IMPACT OF MUDRA YOJANA ON FINANCIAL INCLUSION

CHAPTER NO. 1

INTRODUCTION

1. MUDRA Yojana (MICRO UNIT DEVELOPMENT AND

REFINANCE AGENCY LTD.)

MUDRA scheme launched by Hon’ble Prime Minister on April 8, 2015 for providing loan up
to Rs. 10 lakh to the non-corporate, non-farm small/micro enterprises. This scheme launched
with the objective of the micro unit to encourage entrepreneurship in India and provide
funding to the non-corporate small business sector. MUDRA would benefit fruits and
vegetable sellers, food service units, machine operators, truck and taxi operators, hair salons,
repair shops, artisans etc. in a rural and urban area with financing requirement depending
upon the business category (i.e. Shishu, Kishore and Tarun) of the entrepreneur. These
MUDRA loans are given by commercial banks, RRBs, small finance banks, cooperative
banks, MFIs, and NBFCs. The offerings of MUDRA are shown below in below figure 1.1.

MUDRA’s delivery channel is conceived to be through the route of refinance primarily to

Banks/ NBFCs/MFIs and they are have been named ‘Shishu’, ‘Kishor’ and ‘Tarun’ to signify
the stage of growth / development and funding needs of the beneficiary micro unit /
entrepreneur and also to provide a reference point for the next phase of graduation / growth to
look forward Micro Credit Scheme (MCS) for loans upto. The funding support from
MUDRA is of four types: Rs.1 lakh finance through MFIs. The mode of delivery through
groups like SHGs/JLGs, the loans are given to the individuals for specific income generating
micro enterprise activity. The MFIs for availing financial support need to enroll with
MUDRA by complying with some of the requirements as notified by MUDRA, from
Refinance Scheme for Commercial Banks / Regional Rural Banks (RRBs) / Scheduled Co-

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operative Banks. It is available for term loan and working capital loans, up to an amount of
10 lakh per unit. The eligible banks, which have enrolled with MUDRA by complying with
the requirements as notified, can avail of refinance from MUDRA for the loan issued under
Shishu, Kishor, Women Enterprise programme to encourage and Tarun categories. women to
take up entrepreneurship Securitization of loan portfolio - MUDRA also supports Banks /
NBFCs / MFIs for raising funds for financing micro enterprises by participating in
securitization of their loan assets against micro enterprise portfolio, by providing second loss
default guarantee, for credit enhancement and also participating in investment of Pass
Through Certificate (PTCs) either as Senior or Junior. The target clients of MUDRA are any
Indian Citizen who has a business plan for a non-farm income generating activity such as
manufacturing, processing, trading or service sector whose credit need is less than 10 lakh
can approach either a Bank, MFI or NBFC for availing of MUDRA loans under PMMY

Micro Units Developments and Refinance Agency (MUDRA) is a scheme which is launched
by Indian Prime Minister on 8 April 2015 for promoting the small medium Enterprises by
providing fund facility setting up of the MUDRA. Bank was announced as part of the Union
Budget proposals for Financial year 2015-16, while its conceptual vision was announced
earlier by the Indian Prime Minister as part of PRADHAN MANTRI MUDRA YOJANA a

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scheme for funding the unfunded. MUDRA stands for Micro Units Development &
Refinance Agency Ltd. To remove the financial difficulties faced by micro and small
business units the government of India launched a scheme on 8th April 2015 called Micro
Unit Development and Refinance Agency, or MUDRA to funding the unfunded. MUDRA is
still not a fully-fledged bank and is in its initial stages. Mudra Bank will associate with local
coordinators and provide finance to “Last Mile Financiers” of small/micro businesses. It is
envisaged that the measures to be taken up by MUDRA shall be targeted towards
mainstreaming skilled workers educated youth and entrepreneurs, apart from NCSBS(Non
Corporate Small Business Sector), who lie between the very poor small borrowers like
farmers, low income households, and migrant work force at one end and very poor small
borrowers like low income households, farmer, migrant work large industrial credit seekers
force at the other end of financing spectrum. It is not a direct lending institution but provides
loans at low rates to banks, microfinance institutions and nonbanking financial institutions,
which then provide credit to MSMEs or informal enterprise sector. The small businesses,
with a little help, have the prospective to grow assorted. The MUDRA scheme is planned at
“funding the unfunded”. The money lenders exploit the small entrepreneurs of India so far,
but MUDRA will in- still a new self-confidence in them that the country is ready to support
them in their efforts that are contributing so strongly to the task of nation building. It is
established as a subsidiary of SIDBI, which has been supporting India’s small-scale industry
since last 26 years.

1.1 OBJECTIVES OF MUDRA YOJANA

Pradhan Mantri Mudra Yojana has come as a boon for MSME (Micro, small and
medium Enterprises) sector and is widely hailed as a robust measure to achieve inclusive
growth. The Principal Objectives of the MUDRA Bank under Mudra Yojana:
 Regulate the lender and the borrower of microfinance and bring stability to the
microfinance system through regulation and inclusive participation.
 Extend finance and credit support to Microfinance Institutions (MFI) and agencies
that lend money to small businesses, retailers, self-help groups and individuals.
 Register all MFIs and introduce a system of performance rating and accreditation for
the first time. This will help last-mile borrowers of finance to evaluate and approach
the MFI that meets their requirement best and whose past record is most satisfactory.

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This will also introduce an element of competitiveness among the MFIs. The ultimate
beneficiary will be the borrower.
 Provide structured guidelines for the borrowers to follow to avoid failure of business
or take corrective steps in time. MUDRA will help in laying down guidelines or
acceptable procedures to be followed by the lenders to recover money in cases of
default.
 Develop the standardised covenants that will form the backbone of the last-mile
business in future.
 Offer a Credit Guarantee scheme for providing guarantees to loans being offered to
micro businesses.
 Introduce appropriate technologies to assist in the process of efficient lending,
borrowing and monitoring of distributed capital.
 Build a suitable framework under the Pradhan Mantri MUDRA Yojana for
developing an efficient last-mile credit delivery system to small and micro businesses

1.2 Brief of Prandhan Mantri Mudra Yojana

Under the aegis of Pradhan Mantri Mudra Yojana (PMMY), MUDRA has created products/
schemes. The interventions have been named 'Shishu', 'Kishore' and 'Tarun' to signify the
stage of growth / development and funding needs of the beneficiary micro unit / entrepreneur
and also provide a reference point for the next phase of graduation / growth to look forward
to:
Shishu loan : covering loans upto 50,000/-
Kishor loan : covering loans above 50,000/- and upto 5 lakh
Tarun loan : covering loans above 5 lakh and upto 10 lakh
With an objective to promote entrepreneurship among the new generation aspiring youth,
it is ensured that more focus is given to Shishu Category Units and then Kishore and Tarun
categories. Within the framework and overall objective of development and growth of micro
enterprises sector under Shishu, Kishore and Tarun, the products being offered by MUDRA
are so designed, to meet requirements of different sectors / business activities as well as
business/ entrepreneur segments.

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1.3 Mudra Vision

"To be an integrated financial and support services provider par excellence benchmarked
with global best practices and standards for the bottom of the pyramid universe for their
comprehensive economic and social development."

1.4 Mudra Mission

"To create an inclusive, sustainable and value based entrepreneurial culture, in collaboration
with our partner institutions in achieving economic success and financial security."

1.5 The funding support from MUDRA are of four types:

 Micro Credit Scheme (MCS) for loans up to 1 lakh finance through MFIs.
 Refinance Scheme for Commercial Banks / Regional Rural Banks (RRBs) / Small
Finance Banks / Non-Banking Financial Companies (NBFC's).
 Women Enterprise Programmes
 Securitization of Loan Portfolio

1.5.1 Micro Credit Scheme:

Micro Credit Scheme is offered mainly through Micro Finance Institutions
(MFIs), which deliver the credit upto Rs.1 lakh, for various micro enterprise
activities. Although, the mode of delivery may be through groups like SHGs/JLGs,
the loans are given to the individuals for specific income generating micro
enterprise activity. The MFIs for availing financial support need to enroll with
MUDRA by complying to some of the requirements as notified by MUDRA, from
time to time.

1.5.2 Refinance Scheme for Banks/NBFCs

Different banks like Commercial Banks, Regional Rural Banks and
Scheduled Cooperative Banks are eligible to avail of refinance support from
MUDRA for financing micro enterprise activities. The refinance is available for
term loan and working capital loans, upto an amount of 10 lakh per unit. eligible
banks, which have enrolled with MUDRA by complying with the requirements as

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notified, can avail of refinance from MUDRA for the loan issued under Shishu,
Kishor and Tarun categories.
The funding supports from MUDRA are of four types:

1.5.3 Women Enterprise Programmes:

In order to encourage women entrepreneurs the financing banks / MFIs
may consider extending additional facilities, including interest reduction on their
loan. At present, MUDRA extends a reduction of 25bps in its interest rates to
MFIs / NBFCs, who are providing loans to women entrepreneurs.

1.5.4 Securitization of Loan Portfolio:

MUDRA also supports Banks / NBFCs / MFIs for raising funds for
financing micro enterprises by participating in securitization of their loan assets
against micro enterprise portfolio, by providing second loss default guarantee, for
credit enhancement and also participating in investment of Pass Through Certificate
(PTCs) either as Senior or Junior investor.

1.6 Purpose of MUDRA loan

Our basic purpose is to attain development in an inclusive and sustainable manner by
supporting and promoting partner institutions and creating an ecosystem of growth for micro
enterprises sector. Mudra loan is extended for a variety of purposes which result in income
generation and employment creation. The loans are extended mainly for:

 Business loan for Vendors, Traders, Shopkeepers and other Service Sector activities
 Working capital loan through MUDRA Cards
 Equipment Finance for Micro Units
 Transport Vehicle loans – for commercial use only
 Loans for agri-allied non-farm income generating activities, e.g. pisciculture. bee
keeping, poultry farming, etc.
 Tractors, tillers as well as two wheelers used for commercial purposes only.

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Following is an illustrative list of the activities that can be covered under MUDRA loans:

1.6.1 Transport Vehicle

Purchase of transport vehicles for transportation of goods and passengers such as auto
rickshaws, small goods transport vehicles, 3 wheelers, e-rickshaws, taxis, etc.
Tractors/Tractor Trolleys/Power Tillers used only for commercial purposes are also eligible
for assistance under PMMY. Two Wheelers used for commercial purposes are also eligible
for coverage under PMMY.

1.6.2 Community, Social & Personal Service Activities

Salons, beauty parlours, gymnasium, boutiques, tailoring shops, dry cleaning, cycle and
motorcycle repair sho1.ps, DTP and Photocopying Facilities, Medicine Shops, Courier
Agents, etc.

1.6.3 Food Products Sector

Activities such as papad making, achaar making, jam/jelly making, agricultural produce
preservation at rural level, sweet shops, small service food stalls and day to day catering /
canteen services, cold chain vehicles, cold storages, ice making units, ice cream making units,
biscuit, bread and bun making, etc.

1.6.4 Textile Products Sector / Activity

Handloom, powerloom, khadi activity, chikan work, zari and zardozi work, traditional
embroidery and hand work, traditional dyeing and printing, apparel design, knitting, cotton
ginning, computerized embroidery, stitching and other textile non garment products such as
bags, vehicle accessories, furnishing accessories, etc.

1.6.5 Business loans for Traders and Shopkeepers

Financial support for on lending to individuals for running their shops / trading & business
activities / service enterprises and non-farm income generating activities with beneficiary
loan size of up to  10 lakh per enterprise / borrower.

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1.6.6 Equipment Finance Scheme for Micro Units

Setting up micro enterprises by purchasing necessary machinery / equipments with per

beneficiary loan size of upto  10 lakh.

1.6.7 Activities allied to agriculture

'Activities allied to agriculture', e.g. pisciculture, bee keeping, poultry, livestock-rearing,

grading, sorting, aggregation agro industries, diary, fishery, agri-clinics and agribusiness
centres, food & agro-processing, etc.(excluding crop loans, land improvement such as canal,
irrigation and wells) and services supporting these, which promote livelihood or are income
generating shall be eligible for coverage under PMMY in 2016-17.

1.7 MUDRA Card

MUDRA Card is a debit card issued against the MUDRA loan account, for working capital
portion of the loan. The borrower can make use of MUDRA Card in multiple drawls and
credits, so as to manage the working capital limit in cost-efficient manner and keep the
interest burden minimum. MUDRA Card also helps in digitalization of MUDRA transactions
and creating credit history for the borrower. MUDRA Card can be operated across the
country for withdrawal of cash from any ATM / micro ATM and also make payment through
any ‘Point of Sale’ machines.

Fig 1.3. MUDRA Card

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 Creation of Framework for “Small Business Finanace Entities”

An enabling framework for support to "Small Business Finance Entities" would be
created leading to formalization of the economy which is presently included in the
informal sector.

 Synergies with “Make in India” Campaign

Government of India has initiated several steps for encouraging enterprise creation in
our country. The major one is “Make in India” movement. Make in India is a major
national programme designed to facilitate investment, foster innovation, enhance skill
development, project intellectual property and build best in class manufacturing
infrastructure. This coupled with Start-up India and Stand-up India campaign, has created
a conducive environment of enterprise creation in different scales. MUDRA, being an
initiative for promoting micro enterprises, fits well with Make in India initiative for
supporting these micro enterprises.

 Synergies with National Rural Livelihoods Mission / National Urban Livelihoods

Mission
The National Rural Livelihoods Mission [NRLM] is set up "To reduce poverty by
enabling the poor households to access gainful self-employment and skilled wage
employment opportunities, resulting in appreciable improvement in their livelihoods on a
sustainable basis, through building strong grassroots institutions of the poor." To achieve
the above, NRLM Mission inter alia follows a demand driven strategy for continuous
capacity building, imparting requisite skills and creating linkages with livelihood
opportunities for the poor, including those emerging in the organized sector.
Similarly, the Deendayal Antodaya Yojana [DAY] National Urban Livelihood Mission
is another programme which is aimed at reducing Urban poverty through creation of
micro enterprises, individually and group mode.
MUDRA, being an initiative for promoting micro enterprises, would make all efforts to
draw synergies between NRLM, NULM and MUDRA interventions for supporting micro
enterprises and creating sustainable livelihood opportunities for the poor.

 Synergies with National Skill Development Corporation

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Synergies with National Skill Development Corporation is already engaged in the

process of skill development at a National scale. Synergizing with NSDC will help
MUDRA in augmenting the skill sets of the sectoral players.

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1.8 The MUDRA Pricing

Access to finance is critical and equally critical is the cost of finance to the NCSB/ultimate
beneficiary. The funds mobilized by micro units from the informal sources are at a high cost.
in the last two decades, Indian economy has witnessed a tremendous growth. The economy
has been growing, despite global turbulences of economic conditions. The concept of
entrepreneurship is considered as the backbone of national rebuilding, prosperity, and
progress. Entrepreneurship is an activity where, people engage in a profession or business
they started and manage on their own. They take all kinds of risks to run it successful. A
person, who engages in any economic accomplishment and handles it on his own, is called an
entrepreneur.

There is scope for cost rationalization. However, the rationalization is intricately linked with
the cost of funds for the last mile MFIs.
GOI while announcing the formation of MUDRA also announced a refinance corpus for
MUDRA to be allocated by RBI from the Priority Sector lending shortfall. Accordingly, RBI
has provided the allocation which helps in bringing down the cost of lending at the ultimate
borrower level as MUDRA refinance will reduce the average borrowing cost of the lending
institutions
The NBFC-MFIs are presently regulated by Reserve Bank of India and RBI has already
prescribed detailed guidelines for margin cap in respect of MFIs. The margin cap has been
pegged at 10% for MFIs having loan portfolio of more than 100 crore and 12% for smaller
MFIs having loan portfolio of less than 100 crore or 2.75 times the average base rate of five
major commercial banks, whichever is less. In the backdrop of these guidelines and the fact
that MFI sector has been constantly trying to reduce its costs, MUDRA would also help MFIs
reduce their cost to bring down the overall cost to the end beneficiaries. Further, at the time
of appraisal, MUDRA would be studying / assessing individual MFIs on this as well as other
related parameters and suitably price its assistance based on such assessment.
In the case of Banks, RBI has also put a cap on the interest rate at Base rate/ MCLR for
lending micro units by Commercial Banks by availing of MUDRA refinance. Similarly, the
RRBs have been given an interest cap of 3.50% over and above MUDRA refinance rate,
while lending a PMMY loan by availing of MUDRA refinance.
In case of NBFCs, RBI has also stipulated an interest cap of 6% over and above MUDRA
refinance while their lending to MUDRA segment.

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All these are expected to have a positive impact on the pricing of MUDRA loans in the
country whereby the Micro enterprises will be able to avail of credit at an affordable interest
rate. But, the first and foremost objective is to ensure accessibility of credit.

1.9 Development and Promotional Support

Besides the credit constraints, the Non Corporate Small Business (NCSBS) face many non-
credit challenges, like,

 Skill Development Gaps

 Knowledge Gaps
 Information Asymmetry
 Financial / Business Literacy
 Lack of growth orientation

To address these constraints, MUDRA plans to adopt a credit- plus approach in future and
offer Developmental and Support services to the target audience. It will act as a market maker
and build–up an ecosystem with capacities to deliver value in an efficient and sustainable
manner.

1.9.1 Imparting Financial / Business Literacy

Financial / business literacy or financial education can broadly be defined as 'providing
familiarity with and understanding of financial market products, especially rewards and risks,
in order to make informed choices.'
Financial Inclusion and Financial / business Literacy are twin pillars. While Financial
Inclusion acts from supply side providing the financial market / services that people demand,
Financial Literacy stimulates the demand side – making people aware of what they can
demand. Supporting the financial literacy drive will contribute substantially from the demand
side to the national agenda of financial inclusion.
To address these constraints, MUDRA will adopt a credit- plus approach and offer
Developmental and Support services to the target audience. It will act as a market maker and
build –up an ecosystem with capacities to deliver value in an efficient and sustainable
manner. This apart, the micro enterprise segment also needs business literacy which will help
them in acquiring knowledge on running / managing business, keeping accounts, working out
ratios, etc.

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1.9.2 Promotion and Support of Grass Root Institutions

One of the major focus areas will be to formalize and institutionalize the last mile financiers /
grass root institutions so that a new category of financial institutions viz. Small Business
Finance Companies can be created and ecosystem developed for their growth.
Rural innovations at micro enterprise / unit level would also be one of the key areas for
intervention and support. Support to Micro units by way of the facility of incubators would be
taken up. This would ensure that at the most grass root levels in the country, there is climate
for promotion of innovation as well as incubation of ideas from educated rural youths which
would germinate in viable micro enterprises.

1.9.3 Working with Credit Bureaus

With the growth of responsible lending practices, Credit Bureaus (CB) have gained
increasing level of acceptability in the micro finance sector. The CB culture will help in
creating credit history over a period of time which will facilitate faster credit dispensation as
the system evolves.

1.9.4 Working with Rating Agencies

Accreditation / rating of MFI entities is one of the roles earmarked for MUDRA. Further, a
segment of financial intermediaries for the non-corporate small business sector is envisaged
to emerge in the financing architecture. MUDRA would work in coordination with Rating
Agencies so that appropriate rating framework(s) which take into account sector specific
features are devised for various sector participants. In the longer run, availability of rating for
sector participants would facilitate formalization and further flow of capital to the sector.

1.9.5 Portfolio Credit Guarantee

Traditional institutional financing in Indian context adopts an Asset Based Lending Approach
with emphasis on collateral security. Micro units, most of the times, are unable to provide the
comfort of collateral. Hence, MUDRA loans, i.e., loans up to 10 lakh, have been made
collateral free, as per the RBI norms in this regard.
To mitigate the issue of collateral and to provide comfort to the lending institutions, a Credit
Guarantee Product is extended by creation of a Fund called “Credit Guarantee Fund for
Micro Units” [CGFMU]. All eligible micro-loans sanctioned since April 08, 2015 are

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covered under the above guarantee. The Scheme is being managed by National Credit
Guarantee Trustee Company Ltd. [NCGTC], an agency promoted by the GOI. The Guarantee
product is one of the key interventions made with the objective of bringing down the cost of
funds and facilitating ease of access to institutional credit for the end beneficiary to improve
his creditworthiness.

1.10 Micro Units Development and Refinance Agency (Mudra) Bank

According to the NSSO survey of 2013, there are 5.77 crore small business units, mostly
individual proprietorships, which run small manufacturing, trading or services activities.
Most of these ‘own account enterprises’ are owned by people belonging to Scheduled Caste,
Scheduled Tribe or Other Backward Classes. Only 4% of such units get institutional finance.
Providing access to institutional finance to such micro/small business units would turn them
into strong instrument of GDP growth and also employment.

Micro Finance is an economic development tool whose objective is to assist the poor to work
their way out of poverty. It covers a range of services which include, in addition to the
provision of credit, many other services such as savings, insurance, money transfers,
counseling etc. The players in the Micro Finance sector can be qualified as falling into 3 main
groups:- the SHG-Bank linkage model started by NABARD, the Non Banking Finance
companies and the others including Trusts, Societies etc.
 
The government proposes to set up a Micro Units Development and Refinance Agency
(MUDRA) Bank through a statutory enactment. This Bank would be responsible for
regulating and refinancing all Micro-finance Institutions (MFI) which are in the business of
lending to micro/small business entities engaged in manufacturing, trading and services
activities. The Bank would partner with state level/regional level co-ordinators to provide
finance to Last Mile Financer of small/micro business enterprises.

The MUDRA Bank would primarily be responsible for –

1. Laying down policy guidelines for micro/small enterprise financing business

2.  Registration of MFI entities
3.  Regulation of MFI entities
4.  Accreditation /rating of MFI entities

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5.  Laying down responsible financing practices to ward off indebtedness and ensure
proper client protection principles and methods of recovery
6.  Development of standardised set of covenants governing last mile lending to
micro/small enterprises
7.  Promoting right technology solutions for the last mile
8. Formulating and running a Credit Guarantee scheme for providing guarantees to the
loans which are being extended to micro enterprises
9. Creating a good architecture of Last Mile Credit Delivery to micro businesses under
the scheme of Pradhan Mantri Mudra Yojana

A sum of Rs 20,000 crores would be allocated to the  MUDRA Bank from the money
available from shortfalls of Priority Sector Lending for creating a Refinance Fund to provide
refinance to the Last Mile Financers. Another Rs 3,000 crore would be provided to the
MUDRA Bank from the budget to create a Credit Guarantee corpus for guaranteeing loans
being provided to the micro enterprises.

The above measures would not only help in increasing access of finance to the unbanked but
also bring down the cost of finance from the last Mile Financers to the micro/small
enterprises, most of which are in the informal sector.

1.11 Mudra intrest rate

Mudra loan is offered by most leading banks in India to aid non-corporate, non-farm sector
income generating microenterprises that require credit below Rs.10 lakh. Interest rates on
MUDRA loans are between 8.40% and 12.45% p.a. Loan tenure is between 1 and 5 years.

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2 FINANCIAL INCLUSION AND PMMY

Reserve Bank of India had set up a committee under Shri Deepak Mohanty, Executive
Director to look the medium-term path on financial inclusion. The committee formed under
the guidance of Shri Deepak Mohanty discussed issue regarding credit and insurance to the
financially excluded groups. Towards achieving full financial inclusion across credit and
insurance Government of India had launched Pradhan Mantri Mudra Yojana. There is a
crucial requirement for enhancing the economic engine is MUDRA. Many entrepreneurs of
micro enterprises belong to the economically weaker section of society so that is why they
are unable to access financial services. Funding this unfunded section of the society is the
main aim behind the formation of Pradhan Mantri MUDRA Yojana (PMMY). It provides
refinance and credit guarantee for the lenders who finance further in such type of activities.
MUDRA grants loan such micro enterprises which engaged in trading, manufacturing and
service sector for loan amount up to Rs. 10lakh. Micro enterprises establish a major economic
portion in our nation. It gives large employment after agriculture in India. This economic
portion includes micro units, small business enlist in manufacturing, trading and other sector.
Micro Finance is an economic development tool whose objective is to provide income
generating opportunities to the people who are financially excluded. It covers a variety of
financial services which include, in addition to the provision of credit, many other credits
plus services, financial literacy and other social support services. The overdraft granted of
Rs.5000 under Pradhan Mantri Jan Dhan Yojana (PMJDY) is also treated as a part of
MUDRA loans. Financial inclusion through PMMY increases the opportunities for credit
requirement and refinance.

The Indian government has taken various measures to address the need for entrepreneurship
in India and has motivated people to start their own ventures. The government aims to create
a positive entrepreneurial culture in India. Entrepreneurship holds the prospect of
transforming a backward economy into a flourishing state.

Entrepreneurship is often seen as the engine of financial growth. It can add to the
construction of wealth, jobs and provide autonomy, faster innovation and a sense of personal
accomplishment. India has also set an explicit policy in place to realize its objective of
becoming a leading business–friendly economy. According to the National Association of
Software and Service Companies, the number of new companies launched in India grew by
40% in 2015 (fortune, 2016). Likewise, as of mid-2016, India was estimated to have more

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than 45 million small medium enterprises (SMEs), which accounted for about 40% of the
country’s gross domestic product (ET,2016).

The government is not only providing financial support but also managerial support. The
Government of India (GOI) motivates people to start their own venture by giving
entrepreneurship education, training, mentoring and opening e-hubs (entrepreneur-hubs).
They also help people to grow and expand their business. The government has also planned
to open incubation centers to create an entrepreneurial ecosystem in India.

The research covers the mudra loan start by the current government in the recent past
government, after 2014. Whenever new government came into power, have the certain vision.
The current government came with the objective that India should become the land of job
creator instead of 2 the job seeker. For this, government is promoting entrepreneurship so that
employment opportunities can be created in India. The government of India started few
schemes to promote entrepreneurship:

Sr NAME OF THE SCHEME YEAR OF

No. LAUNCH
1. Micro units development and refinance agency ltd. (MUDRA 8 April, 2015
Scheme)
2. Stand-up India 6 January, 2016
3. Start-up India 16 January, 2016
4. Pradhan mantri yuva udyamita vikas abhiyan (YUVA yojana) 15 June, 2016

2.1 Mudra Yojna Supporting Small and Medium Enterprises

Micro, small and medium enterprises is a vibrant, dynamic and fastest growing sector of
Indian economy in complementary with the large industries. They are enormously
contributing towards the socioeconomic development of the country. The MSME sector
contributes about 8% to GDP besides 45% to total manufacturing output, 40% to exports
from country and provides employment to over 80 million people. The sector comprises of
small manufacturing units, shopkeepers, fruits / vegetable vendors, truck & taxi operators,
food-service units, repair shops, machine operators, small industries, artisans, food
processors, street vendors and many others who are referred as Non-Corporate Small
Business sector. But constraints faced by these sectors are the low access to finance, Skill
Development Gaps, Knowledge Gaps, Infrastructure Gaps and Lack of Market Development.
This is due the reason many small industries are unregulated and informal and are not

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covered by the banking channels; since they do not maintain proper books of accounts and
not formally covered under taxation also. Therefore, the banks find it difficult to lend to
them. So they depend on friends and relatives or money lenders for the financial assistance.
In this background a need for a bank which exclusively supports the micro units was initiated
and introduced which can support entrepreneurship and fulfill the financial needs of these
units. MUDRA has been formed with primary objective of developing the micro enterprise
sector in the country by extending various supports like financial support in the form of
refinance and entrepreneurial assistance. MUDRA is an effort to ‘fund the unfunded’ like
how microfinance has been to ‘bank the unbanked’.

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