#26 Mudra at 10: India’s Smallest Loans, Its Biggest Questions
Welcome to the 26th edition of Policy Mandala by India House. This week, we dive into 10 years of Mudra—its impact, blind spots, & what it’ll take to turn small loans into livelihoods. Enjoy Reading!
How many business owners do you know?
Not startup founders with investors. Not Ambanis or Adanis. We mean everyday entrepreneurs—the ones running things on the ground.
The sabziwala who’s stood at the same corner for years. The woman running a boutique from her home. The guy who fixed your phone last week.
Chances are, you know quite a few. And here’s something you may not have realized: many of them—maybe three out of ten—started or grew their business thanks to a Mudra loan sometime in the last decade.
You’ve probably heard the name. It’s been on posters outside banks, in ads, in speeches by the PM. Even if you don’t know the details, Mudra has been hard to miss.
So why talk about it now?
Because this month, Mudra turns 10. Launched in 2015, it was built on a simple but powerful idea: give small entrepreneurs access to formal credit. No agents. No jargon. No collateral. Just a direct loan based on what your business needs.
In ten years, that idea has grown into one of India’s biggest credit movements. Over ₹30 lakh crore disbursed to nearly 48 crore borrowers. This isn’t just policy. It’s a quiet economic revolution unfolding all around us.
In this edition of Policy Mandala, we’re unpacking that revolution. We’ll look at how Mudra works, what it’s achieved, where it’s falling short, and how it could do better—with a few ideas of our own.
At its core, Mudra was built to unlock formal credit for informal businesses—the micro-enterprises that keep India’s economy running from the ground up. Think street vendors, tailors, local artisans, home-run beauty salons, and more.
To keep it simple, loans were structured in three tiers: Shishu: up to ₹50,000, for early-stage businesses Kishor: ₹50,001 to ₹5 lakh, for growing ones Tarun: ₹5 lakh to ₹10 lakh, for more mature setups
The process was designed to be low on paperwork. Loans could be accessed through banks, NBFCs, or platforms like Udyamimitra, which connects entrepreneurs to lenders under Mudra and other schemes.
So, has it worked?
In many ways, yes. The average Mudra loan size has nearly tripled—from ₹38,000 in 2016 to over ₹1 lakh in 2025. From better-off states like Tamil Nadu to poorer ones like Uttar Pradesh, Mudra has seen wide adoption. And beyond credit numbers, the Social Fabric Index—which tracks how marginalized communities engage with formal finance—jumped from 0.813 in FY17 to 2.640 in FY22. That’s a big leap, and Mudra has been a major driver.
It ticks a lot of boxes: less paperwork, easier access to finance, business maturity-based loans, wide coverage, and high policy visibility. But that brings us to a bigger question:
Is Mudra really ‘unique’? Was this the first time the government tried to improve credit access for small entrepreneurs?
Not at all.
India has a long history of credit-linked schemes. Priority Sector Lending guidelines already require banks to direct 40% of their lending to underserved sectors like agriculture, education, and small businesses. Institutions like NABARD and SIDBI were built for such roles. Self-Help Groups had bank linkages too.
But those earlier models were institution-led, complex, and rarely designed for first-time entrepreneurs. They relied on paperwork, guarantees, or past records—things most local entrepreneurs didn’t have.
That’s what sets Mudra apart.
It made credit more human—and more visible. By plugging into the Jan Dhan–Aadhaar–Mobile (JAM) trinity, it became easier to identify borrowers, transfer funds, and track usage.
It shifted the lens from lending out of obligation to backing entrepreneurs with real potential. It got political support, media buzz, and public trust. And crucially, the data shows it reached places most policies didn’t—rural, semi-urban, and urban India alike.
Still, if we really want to measure Mudra’s success, we need to flip the question.
Is it enough to count loans disbursed? Or should we ask: how many jobs were created? How many businesses survived beyond the first year? How many came back for a second—and bigger—loan?
Because here’s a reality check: only 2% of all Mudra accounts and just 24% of the total loan value fall under the Tarun category as of FY24. And this trend isn’t new. The numbers have been flat since 2019. That tells us most Mudra-supported businesses aren’t scaling. Few return for a second round, and even fewer are ready to move into high-growth territory.
The 2024–25 Union Budget rolled out something new: Tarun Plus—a loan slab that extends the cap to ₹20 lakh for those who’ve repaid earlier Tarun loans. A thoughtful move for those on a clear growth path. But also a bit like opening a bike showroom in a village where most folks are still learning to cycle.
Because if so few reach the ₹10 lakh mark, who benefits from the new cap? And more importantly, why aren’t more businesses moving up?
Another issue is the limit itself. Back in 2015, a Shishu loan of ₹50,000 could go a long way. One sewing machine, some fabric, a table, a chair, maybe a kettle for chai breaks.
But today? That same sewing machine costs over ₹30,000. Add raw materials, rent, and utilities, and that loan doesn’t stretch far. Inflation has eroded its value, and what once felt like a launchpad now barely covers the basics.
Then there’s the matter of NPAs—Non-Performing Assets. In plain terms, bad loans are unlikely to be repaid.
There’s no clear public data, but the government claims defaults are under control, thanks to a credit guarantee fund that covers up to 75% of losses. That feels more like risk-sharing within government accounts than a true fix.
The real concern? We don’t know where the risk lies. There’s no NPA data by loan category—Shishu, Kishor, or Tarun—so we can’t tell if defaults happen early or later. Without that insight, any policy fix is just guesswork.
And usage data? That’s another blind spot. We know how much was disbursed. But we don’t know what happened next.
How many businesses made it past Year 1? How many created jobs or income? What failed—and why?
It’s like cutting the ribbon on a new highway, celebrating the build, and never checking if anyone used the road.
So where do we go from here?
First, let’s stop pretending credit equals opportunity. A Mudra loan shouldn’t be standalone. Every Shishu loan could come with mentorship—maybe short digital modules in local languages, offered at bank branches.
Second, revise outdated caps. ₹50,000 today isn’t what it was in 2015. Adjusting for inflation isn’t reform—it’s basic hygiene. Loan limits should be revised periodically, linked to costs.
Third, build in impact tracking. We already have the tools—Aadhaar-linked systems, digital payments, mobile platforms. Use them. Not to micromanage, but to spot trends, track outcomes, and guide smarter policy.
Fourth, focus on urban poor entrepreneurs. Rural India gets policy attention through agriculture and MGNREGA. The urban poor—many of whom rely on Mudra—remain overlooked. Why not integrate credit, skilling, and community-level support for them?
Finally, make Mudra aspirational again. PM Vishwakarma worked because it blended tradition with training, credit with pride. Mudra needs that energy. Not just for branding, but for real outcomes. Shift the message from “loans for the poor” to “investments in potential.”
The bottom line? Ten years in, Mudra has made credit accessible. That’s a win.
But it hasn’t made entrepreneurship easier. Not yet. The scheme opened a door—but too many don’t know how to walk through it.
Maybe it’s time to stop measuring success in crores disbursed, and start counting livelihoods built.
Because a loan is just the beginning. What happens next—that’s what really matters.
As Mudra enters its second decade, here’s the question:
Can we turn one-time borrowers into long-term builders? Or will we keep writing small cheques for big dreams—with no roadmap in sight?
Book Mandala
In this section, we suggest a book to be read/listened to each week, for the inner policy enthusiast in you :)
Book: The Golden Road
Author: William Dalrymple
About the Book:
In The Golden Road, William Dalrymple retraces the old silk routes of culture, commerce, and faith that once tied the East to the West. With his characteristic mix of curiosity, lyricism, and dry wit, Dalrymple travels across ancient lands that were once bustling crossroads—Afghanistan, Central Asia, Iran, India—where civilizations collided, blended, and sometimes vanished. This is not a political commentary or a historian’s record, but a deeply personal exploration of how memory lingers in forgotten monasteries, bustling bazaars, and fading traditions. It’s a journey that reveals how interconnected the world once was—and how those threads continue to shape the present in quiet, surprising ways.
Our Take:
Reading The Golden Road feels like being guided by a companion who’s equal parts storyteller, historian, and wanderer. The book takes you to places that don’t usually make headlines, but were once at the heart of global exchange. In doing so, it reminds the reader how the boundaries we see on modern maps are far newer than we think—and often blurrier than we admit.
What makes the book stand out is not just Dalrymple’s prose, but his presence. He listens more than he speaks. He lets the landscapes and people tell their own stories—whether it's a carpet seller in Samarkand or a priest guarding a forgotten church in Armenia. For readers of Policy Mandala, it resonates in an unexpected way. Because at its core, this book is about systems of connection—economic, cultural, and human—that shaped the world quietly, over time. Much like the informal enterprises and local knowledge systems we explore in policy today.
It’s not a fast read—but it’s a rewarding one. Especially for those who like their journeys layered, like a good conversation that starts with trade and ends with poetry.
Hope you liked today’s Policy Mandala!
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