Pradhan Mantri Mudra Yojana (PMMY)

Background and Purpose

• Launched in 2015, this is a Central Sector Scheme.
• It was created to solve one of the biggest problems faced by small businesses in India: lack of access to affordable credit.
• Target group: non-corporate, non-farming micro and small enterprises (like shopkeepers, artisans, service providers, and small manufacturers).
• Loan limit: Credit requirement up to ₹20 lakh.

👉 In short, PMMY was designed to “fund the unfunded”—bringing millions of small entrepreneurs into the formal financial system.

Objectives

1. To provide collateral-free loans to small and micro enterprises.
2. To extend affordable credit to MSMEs, especially those left out of formal banking.
3. To promote financial inclusion and support marginalized communities.

Key Institution – MUDRA Ltd.

• MUDRA stands for Micro Units Development and Refinance Agency Ltd.
• It is not a direct lender. Instead, it works as a refinancing agency.
• Registered as a Company under the Companies Act, 2013 and as an NBFC with RBI.
• Provides refinance support to:
  • Banks
  • NBFCs
  • Micro Finance Institutions (MFIs)

Loan Categories (Based on Stage of Business Growth)

1. Shishu → Loans up to ₹50,000 (Highest Priority)
2. Kishor → Loans above ₹50,000 and up to ₹5 lakh
3. Tarun → Loans above ₹5 lakh and up to ₹10 lakh
4. Tarun Plus → Loans above ₹10 lakh and up to ₹20 lakh (Lowest Priority)

👉 These categories symbolize the growth stages of an enterprise → from “infant” (Shishu) to “youth” (Tarun).

Salient Features

(i) Credit Access

• Loans available through Banks, MFIs, NBFCs, and also via the Udyami Mitra portal.
• Nature of assistance: Term Loan, Overdraft Limit, Working Capital, or Composite Loans.

(ii) Collateral-Free Loans

• No need for collaterals.
• Loans are guaranteed by Credit Guarantee Fund for Micro Units (CGFMU).

(iii) Interest Rates

• Interest rates are deregulated (decided by banks).
• Special incentives:
  • 2% interest subvention (rebate) for Shishu loans on prompt repayment (for 12 months).
  • 25 bps interest rate reduction for loans to women entrepreneurs.

(iv) Innovative Facilities

• Mudra Card: Functions like a debit card providing overdraft facility (working capital arrangement).
• Mudra Mitra App: A mobile application that helps loan seekers connect with bankers.

Sectors Covered

• Manufacturing
• Trading
• Services
• Activities allied to agriculture (but not core farming).

Significance

• PMMY is one of the largest financial inclusion initiatives for small entrepreneurs in the world.
• It bridges the gap between informal moneylenders and the formal banking system.
• By targeting small businesses, it contributes directly to employment generation and local economic growth.

✅ In summary:
The Pradhan Mantri Mudra Yojana (PMMY) is a flagship scheme that empowers India’s small entrepreneurs by offering collateral-free loans up to ₹20 lakh, categorized as Shishu, Kishor, Tarun, and Tarun Plus. Implemented through MUDRA Ltd. and supported by banks and MFIs, it provides not only credit but also digital tools like the Mudra Card and Mudra Mitra app. Its motto is clear: to fund the unfunded and strengthen the backbone of India’s economy—the micro enterprises.