women entrepreneurs, underscoring the scheme’s role in gender-inclusive economic empowerment. In FY 2024-25 alone, 4.79 crore loans were sanctioned amounting to ₹5.03 lakh crore.

Loan Categories

PMMY loans are classified into four categories based on the stage of growth and funding needs of the enterprise:

Tarun Plus (Introduced FY 2024-25)

Announced in the Union Budget 2024-25, the Tarun Plus category extends the PMMY loan limit to ₹20 lakh for borrowers who have successfully repaid a previous loan under the Tarun category. This is at the discretion of the lending bank and rewards creditworthy micro-entrepreneurs with higher credit access.

Key Features

Refinancing Model

MUDRA is a refinancing institution — it does not lend directly to entrepreneurs. Instead, it refinances loans given by Member Lending Institutions (MLIs) including:

• Public Sector Banks
• Private Sector Banks
• Regional Rural Banks (RRBs)
• State Cooperative Banks
• Small Finance Banks
• Micro Finance Institutions (MFIs)
• Non-Banking Financial Companies (NBFCs)

Eligible Borrowers

• Individuals
• Proprietary concerns
• Partnership firms
• Private and public limited companies
• Any other legal form engaged in non-farm income-generating activities

Collateral-Free

All MUDRA loans are collateral-free — no security or guarantee is required from the borrower. The Credit Guarantee Fund for Micro Units (CGFMU), managed by NCGTC, provides credit guarantee cover for MUDRA loans.

Interest Rates

Interest rates are not fixed by the government but determined by the lending institution based on RBI guidelines. Rates typically range from 7.30% to 12% per annum depending on the bank, loan category, and borrower profile.

Performance Statistics

State-wise Top Performers (Cumulative, as of February 2025)

Women Empowerment

• 68% of total loans (approximately 35+ crore accounts) sanctioned to women entrepreneurs.
• Per-woman PMMY disbursement grew at a CAGR of 13% from FY16 to FY25, reaching ₹62,679 per borrower.
• Per-woman incremental deposits grew at CAGR of 14%, reaching ₹95,269.

NPA Concerns

The NPA rate for MUDRA loans under Scheduled Commercial Banks has risen from 5.47% (March 2018) to 9.81% (March 2025). This is a significant policy concern, as the collateral-free nature of the loans and the target demographic (first-time entrepreneurs) make recovery challenging.

Latest Developments

• April 2025: PMMY completed 10 years since its launch, with cumulative sanctions crossing ₹32.61 lakh crore across 52+ crore loans.
• FY 2024-25: 4.79 crore loans sanctioned worth ₹5.03 lakh crore; disbursement of ₹4.92 lakh crore.
• Union Budget 2024-25: Introduced Tarun Plus category with loan limit of ₹20 lakh for borrowers with good repayment history.
• March 2025: NPA rate under SCBs at 9.81%, up from 5.47% in March 2018 — a growing concern flagged by RBI and CAG.
• FM Sitharaman stated that PMMY continues to empower small entrepreneurs with collateral-free loans and remains a flagship programme for financial inclusion.
• Tamil Nadu, Uttar Pradesh, and Karnataka are the top three states by cumulative disbursement.

Prelims Importance

• Launched on 8 April 2015; type: Central Sector Scheme
• MUDRA is a refinancing institution (subsidiary of SIDBI); does not lend directly
• Four categories: Shishu (up to ₹50,000), Kishore (₹50,001-₹5 lakh), Tarun (₹5-10 lakh), Tarun Plus (₹10-20 lakh)
• Tarun Plus introduced in Union Budget 2024-25 for repeat borrowers with good repayment record
• All loans are collateral-free
• Credit guarantee: CGFMU managed by NCGTC
• Cumulative (10 years): 52+ crore loans, ₹32.61 lakh crore sanctioned
• 68% of beneficiaries are women entrepreneurs
• NPA rate (SCBs): 9.81% as of March 2025
• Top states by disbursement: Tamil Nadu, Uttar Pradesh, Karnataka
• Interest rates determined by lending institution (not fixed by government)
• MUDRA full form: Micro Units Development and Refinance Agency Ltd

Mains & Interview Importance

GS Paper 3 — Economy (Financial Inclusion, MSME Growth):

• Evaluate the impact of PMMY in promoting financial inclusion and micro-entrepreneurship over its first decade. Has it succeeded in creating sustainable enterprises or merely disbursed loans?
• Discuss the rising NPA rate under PMMY (9.81% in 2025). What structural reforms are needed to improve repayment rates while maintaining the collateral-free character of the scheme?
• Analyse the role of MUDRA as a refinancing institution. Is the current institutional architecture adequate for the scale of micro-lending in India?

GS Paper 2 — Governance (Women Empowerment):

• With 68% of MUDRA loans going to women, discuss how PMMY has contributed to women’s economic empowerment. What complementary measures are needed to ensure these loans translate into viable businesses?

Interview Angle:

• “PMMY has disbursed ₹32.61 lakh crore in 10 years, but the NPA rate is nearly 10%. Critics call it a loan mela. Defenders say it has created millions of first-generation entrepreneurs. Where do you stand?”
• “Should the government fix interest rates on MUDRA loans to make them truly affordable, or would that create moral hazard?”