PMMY: Perception and Problems

Primary Research Paper

Submitted by
Group No.16

Akshat Agarwal 17060222019

Bhavya Patel 17060222041
Nikhil Punwani 17060222086
Pratyush Bhanja 17060222095
Shreyas Dutta 17060222124
Yash Venugopal 17060222147

B. Sc. (Economics) Hons. 2017-20 Batch

DATE OF SUBMISSION: 27th March 2019

 Acknowledgment
The completion of this Research Paper would not have been possible without the support and expert
guidance of various individuals at Symbiosis School of Economics.
Firstly, we would like to thank the Director, Dr. Jyoti Chandiramani for ensuring that a primary
research project is an integral part of our curriculum. This provided us with the opportunity of
expanding our knowledge and gaining a deep insight of the MSME sector, a field about which we
had very limited knowledge.
We would like to thank our Programme-in-charge, Dr. Deepa Gupta for spearheading the entire
project and providing us with guidance and valuable feedback regarding the execution of the paper.
We would like to extend special thanks to our Research Methodology teacher, Dr. Varun Miglani for
sharing his pearls of wisdom with us during the course of the research and providing constant
guidance regarding various aspects of the paper. We are extremely grateful for his comments on the
initial draft of the survey questionnaire, although any errors are our own and should not tarnish his
reputation.
Lastly, we would like to thank all the entrepreneurs who willingly participated in our survey.
Without their conscientiousness and patience, it would not have been possible to obtain the data
required to write this paper.

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Abstract
The MSME sector in India is a large employment provider and a major contributor to GDP.
However, the major problem faced by such enterprises is the lack of sufficient financing. In the
purview of this, the PRADHAN MANTRI MUDRA YOJNA (PMMY) was launched to promote
entrepreneurship by facilitating the provision of collateral free loans to the MSMEs. Meant to be a
game changer, the PMMY was successful in its initial stages but is now stagnating. This research
paper aims at determining the effectiveness of the scheme by conducting a survey and using
mathematical and statistical measures to determine the relationships between different variables
associated with the scheme. This paper also attempts to highlight the real-time problems faced by
the interviewed entrepreneurs in the process of obtaining the MUDRA loans.

Keywords: MSME, PMMY, MUDRA.

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1 Introduction
The Micro, Small & Medium Enterprises (MSME) sector of India is a vast, vital and yet
challenging, market segment as it is the source of livelihood for 11.7 crore people. At the same time,
it is challenging because the sector is currently credit-starved and depends almost entirely on
informal finance or self-financing to fund its credit gap (Giri & Singh, 2016). This sector is the
second largest sector engaging uneducated & unskilled people after agriculture. However, a vast
number of enterprises in this sector cannot access formal sources of finance and have to resort to
informal financing or self-financing. The main problem faced by the MSMEs happens to be the
absence of collateral. Due to this, commercial and rural banks show a lack of willingness in
providing loans. The government has deployed various schemes and initiatives in order to assist the
MSMEs in terms of financing, in order to increase their productivity. One such scheme was set up
to develop and refinance all banks and micro-finance institutions engaged in the business of lending
to micro/small business entities. This scheme is the PRADHAN MANTRI MUDRA YOJANA
(PMMY), which people was launched on 8th April 2015. Under this scheme, the Micro Units
Development & Refinance Agency Ltd. (MUDRA), a new initiative was introduced to provide
finance to banks, non-banking financing companies (NBFCs) and microfinance institutions (MFIs)
to, in turn, extend credit to MSMEs. Introduced as a subsidiary of Small Industries Development
Bank of India (SIDBI), MUDRA was announced as a part of the Union Budget proposals for the
financial year of 2015-16.

1.1 Background of MUDRA

As the Hon’ble Prime Minister, Mr. Narendra Modi quoted, “MUDRA Yojana is a unique initiative,
which pins hopes on the skills and strengths of the poor, neo-middle class and middle class. It
brings out the entrepreneurial energy in our and furthers a spirit of self-reliance among them”
(MUDRA Annual Report, 2017-18), the MUDRA scheme aimed to bring stability to the
microfinance system through regulation and financial inclusion. The scheme aimed to encourage
entrepreneurs and small business units to expand their capabilities and operations as well as to
reduce their indebtedness by providing them collateral-free credit of up to ₹10 Lakhs. Under the
aegis of the PMMY, MUDRA has created the following products/ sub-schemes, namely:

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1.1.1 SHISHU Loan Scheme
This scheme is meant for starters and small entrepreneurs and will provide them with a loan cover
up to ₹50,000/-.

1.1.2 KISHOR Loan Scheme

This scheme is meant for mid-level business organizations and will provide them with a term loan
ranging from ₹50,000/- to ₹5 Lakhs for their further expansion.

1.1.3 TARUN Loan Scheme

This scheme is meant for large and automated business organizations and will provide them with a
term loan ranging from ₹5 Lakhs- to ₹10 Lakhs.

These sub-schemes under MUDRA, aim to serve as reference points in order to signify
the stage of growth as well as the funding needs of the beneficiary micro unit/entrepreneur (Rajeev
& Dhirender, 2017).
The research study comprises of the analyses and interpretations from the data collected by the
survey in order to understand the impact of the MUDRA scheme on the MSME sector of the Pune
district of Maharashtra.

2 Data and Methods

All the data used in this paper was collected from the Pune district of Maharashtra via an on-call
interview method.
The survey conducted was focused on the following 3 major industries: -
a. Rubber Industry.
b. Automobile Spare Part Industry.
c. Food Processing Industry.
The data collected in the interviews were later filled into Google forms and then organised and
coded in tabular form using Microsoft Excel.
Through this tabular data, conclusions were made regarding various different aspects included in
the questionnaire and pivot tables and bar graphs were created in order to find a relationship
between the following different variables: -
a. The type of MUDRA loan and whether or not the full amount of the MUDRA loan was
sanctioned.
b. The type of MUDRA loan and the time taken for the MUDRA loan to get sanctioned.
c. The type of MUDRA loan and the purpose for which the loan amount was used.
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3 Results and Discussion

3.1 Survey Results

Out of a total of 54 enterprises surveyed, 29 were micro, 17 were small and 8 were medium which
indicates that a major chunk of the sector constitutes of micro enterprises.

Figure 1

Source: Primary Survey

Another crucial observation is that the sector comprises of sole proprietors the most (53.7%),
followed by partnership firms (25.9%) and then come a small minority of private ltd. and family
owned businesses.

Figure 2

Source: Primary Survey

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Most of the enterprises do not sell their goods online (66.7%) but some do market their goods
online (43.4%). The reason behind minimal sales in the online platform can be attributed to the
paucity of exposure and resources to perform at such a platform.

Figure 3

Source: Primary Survey

The majority of annual revenues of these enterprises lies in the range of 5 Lakhs to 1 crore
cumulatively (75.9%) with 10 Lakhs to 25 Lakhs holding the largest majority (29.4%) amongst the
segregated options. 29 out of 54 enterprises are currently self-financed while the other 25 still
require external financing.

Figure 4

Source: Primary Survey

Approximately 80% of the enterprises have taken a loan since their establishment, indicating the
MSME sector’s need for external aid due to lack of funds. This conveys the necessity of credit that
is present in the MSME sector and also the need for an effective & efficient government financing
scheme like MUDRA to fill the credit gap.

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 Figure 5

Source: Primary Survey

Even though 70.4% (38) of the enterprises interviewed were aware of the MUDRA scheme, only
25.9% (14) of the enterprises have chosen to borrow from MUDRA. This might be a reflection of
certain issues that the enterprises face when they want a MUDRA loan, which will be explained
later in the study. Most of the people who applied for the MUDRA loan belonged to the General
category.

Figure 6

Source: Primary Survey

An overview of how the enterprises got aware of the MUDRA scheme can be observed in Figure 7
given below. It clearly shows that newspapers and online portals have been the vital source of
information regarding the MUDRA scheme.

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 Figure 7

Source: Primary Survey

The research team found that out of 16 enterprises, 6 have applied for a MUDRA loan twice and 10
have applied once.
In continuum to this analysis, the team also scrutinizes that 3 enterprises were never sanctioned a
loan and 13 were sanctioned the loan but only once, implying that never was an enterprise
sanctioned a MUDRA loan twice.
Finally, 34 of the enterprises required their finances for working capital while the remaining 20
required it for fixed assets. This does not point towards any concrete evidence implying that both
working capital and fixed asset financing is prioritized with respect to the type of requirement of the
firm.
Figure 8

Source: Primary Survey

3.2 Problems faced by MUDRA Customers

When the MUDRA loan applicants were asked if they faced any problem while applying for the
loan, the research team found out that 88.8% of the loan applicants did actually face a problem.

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31.25% of the loan applicants agreed that the entire procedure was tiresome & time-consuming.
Most complaints were regarding MUDRA’s adverse selection procedure & stringent eligibility
criteria for sanction of loans. Out of these complaints, 12.5% of applicants complained about too
many bank visits. A few applicants complained that the banks in which they had applied for the
MUDRA loans were giving priority to only women entrepreneurs and were reluctant to lend to
start-up enterprises. Conclusively, this research study found out that a subsequent proportion of the
MUDRA customers interviewed were not fully satisfied with the overall process of the MUDRA
loan application.

3.3 The relationship between the type of MUDRA loan and whether or not the
full amount of the MUDRA loan was sanctioned
There are 3 types of MUDRA loans, namely:
 SHISHU, which offers loans of up to ₹50,000
 KISHOR, which offers loans from ₹50,000 to ₹5 lakhs and
 TARUN, which offer loans from ₹5 lakhs to ₹10 lakhs.

Out of the 54 enterprises interviewed, 16 of them had applied for the MUDRA loan. Table 1
illustrates the responses of those 16 enterprises. The Table shows the different types of MUDRA
loans under which the enterprises had made applications and shows its relationship with whether
these enterprises got sanctioned the full amount of the MUDRA loan applied or not.
It can be clearly seen from the study that the applications of 81.25% (13 enterprises) of the
MUDRA applicants interviewed were not sanctioned the full amount. This shows that MUDRA
loans do not have a good acceptance rate and thus did not sanction the full amount of loan to
anyone who had applied. This also signifies that MUDRA involves a procedure of adverse selection
of credit borrowers.

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 Table 1: Type of MUDRA loan vs. Full amount sanctioned or not

Type of MUDRA Whether full amount

Loan sanctioned or not
YES NO
n

SHISHU 1 4 5
KISHOR 1 5 6
54
TARUN 1 4 5

Source: Primary Survey

(16 out of 54 enterprises had applied for a MUDRA loan)

It can be observed that under the SHISHU type of loan, 80% of MUDRA applicants did not receive
the full amount of the loan applied for. Similarly, 83.33% under the KISHOR type and 80% under
the TARUN type of loans were not fully sanctioned.
Thus, this study signifies that the type of MUDRA loan applied for has no relationship with the full
amount of the loan being sanctioned or not. The reason behind MUDRA’s inability to sanction the
entire amount of loans being applied for can itself be attributed to the fact that MUDRA is
sanctioning loans more than an optimal amount because of which the ‘sanctioned amount’ for each
borrower is lower than what they expect for.

3.4 The relationship between the type of MUDRA loan and the time taken for
MUDRA loan to get sanctioned
Table 2 shows a study between the types of MUDRA loan & the amount of time (in months) taken
for each of them to get sanctioned. The average amount of time taken by each type of loan to get
sanctioned and the rate at which the loan would get sanctioned (loan acceptance rate) were then
computed.

Table 2: Type of MUDRA loan vs Time taken for the MUDRA loan to get sanctioned

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 Time taken Type of MUDRA Loan
by MUDRA
loan to get SHISHU KISHORE TARUN
sanctioned
(in months)
1.5 1 - -
2 1 - -
2.5 - 1 -
3 2 1 -
3.5 1 1 -
4 - - 2
4.5 - - -
5 - 1 2
Not - 2 1
Sanctioned
5 6 5
n 54

Source: Primary Survey

(16 out of 54 enterprises had applied for a MUDRA loan)

Out of the 16 MUDRA loan applicants,

 The average amount of time taken for a SHISHU Loan to get sanctioned was 2.6 months
with a 100% loan acceptance rate.
 The average amount of time taken for a KISHOR Loan to get sanctioned was 3.5 months
with a 66.66% loan acceptance rate.
 The average amount of time taken for a TARUN loan to get sanctioned was found to be
4.5 months with an 80% loan acceptance rate.

This is further illustrated in a clear way in Figure 9 given below,

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 Figure 9

Source: Primary Survey

Observable from the above graph, a positive relationship exists between the amount of loan applied
for and the time it takes for the loan to get sanctioned.

3.5 The relationship between the type of MUDRA loan and the purpose for
which the loan amount was used

Figure 10

Source: Primary Survey

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In this section of the analysis, the research team focussed on finding out what were the various
reasons for which the enterprises applied for MUDRA loans. The responses were recorded
separately for each type of MUDRA loan, namely: SHISHU, KISHOR, and TARUN. Out of the 16
MUDRA loan applicants interviewed, 5 enterprises applied for SHISHU loans, 6 entrepreneurs
applied for KISHOR loans and the remaining 5 applied for TARUN loans. The questionnaire
provided to the enterprises in the sample consisted of a question that aimed to find out which aspect
of their business the companies required the MUDRA loan for. There were five different types of
responses that came up: Workers’ Salary (0), Raw Materials (1), Transportation Costs (2),
Machinery (3) and Production Costs (Rent, Electricity Charges, Water Charges, etc. (4).
It was observed that, in the sample, SHISHU loans were taken for every aspect except for
Production Cost financing. However, out of these 5 responses, 3 loans were taken to pay for
workers’ salary and raw materials. In the KISHOR category, none of the loans were taken for
purchasing machinery. While 4 out of 6 loans were taken for paying for Raw Materials and
Production Costs. In the TARUN category, all 5 loans were taken for the purchase of Machinery,
and 4 out the 5 were also taken for the purchase of raw materials.
Even though it is hard to set trends for the purpose of generalization with such a small sample size,
the research team found that there was intuitive reasoning behind the relationship between the size
of the loan taken and the aspect that it was used for. Smaller loans were mainly taken to pay for
salary and raw materials required to keep the daily functioning of the business intact, medium-sized
loans were mainly related to production costs and raw materials but not for paying salary to the
workers and bigger loans were unanimously taken for the purpose of purchasing machinery in order
to increase the scale of the business.

4 Conclusion
In conclusion, the research team found out that there were a lot of goals that the Pradhan Mantri
Mudra Yojana has visibly been successful in achieving. According to the responses, 38 out of the 54
interviewed enterprises were aware of the MUDRA scheme. The scheme was successful in hitting
its target loan disbursements in the financial years 2015-16, 2016-17 and 2017-18 (MUDRA Annual
Report 2018). The PMMY has also clearly been successful in spreading awareness about the
services it offers. About 18.9% of the sample got to know about the scheme through online sources
and 27% of the sample found out about the same through newspapers. This proves that the
government has taken appropriate steps to market the scheme in all forefronts.
The survey conducted by the research team also gave an insight into the problems associated with
the application process for a MUDRA loan. Out of the 54 enterprises in the sample size, only 16
applied for a MUDRA loan, out of which 13 loans were disbursed. The enterprises which were
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successful in receiving the loans complained about the speed at which the loans were disbursed. The
loans that belonged to the SHISHU category were sanctioned earlier when compared to loans
belonging to the KISHOR and TARUN categories which were essentially loans of bigger amounts.
The average amount of time for a loan to get sanctioned was 3.46 months (using the data for all the
three categories). Another important observation made by going through the answers of the sample
enterprises was that the required or the applied amount of loan was seldom sanctioned. Out of the
16, only 3 loans were equal to the requested amount. This was however independent of the loan
type based on the sample response as 4 SHISHU, 5 KISHOR and 4 TARUN loans were not equal to
the asked amount out of the total 16 loan applications.
Another important objective of this research paper was to understand what the enterprises were
exactly doing with their sanctioned MUDRA loans. Based on the observations, the research team
inferred that smaller loans are taken for the sake of sustainability, medium-sized loans are taken by
enterprises which can afford to pay for workers but require financing to aid the business whereas
bigger loans are taken for the purpose of expansion and scale.
The researchers also conducted a qualitative analysis to understand the feedback that the enterprises
and entrepreneurs had about the PMMY and found out that 14 out of the 16 applicants faced
problems with the application process. These problems consisted of issues with the long waiting
period between the application and the sanctioning, lack of co-operation of the banks, bias towards
older business/reluctance to give loans to start-ups and the priority given to women entrepreneurs.
Such problems have previously been discussed by papers such as Giri, A., & Singh, L. K. (2016)
which explained how banks are biased in their selection procedure and how they are selective about
their loans which make it hard for entrepreneurs to acquire a MUDRA loan. Bank branches do not
maintain a database for MUDRA loans and try avoiding work related to this scheme. The mentioned
paper also talks of how a centralised, digital MUDRA loan application would help by easing and
speeding up the process for current and potential customers.
When asked about the possible creation of such an application as a part of the survey, the sample
enterprises mostly agreed that this was a necessity for there to be further progress under the PMMY.

Figure 11

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 Source: Primary Survey

63% or 34 of the responses were sure for such an application whereas 17 were unsure. Only 3 of the
responses were happy with the current situation of the MUDRA scheme. In fact, most enterprises
believed that government schemes, in general, have complicated application procedures.

Figure 12 Figure 13

Source: Primary Survey Source: Primary Survey

In conclusion, the researchers found out that the PMMY has successfully advertised the MUDRA
scheme but based on the sample evidence, there have to be significant leaps and bounds in the
selection and application process for the scheme to be more successful and be more positively
perceived by the industry. With the number of NPAs increasing in the MSME sector it is imperative
that such financing schemes are efficiently implemented. Success in this sector could well shape the
industrial scenario of the Indian economy for decades to come.
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References
Annual Report of MUDRA 2017-18(Rep.). Mumbai. Retrieved from
https://www.mudra.org.in/Default/.../Annual_Report_Of_Mudra_2017-18.pdf

Giri, A., & Singh, L. K. (2016, September). Pradhan Mantri MUDRA Yojana: Behind the Numbers.
Retrieved February 13 2019 from:
http://www.microsave.net/files/pdf/1474273419_PB19_Pradhan_Mantri_MUDRA_Yojana_
Behind_the_Numbers.pdf

Rajeev & Dhirender (2017). Impact of MUDRA Loan Scheme on Micro & Small Printing
Units. International Journal of Engineering Sciences & Research Technology,6(7), 687-
691.

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 Appendix

Pivot Table 1
13. Was the applied loan, a MUDRA loan? 0
Count of 18. Did you always receive the full amount of the MUDRA loan Column
that you applied for? Labels
Grand
Row Labels 0 1 Total
SHISHU 1 4 5
KISHOR 1 5 6
TARUN 1 4 5
Grand Total 3 13 16

Source: Primary Survey

Pivot Table 2
13. Was the applied loan, a MUDRA loan? 0
Count of 19. How much time did it take for
your MUDRA loan to be sanctioned? (in
months) Column Labels
3. not Grand
Row Labels 1.5 2 2.5 3 5 4 5 sanctioned Total
SHISHU 1 1 2 1 5
KISHOR 1 1 1 1 2 6
TARUN 2 2 1 5
Grand Total 1 1 1 3 2 2 3 3 16

Source: Primary Survey

 Pivot Table 3
13. Was the applied loan, a MUDRA loan? 0
Column
Count of 24. What are your enterprise’s major expenses? Labels
Grand
Row Labels SHISHU KISHOR TARUN Total
2 1 1
3 1 1
0, 3 1 1
0,1 2 2
0,1,4 1 1
0,4 1 1
1,2 1 1 2
1,3 4 4
1,4 3 3
Grand Total 5 6 5 16

Source: Primary Survey

ii