Mudra scheme reorients financial inclusion: Evidence of a strategic shift towards underdeveloped regions

In the 10 years of its existence, the Pradhan Mantri Mudra Yojana (PMMY) has played a key role in improving financial inclusion. Over the years, it has changed its focus to reach economically weaker states, thus ensuring that financial resources are channelled towards areas with the greatest need.

Some numbers first: Cumulatively, till February 2025, 520 million PMMY accounts have been opened. The total credit disbursement is ₹32.4 trillion, which is around one-fifth of loans to micro, small and medium enterprises (MSMEs).

Nearly half of Mudra loan account holders are from Scheduled Castes and Scheduled Tribes; another 35% belong to Other Backward Classes. Women entrepreneurs hold 68% of the accounts. Among the states, Bihar has the largest number of women Mudra entrepreneurs at 42 million, followed by Tamil Nadu at 37 million.

These loans have had a wide-ranging impact.

First, this easy access to credit has made MSME units financially independent and helped them grow. The share of Shishu loans, the smallest category of credit, has fallen to nearly half of all Mudra loans from 93% in fiscal year 2016 (FY16). This is a clear indication of firms growing in size as they graduate from Shishu loans to Kishor (the next category).

The average loan size too has nearly tripled in the last 10 years to ₹1.05 lakh.

Second, Mudra loans have proved pivotal in empowering women-led MSMEs. Now, such units are one-fifth of all MSMEs registered on the Udyam portal and their contribution to employment is 18.7%. Moreover, states with a higher share of disbursements to women have shown significantly higher employment in women-led MSMEs.

Third, states with lower financial inclusion levels benefit more significantly from funds directed towards minority and women entrepreneurs. This is revealed from State Bank of India’s data analysis where we created a composite financial inclusion index—comprising equally weighted indicators balancing financial access (captured through number of bank accounts opened and RuPay cards issued), usage (captured through balance in beneficiary accounts) and empowerment (women-owned MSMEs).

In this context, it is heartening to note that the share of funds allocated to developed regions has fallen, while the share of underdeveloped regions—such as Bihar, Uttar Pradesh, Odisha and the North-East—has gained over the years.

All this evidence reinforces the efficacy of targeted financial inclusion policies in fostering economic empowerment and labour market participation.

Going forward, we expect the digital-first approach of non-banking financial companies, such as the utilization of account aggregator framework, will help further in the flow of credit to MSMEs. This is expected to get a boost from the proposed unified lending interface (ULI) initiative of the Reserve Bank of India. In the ULI pilot, the average ticket size of loans disbursed to MSMEs is ₹9 lakh, so this will significantly reduce the turn-around time in a cost-effective manner.

Soumya Kanti Ghosh is a member of the 16th Finance Commission and group chief economic adviser, State Bank of India. The views are personal.