Executive Summary

1 The Micro, Small and Medium Enterprises (MSMEs) sector plays a defining role for the
entrepreneurs and is a key driver of socio- economic development in India. The sector
contributes about 33 per cent (FY 2015 to FY 2019) of the country’s total manufacturing Gross
Value of Output (GVO). It accounts for more than 40 per cent of exports and contributes over
28 per cent of Gross Value Added (GVA) in all India GDP while creating employment for about
11.10 crore people.1

2 Owing to the large contribution, the government has been focusing on facilitating the
development by strengthening of the regulatory framework, with initiatives and schemes to
support the credit and infrastructural needs of the MSME sector. In addition, there has also
been focus on enabling skill development, technology upgradation, market development for
the sector. One of the key government initiatives for enabling access to credit for MSMEs is
the Pradhan Mantri MUDRA Yojana (PMMY).

3 Since its inception, the scheme has provided credit support of INR 18.39 lakh crores to 34.93
crore accounts2. PMMY in tandem with other scheme and initiatives is contributing to meet
the credit needs of the sector. However, to understand the overall impact created and current
gaps a detailed study on impact of the scheme is crucial. NITI Aayog is conducting a research
study on impact assessment of PMMY and has engaged KPMG Advisory Services Private
Limited for undertaking the study

4 With the above context, the impact assessment study is conducted for the scheme to analyse
the performance and contribution of the scheme towards the MSME and particularly the Micro
Enterprises. The study comprises of in-depth primary and secondary research. The analysis
and insights from the study for the sector is compiled in the report

5 The report aims to provide an overview of the performance of the sector, covering credit
demand-supply gap, sources of finance, credit availability and accessibility issues based on
study of selected academic papers, sectoral reports, policy documents, and scheme
documents. The report also presents national and international good practices for addressing
the credit availability issues in the MSME sector.

6 Further, the report covers the scheme performance, challenges, and improvement areas in
the form of recommendations across four parameters namely, Scheme Design,
Implementation, Institutional Mechanism, and Monitoring & Evaluation basis the primary and
secondary research.

Sector Overview

7 Several policy level interventions have been undertaken to strengthen the MSME sector by
the Government of India. Government has even launched multiple schemes to improve access
to credit for MSMEs over the years such as PM Jan Dhan Yojana, Standup India, Credit

1
Annual Report 2020- 21, Ministry of MSME, Government of India; MUDRA Ltd
2
MUDRA Ltd

1
 Guarantee Scheme for Subordinate debt etc. In addition, the government also provides
support to the lending institutions by way of Guarantee Covers such CGFMU and CGTMSE

8 To address credit gap and the challenges faced by the MSMEs, the RBI Expert committee on
MSMEs (2019), suggested legislative focus on market facilitation enabling ease of doing
business by MSMEs, with SIDBI playing facilitative role for bringing in private equity financing
into the sector, introducing the credit guarantee schemes under RBI’s purview.3
9 To support the sector during Covid-19 pandemic, Government also extended measures under
Atma-Nirbhar Bharat Abhiyan Package to ensure continued business and small enterprises
survival and growth
10 Despite access to formal financial institutions, the below mentioned challenges still remain
prevalent in the sector which needs review and monitoring going forward

• long loan application processing time,

• high processing fee,

• high rates of interest,

• lack of a credit history

• existing debt burden

• difficulty in providing guarantee or inadequacy of collateral,

• lack of awareness and knowledge about financial schemes
Primary Survey

11 Primary Survey in the form of qualitative survey has been conducted across different MLI
types (SCBs, SFBs, NBFCs and MFIs), Department of Financial Services (DFS) and Micro
Units Development & Refinance Agency Limited (MUDRA).

The sample size and discussions completed across Member Lending Institutions are
mentioned below:

MLIs Completed

Public Sector Banks 7

Private Sector Banks 7

NBFCs 1

NBFCs -MFIs 3

Small Finance Banks 1

TOTAL 19

3
Reserve Bank of India (2019), Report of the Expert Committee on Micro, Small and Medium Enterprises
 Scheme Evaluation

Pradhan Mantri Mudra Yojana

12 Government of India launched the Pradhan Mantri Mudra Yojana in 2015. The scheme seeks
to fill the credit gaps in small, micro and tiny enterprises to spur economic activity. 4 The
scheme enables loans to income generating micro enterprises that are engaged in
manufacturing, trading and other professional services for up to INR 10 lakh. 5 In consonance
with the funding needs of the borrowers, the MUDRA loans can be sought at Scheduled
Commercial banks (Public Sector and Private Sector Banks), Non-Banking Financial
Company (NBFC), Microfinance institutions (MFIs) and Small Finance Banks (SFBs).

13 Since the launch in 2015, the scheme has reached out to 34.93 crore Micro and Small
Entrepreneur Accounts and provided credit support amounting to approximately INR 18.39
lakh crore.5 In terms of the overall performance, the scheme target allocations exhibits a
cumulative aggregate growth rate (CAGR) of around 16 per cent across the years with the
sanctions increasing at 18 per cent CAGR. However, the amount sanction for the FY 2021
shows a reduction of 5 per cent from INR 3,37,496 crore to INR 3,21,759 crore, which may be
attributed to reduced borrowing during the COVID-19 pandemic.

14 Key findings from analysis of scheme data are as below:

• As a share of the total portfolio of PMMY, the majority loan accounts (79.20 per cent) are
in the Shishu category for FY 2021, followed by Kishore at 18.70 per cent and Tarun at
2.11 per cent

• Kishore has major share (41 per cent) with respect to the amount disbursed, followed by
the Shishu and Tarun category at 35 per cent and 24 per cent respectively for FY 2021

• People belonging to SC, ST, OBC have more number of Shishu accounts (83.92 per cent,
83.53 per cent, 78.68 per cent respectively for FY 2022) and only a few among them
belong to the Kishore and least to the Tarun category.

• The analysis as a share of total number of accounts and amount sanctioned for all the
different social groups have remained almost constant over the years

• Women entrepreneurs have always had the major share of PMMY loans. For the FY 2022,
they are holding around 71.4 per cent of the total number of accounts in their name.

• Number of accounts and amount sanctioned for women entrepreneurs in the Kishore
category has increased by 48 and 30 percentage points respectively. Comparatively, the
number of accounts for women entrepreneurs in the Shishu and Tarun category have
fallen by 11 and 3 percentage points respectively.

4
Annual Report 2015- 16, Ministry of MSME, Government of India
 • The sanctioned amount for New entrepreneurs has increased from INR 61,650 Crore to
INR 72,685 Crore and the number of accounts have decreased from 124.7 lakhs to 65.3
lakhs

• For the FY 2022, only 12 per cent of the total loan accounts belong to new entrepreneurs
compared to 36 per cent at the time of launch of the scheme. The share of the amount
sanctioned as a per cent of total sanctioned amount under MUDRA has also shown a
decline of around 24 percentage point over the last 7 financial years.

• The top performing regions are South and East, followed by North and West, with North-
east being at the bottom of the pyramid considering the absolute values of the total number
of accounts and the amount sanctioned in different states of the country for the period
ranging from FY 2016 to FY 2022

• Regionally, the number of accounts and the amount sanctioned under the Mudra scheme
for the Northeast region is not only the lowest but is also decreasing year after year post
FY 2018

• Among states, West Bengal has the highest amount sanctioned per MLI of INR 49 Cr and
Tripura state has the highest amount sanctioned per MSME of INR 37.1 lakhs; among
districts Murshidabad has the highest amount sanction per MLI of 106 Cr and Bijapur
district has the highest amount sanctioned per MSME of INR 147.3 lakhs which is also an
aspirational districts; while Visakhapatnam has the highest amount sanctioned per MLI of
INR 44 Cr among aspirational districts

• Average loan size has gradually increased for almost all the banks over the years.
However, this can also attribute to reduced number of loan accounts particularly for MFIs,
NBFCs and SFBs whose number of accounts have observed a negative CAGR of 24.8
per cent, 33.2 per cent and 24.6 per cent respectively from 2018 to 2021, and hence not
necessarily an indicator of only enhanced disposal of credit to the micro entrepreneurs.

• NPA accounts and the amount have been increasing year after year with a CAGR of 22.51
per cent and 36.61 per cent respectively from FY 2017 to FY 2022. Public sector banks
have the highest NPA of 22.6 per cent and 16.9 per cent against the number of account
and disbursement respectively, whereas NBFCs have the lowest NPA of 1.3 per cent and
0.5 per cent against the number of account and disbursement respectively.

• A deeper analysis also reveals that the number of NPA accounts for the Shishu category
have always been more than that of the Kishore and Tarun category. Amount wise, the
Kishore account holders, have been the highest contributor of NPA since FY 2018.

15 The issues and challenges identified from discussions with MLIs have been mentioned below:

a. Scheme Design

• Ceiling of 15% on pay out under CGFMU is not feasible and restricts benefits of the
banks
 • Guarantee fee charged (the Standard Basic Rate (SBR) of 1 per cent p.a. of sanctioned
amount on Micro Loans) is not economical and reported to be high by many banks

• Mostly the Public Sector Banks avail the benefit under the Guarantee Cover whereas
for the other MLI types, the signup for the cover is very low

• Complex (XML format, errors made not easily rectifiable, takes a lot of time to upload),
and lengthy claim settlement process (only after the second loss) under CGFMU

• The refinancing rates under Mudra are considered high by a few banks and hence the
refinancing obligation to avail benefits under Mudra is not economical for some banks

• Lack of collateral increases the security risk for MFIs and develops fear of NPA in
banks

b. Implementation

• Challenge in catering to the large pool of customers due to limited number of

employees and staff

• Need for awareness programs to build credit discipline among borrowers

• Customers’ understanding of documents and process, and non-availability of

documents are some of the key challenges

• Need for mass promotional campaigns as people do not approach the bank to avail
mudra loans directly

• Borrowers lack knowledge of basic documentation. Most rejection of loan applicants

happen at CIBIL check level and as a failure to submit the required documents

• Poor connectivity to remote areas

c. Institutional Mechanism

• Lack of centralized database for collecting information about customers and

enablement of bank account formalization

• Poor credit penetration to weaker sections and deficient areas

• Need for a digitized platform for quick addressal of queries on issues pertaining to
guarantee covers or other operational/ technical guidelines

d. Monitoring and Evaluation

• A proper mechanism for target setting is needed by DFS for all the MLIs under PMMY

• Need for a standardized process for monitoring performance of micro entrepreneurs

as frequent migration of borrowers happens from one category to another

• Need for adequate control mechanism to supervise as the control mechanism and
ownership lies with the bank officials for encouraging people to apply for loans
16 Key recommendations for the scheme have been described below:

• More outreach with customers and other stakeholders of the scheme for information
dissemination and attracting more beneficiaries

• Mass promotions may be facilitated in television, newspapers, radio or by way of

display of posters and banners in regional languages to attract customers in villages
and rural areas

• Government can also support offline promotions with online modes of promotion
through social media platforms, Facebook ads, google ads and other online websites
and sources

• A Portal enabling real-time upload of beneficiary data will help streamline the
beneficiary data collection

• Increasing digitization to make the scheme more efficient, hassle free for the potential
beneficiaries

• Chatbots for query redressal may be launched to benefit MLIs and beneficiaries

• E-KYC authentication may be encouraged for loan underwriting to ensure proper

assessment checks. Udyam registration may be utilized for this.

• A recognition mechanism is needed for different MLIs based on their scale of operation
and performance