Introduction

Over the past 11 years, India’s financial landscape has been transformed by unprecedented access to credit for crores of citizens, advancing social equity, and fueling inclusive economic growth, powered by policies of the government led by Prime Minister Narendra Modi.

In particular, the Pradhan Mantri Mudra Yojana (PMMY) has revolutionized the financial ecosystem, particularly the banking sector, from one marked by opacity, inefficiency, and delays to a model of transparency and inclusivity.

In the early 2000s, India’s financial system was skewed. Banks prioritized large corporations and well-connected borrowers, leaving small entrepreneurs, artisans, and shopkeepers at the mercy of exploitative moneylenders. The poor, who formed the backbone of India’s informal economy, were invisible to the banking sector.

India’s economic landscape was reimagined under the national leadership that assumed office in 2014. To achieve scale and speed, it discarded the conventional trickle-down policies by empowering the masses directly. MUDRA, or Micro Units Development and Refinance Agency, was born to bridge this gap, offering collateral-free loans to micro-enterprises and individuals who had never before been trusted by formal financial institutions.

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 NPAs, and achieving these goals without compromising one for the other.

Leap Toward Digital Integration of the Informal Sector

The PM Mudra Yojana (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 towards online systems for loan applications and disbursements. Platforms like Udyamimitra and bank-specific tools streamlined the 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 lakhs), Tarun (Rs. 5,00,001 to Rs. 10 lakhs), and now Tarun Plus (up to Rs. 20 lakhs)—supports businesses at every growth stage.

A vast network of banks, RRBs, small finance banks, NBFCs, and MFIs, backed by MUDRA’s refinancing, ensured scalability. PMMY, along with PM Jan Dhan Yojana, ensured that previously unfunded and underserved people reaped benefits from the formal banking system.

By April 2025, the numbers told a story of unprecedented scale and trust. Over 52 crore loans had been disbursed without requiring guarantees, a testament to MUDRA’s faith in the potential of ordinary Indians.

Such an unprecedented trust-based approach shattered the barriers of conventional banking, which often demanded assets that the poor simply didn’t have. The speed of delivery was staggering: 100 loans were approved in the time it took a traffic light to turn green, 400 during a single radio song, and 1,000 in the span of an instant delivery order. During a single episode of an OTT show, 5,000 loans were transforming lives. This wasn’t just microfinance; it was a mega grassroots transformation, channeling Rs. 33 lakh crores—larger than the GDP of many nations—directly into the hands of villagers, small-town entrepreneurs, and first-time entrepreneurs.

A Win-Win for Banks & MSMEs

The PM Mudra Yojana (PMMY) facilitated smarter risk management for Indian banks. Before 2014, Indian banks struggled with Non-Performing Assets (NPAs) from large corporations. Some often-fudged balance sheets to cope. Revenue streams were scarce, forcing banks to lend out of compulsion. After 2014, things changed.

The launch of PM Mudra Yojana in 2015 was timely. Banks shifted focus and turned to the resilient micro-enterprise segment. The scheme paid off. For banks, PMMY opened a profitable avenue with stronger risk management. Loans up to Rs. 20 lakhs, 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 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, the stringent checks and balances in the financial system were even being uniformly adopted as a best practice for the sector.

Banks secured a good deal as it reduced their concentration risk from big corporations. The nation gained too. Localized supply chains grew. Small-scale innovation thrived. A "start-small-grow-big" mindset took root. The count of exporting MSMEs has jumped from 52,849 in 2020-21 to almost 2 lakhs in just four years, ending 2024-25. Entrepreneurship became more democratic across India.

MSMEs now drive 30% of the GVA and over 45% of exports (as of Feb 2025). Their exports soared from Rs. 4 lakh crores in 2020-21 to Rs. 12 lakh crores in 2024-25. For banks, PMMY opened a profitable avenue. For MSMEs, it delivered accessible credit. It has become a clear win-win rooted in smarter risk management.

A Reimagined Opportunity

There is no doubt that PMMY has fueled economic growth, employment, funded the unfunded and self-reliance. By 2025, it has sanctioned over Rs. 33 lakh crores, which proves that for Indian banks, these microloans—ranging from Rs. 50,000 (Shishu) to Rs. 20 lakhs (Tarun Plus)—are no longer just a compliance burden but strategic growth levers. Fulfiling Sector Lending (PSL) targets has been made easier for banks through PMMY.

Banks now dodge penalties and cut costs with smarter lending. Refinance 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 are more aligned with India’s financial inclusion push. It is evident in the 12 Public Sector Banks, which have achieved strong topline growth, lower NPAs, and improved ROE. Most of them have demonstrated strong profit growth, with net profits rising five to ninefold over the last decade, coinciding with the 10-year journey of PMMY.
PMMY syncs banks’ gains with India’s self-reliance goals. Microloans thus lift both the underserved and banks, adding more harmony to the relationship.

PMMY 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.