Pradhan Mantri Mudra Yojana Update: Microfinance Accounts Shrink, NPA Levels Improve To 2.1%

The Pradhan Mantri Mudra Yojana (PMMY), launched a decade ago to provide microfinancing for small entrepreneurs, has seen shifts in loan disbursement patterns. Recently the loan limit amount was doubled to Rs. 20 lacs as a new category called Tarun Plus. was launched and added in the Mudra scheme by The Department of Financial Services (DFS) in the Finance Ministry in Union Budget 2024-25. However, the recent report suggests that Shishu loan accounts have shown a declining trend in the fiscal year 2023-24 (FY24), failing to recover to pre-Covid levels (FY19).

What is the Pradhan Mantri Mudra Yojana (PMMY)?

The Mudra Yojana is a government scheme launched on 8th April 2015 by Prime minister Naremdra Modi to provide easy access to credit for micro-enterprises, small businesses, and entrepreneurs in the unorganized sector. The scheme categorizes loans into three segments:

1. Shishu Loans Up toRs. 50,0000 for startups and very small businesses.
2. Kishore Loans: Between Rs. 50,000 and Rs. 5 lakh for growing businesses.
3. Tarun Loans AboveRs. 55 lakh for well-established enterprises.

In October 2024, the government introduced a new subcategory called Tarun Plus with a loan limit of up to Rs. 20 lakh, intended to finance larger micro-enterprises.

Major Updates and Trends in Mudra Yojana Loan Disbursement

The PMMY Scheme, when launched, was a huge success, and many companies profited from the same. The scheme till date has disbursed loans of over Rs. 23 trillion ever since it started. Currently, the Mudra Yojana is facing challenges such as rising defaulters among NBFCs and a declining number of Shishu loan accounts.

As per a recent research report from Business Standard, the share of Shishu loans in the Mudra account, which focuses on very small businesses, has dropped from 86.6% in FY19 to 63.2% in FY24. Meanwhile, Kishore loans have noted some gains while the share of Tarun loans has slightly reduced, despite the new Tarun Plus limit.

Region-wise, there has been a significant decline in loan accounts in the northeastern region, which fell from 15.3 million in FY19 to 13.8 million in FY24. This may be due to reduced economic activity in the region. Other parts of India as well, including the North and South, have also seen a reduction in Mudra loan accounts.

Currently, the majority of Mudra accounts are held by general category borrowers; however, their share has decreased from 53% in FY19 to 50% in FY24. The proportion of loans held by SC, ST, and OBC borrowers has remained almost consistent in the last 5 years. This calls for a need to have more inclusive access to credit for people coming from these marginalized sections.

Furthermore, the report also indicated that the number of women securing loans and owning mudra accounts has fallen as compared to the previous year. In FY19, 61.7% of the loan accounts were owned by women, which increased to 71% in 2023. However, this year it fell to 63.6%. This could imply that fewer women are taking out loans, although they may be securing larger loan amounts, moving towards more significant business ventures.

Rising Cases of Delinquencies in Mudra Accounts

While the Mudra yojana has been a major factor in the success of various MSMEs in India, it shouldn't be overlooked that there are a lot of challenges that the scheme is facing currently.

NBFCs and MFIs have reduced their disbursements under the Mudra scheme due to the increasing number of defaulters. Due to this the share of loans disbursed by NBFCs has nearly halved, from 15.03% in FY19 to 7.1% in FY24 as per the reports. Both public sector banks and RRBs have reduced the number slightly. Whereas the private sector banks have increased their share from 0.67% in FY19 to 0.95% in FY24.

Despite everything else, the Mudra Yojana has shown a major decrease in non-performing assets this year due to better loan recovery and improved asset quality. Total NPAs have dropped from 2.86% in FY19 to 2.1% in FY24. Regional rural banks and NBFCs have reported significant declines in NPA ratios in 2024.