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Self Employment and Job Creation: Tracking the Progress of Mudra Yojana under Modi

By Nitin Mehta and Pranav Gupta

A recent study on the Indian Youth by Delhi based Centre for the Study of Developing Society reveals that unemployment is the biggest concern of the Indian youth today.

Self Employment and Job Creation: Tracking the Progress of Mudra Yojana under Modi

Providing employment to millions of youngsters who enter the job market every year was one of the foremost pre-election promises of the Modi government. The idea of Mudra Yojana (Micro Units Development and Refinance Agency) essentially stems from the realization that providing employment doesn't necessarily mean generating jobs; rather giving self employment opportunities. With its aim of promoting micro enterprises and new entrepreneurs, MUDRA Yojana is an important dimension of Modi's policy framework for providing employment. Announced in the 2015 Union Budget, the scheme was formally launched by the Prime Minister in August 2015. This article traces the progress of the MUDRA Yojna over the last two years. Even earlier, numerous initiatives were taken by successive governments for improving provision of credit to small entrepreneurships and self-employed individuals. The need for Mudra Yojana essentially arose due to the limited effectiveness of these programmes.

What is MUDRA Yojana?

Under MUDRA Yojana, the government provides refinancing to micro credit institutions and non-banking financial corporations engaged in lending to micro enterprises. As per NSSO 2013, the country has more than 5 crore small business units. Most of these enterprises are individual proprietorships and constitute the large informal sector of our economy. Formal credit used to be inaccessible for most of these firms/individuals and they were dependent on informal sources for credit. Under the programme, applicants can request for credit under three categories.

  1. Shishu: Loans uptoRs. 50,000
  2. Tarun: Loans up to Rs. 50,000 - 5 Lakhs
  3. Madhur: Loans above Rs. 5 Lakhs

Who is a typical Mudra Beneficiary?

A typical Mudra beneficiary is a micro enterprise/single person operation, which used to find it difficult to access credit from formal sources and used to depend on costlier alternatives like local moneylenders etc. These may be enterprises engaged in non-mechanized manufacturing, labour intensive processing, trading or providing services. Small Shopkeepers, fruit/ vegetable vendors, small workshops/repair shops etc. can all be considered part of the Mudra eco system.

Decent consolidation in disbursement of loans on annual basis

It is encouraging to note that there has been considerable improvement in Mudra Yojana's outreach in the last fiscal year. For instance, in 2016-17, close to 4 crore loans were given across the country as compared to around 3.5 crore in 2015-16. There was substantial growth even in the total amount disbursed bymicrofinance institutions, banks and NBFCs to creditors. In 2016-17,Rs.1.75 lakh crores were disbursed, 33,000 crores greater than 2015-16.

More than one third (36%) of the loans were taken by new entrepreneurs

This indicates that existing enterprises needing money for expansion or working capital are not the sole beneficiaries of the policy. The scheme has been successful in incubating new businesses. Though, a detailed analysis is required to find out what proportion of these 'new entrepreneurs' are fresh entrants in the job market and how many are people who have shifted from jobs to self employment.

Four out of every five Mudra loans were given to women beneficiaries

This is extremely intriguing as women were considered to have relatively lower access to formal credit traditionally. What explains this trend? One reason for low formal credit exposure among women is lack of collateral. For Shishu category loans, no collateral is required which may be another reason why the programme has reached out to a large number of women. Another reason may be the 25 basis points interest rebate that is given to female borrowers.

More than 90 percent of the loans given were under the Shishu category.

This indicates that the programme has been extremely successful in reaching out to the smallest enterprises.It is important that the formal credit system reaches out enterprises in the informal sector since they employ a very high proportion of the labour force. Many of these businesses would be single person enterprises. The government should now shift focus on assisting the borrowers who are running successful enterprises in expanding their operations. This would go a long way in turning these into engines of job generation.

More than half of the beneficiaries of the mudra yojana come from marginalized communities - 35 percent are OBCs, 20 percent SCs and 5 percent are Tribals.

Provision of credit for self-employment and business would create a pool of job givers within these communities. There have been numerous instances in the past when ruling parties divert benefits of government schemes towards their supporters or tie benefits to government schemes with political support. Local politicians end up having discretionary power in deciding who gets the benefits and who remains excluded. It is indeed credit worthy to note that there have been no major reports of instances of favouritism or political bias in provision of mudra benefits. Potential borrowers only need to engage with the lenders and there is absolutely no need for any political intermediary.


Mudra is an attempt by the Modi government for harnessing local self-employment and turning micro units into job creating engines at the grassroot level. However, the need of the hour is to make sure that proper monitoring and guidance be provided to the beneficiaries of the scheme. The government needs to follow up loan disbursement with an all around operational support. At the same time, we must remember that the Mudra yojana can be only one dimension of government's employment generation policy. A lot more needs to be done alongside Mudra for adequately increasing employment.

(Nitin Mehta is managing partner, Ranniti Consulting and Research. Pranav Gupta is an independent researcher.)

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