This study focuses on understanding the design and implementation of the Pradhan Mantri Mudra Yojana to generate insights on early performance trends.
In India, close to 51 million MSME units employ about 117 million people across various sectors, constituting 40% of the workforce. The MSME share to the total Gross Domestic Product (GDP) is about 37% and they also contribute to 43% of exports based on the data maintained by the Ministry of Commerce. This sector has long been regarded as the ‘nursery of entrepreneurship”, featuring a heterogeneous set of business models, practices and technologies. Despite their great potential, the sector faces several constraints to growth. Although the government has launched several initiatives to fund MSMEs, reports suggest an overall low use of credit facilities and MSME sector credit depth. To facilitate the MSME sector to improve its credit record, the government launched the Pradhan Mantri Mudra Yojana (PMMY) in April 2015. PMMY provides loans to micro-enterprises/units in the manufacturing, trading and services sector including allied agricultural activities with credit limits of up to INR. 10 Lakhs. The study focuses on understanding the design and implementation of PMMY to generate insights on early performance trends.
The study is comprised of three components. The first component is a deep-dive analysis of PMMY performance from the administrative data collected by MUDRA. This data includes disbursement metrics and key portfolio characteristics for all MLIs and all loan size categories, by state and district and for each year between 2015-2017.
The first component is complemented by two small-scale field surveys in three financially well-developed districts— Kolkata, Ludhiana and Rajkot. The first is a survey of 176 active MSME borrowers designed to understand the contract features, transaction costs and eventual use of enterprise loans as well as the business, financial and socioeconomic characteristics of borrowers.
The third research component is also a small-scale primary survey in the same districts as above. 21 MLIs active in these districts were chosen, and semi-structured qualitative surveys were administered to the respective frontline loan officers tasked with identifying suitable borrowers and managing the last-mile delivery of the scheme. The interviews focused on understanding the underwriting guidelines and loan processing for PMMY loans vis-a-vis other MSME loans, as well as the service climate for and perspectives of frontline loan officers.
The theory of change served as a relevant framework to comprehensively track scheme performance and to retool for efficacy where needed. The study recommends such a framework as it can serve as the foundation for ongoing scheme supervision, target-setting and administrative data collection. The study also broadly recommends expanding the scope of MUDRA’s administrative data to include broad categories of type and loan features and standardizing new entrepreneurs for all MLIs. The study also recommends the government take care of the long turnaround time for loan processing reported both by frontline loan officers at banks as well as MSME borrowers as clients of banks.
While the scope of this report is limited by a set of initial objectives, the understanding gained during the course of the study can be leveraged for continued policy research that could support and inform critical design improvements and enhanced supervision of PMMY.