Equitable Access to MUDRA Loans – a need of the hour

MUDRA loans can transform the lives of many micro-enterprises at the lower end of economic strata, however, the delivery process requires to be toned up.

I have been tracking a story of a woman entrepreneur who had been running a small grocery shop with a major focus on milk vending business in our area. We have been here in this locality for more than five years. Till recently we have been buying milk from her. Unfortunately, she closed her shop recently due to non-availability of adequate finance and the inability to raise the required capital to have her own license to vend milk from KMF.

She had been running her business in this locality without bank finance though she is holding a savings bank account in a public sector bank. All along she tried to secure funding from the bank, however no avail. Her business was surviving on the support of informal sources.

She had been very successful and that is reflected in her loyal client base. She was enjoying a very close relationship with many of them in a way that her shop was a social space for many people to share their agonies/ happiness. People were respecting her a lot.

Though business could not scale up, it was surviving. However, post-demonetisation, the informal source of funding became a challenge. Slowly this source started drying up and even if available, it used at a very high rate.

As I said earlier, there was no bank loan support.  Non-availability of money from informal sources further aggravated her already precarious financial situation. Her desperate visits to the bank were of no help. She pleaded for just three lakhs of loan to get a regular license from Nandini Milk. In view of her inability to raise a stable funding arrangement, recently she folded her business while her competitors in the vicinity are earning a good income from selling milk.

MUDRA is a great platform to deliver bank credit but access is uncertain:

MUDRA stands for Micro-Units Development and Refinance Agency. Mudra Yojana provides loans to people turning entrepreneurs’ upto Rs 10 lakhs.

MUDRA is a valuable financial architecture to assist the needy entrepreneurial ventures for people at lower strata of society who do not have formal structure or book keeping. MUDRA can make available financial resources at an affordable price to grow the enterprises. It has got the potential to bring down the inequality in the society by catalysing redistribution of opportunities in the various economic activities thus leading to higher efficiency in the conduct of economic activity.

By its mission, it is expected to be implemented by all the banks including private banks.   However, the reality is different. The present structure of accessibility to MUDRA is highly skewed to public sector banks.  Private banks are disinterested in participating in this financial architecture. Even it is there also, the participation is just for optics that a serious business proposition.

Even among the public sector banks, the enthusiasm is not uniform and highly variable between the branches.

Private banks are important for Growth of MUDRA going forward:

The recent trend in the growth of banking business indicates that many of the small entrepreneurs are having a banking relationship with private sector banks. The segment comprises new generation private banks, old generation private banks and  Small Finance Banks. Their share is expanding branch network as well mobilising new business is growing by a huge margin compared to public sector banks.

Private sector banks do not extend loans to entrepreneurs without collateral security unless there is stronger support of information collateral and stable income. Startups are not eligible in such circumstances. Such loans are considered under business loan segment which is expensive and access is highly limited.

Uncertainty  is too high:

In all, the ground level situation reflects that it is highly uncertain to expect that funding is assured even if they have been a very successful running business.

It is a common refrain across the country that micro-entrepreneurs are not getting enough support from formal banking channels despite having enough strength to be eligible. They are consistently denied access to loans facilities as there are no such products in many banks or active engagement framework from Govt/Regulators to promote deeper penetration of this platform.

Importance of Microenterprises:

There are 633.88 lakhs MSMEs in India as per the National Sample Survey 2016 and the largest of them are micro-enterprises. Micro sector constitutes 630.52 lakh units, i.e. about 99% of MSME universe in India.

Microenterprises are an important link at both the sides of the business value chain as a vendor supplying very specific skill/products to manufacture a product and on the other acting a last mile connect to deliver the product to consumers. For many large companies, associating with these microenterprises are key to their business strategy.

What is the way forward?

There is a need to make MUDRA work independently from the bank and the borrowers may directly seek MUDRA loan on an online platform similar to www.psbloansin59minutes.com. This will increase the visibility of good borrowers to banks at the apex level

On the other hand, Govt needs to work with all banks addressing their concerns on lending under this financial architecture.  Instilling confidence in lenders to participate in the platform will enable deepen the penetration of MUDRA far and wide.

This will make the process transparent. There should be a proper monitoring mechanism to ensure that such loans are not rejected without merit. The necessary modification in Priority Sector lending like fixing a number of loans and loan ticket may be done to stimulate the growth of MUDRA loans and results in the creation of sufficient capital asset in the economy.


MUDRA has the potential to improve the livelihood of millions of micro-entrepreneurs. However, to make more palpable, the delivery process requires more active engagement from policymakers with banking institutions.