Pradhan Mantri Mudra Yojana

Background and evolution

Earlier attempts to support micro enterprises included the priority-sector lending rules for banks, the SIDBI microfinance programme and the SHG–bank linkage model, but none created a single national brand with loan categories designed around stages of business growth. MUDRA's tiered structure was meant to give borrowers a ladder to climb as their businesses grew.

India has many millions of tiny enterprises: tailors, food stalls, repair shops, small manufacturers and transport operators. Most of them are run by one person or a family, keep few records and have no property to offer as collateral, so banks have been reluctant to lend to them. Many therefore borrow from moneylenders at high rates or use personal savings, which limits their growth. The phrase "funding the unfunded" was used when the scheme was launched to describe this gap.

The Pradhan Mantri Mudra Yojana was announced in the 2015–16 Budget and launched in April 2015. Rather than create a new lending bank, the government set up MUDRA (Micro Units Development and Refinance Agency) Ltd as a refinance and support institution under SIDBI. Banks, regional rural banks, small finance banks, NBFCs and microfinance institutions make the loans; MUDRA refinances them and supports the ecosystem. This page focuses on the scheme as a credit design for micro enterprises, rather than on the broader informal economy.