CHAPTER -I

INTRODUCTION AND RESEARCH DESIGN

1.1 INTRODUCTION

“To be an integrated financial and support services provider par excellence

benchmarked with global best practices and standards for the bottom of the pyramid

universe for their comprehensive economic and social development”.

- Vision of MUDRA

“To create an inclusive, sustainable and value based entrepreneurial culture, in

collaboration with our partner institutions in achieving economic success and financial

security”.

- Mission of MUDRA

Pradhan Mantri Mudra Yojana (PMMY) also known in the Indian banking

circles as the Mudra loan scheme not only intends to bridge the funding gap to the

micro enterprises but also aims to boost the confidence of the first generation

entrepreneurs and assist existing small businesses expand their activities. Non-

corporate small business sector (NCSBS) and OAEs including proprietorship and

partnership firms engaged in small manufacturing units, service sector enterprises,

shop keeping, fruits and vegetable vending, trucking, operating food services,

repairing and maintenance, operating machines, running small industries, food

processing, handicraft making (artisans) among others in both rural and urban areas

are potential Mudra borrowers under PMMY. From FY 2016–17 onwards, activities

allied to agriculture have also been made eligible under PMMY.

PMMY envisages providing MUDRA loans to income generating micro

enterprises engaged in manufacturing, trading and services up to Rs.10 lakh. The

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MUDRA loans are divided into three categories based on the business life-cycle that

the loanee enterprise currently is in. These three categories signify the growth,

development and funding needs of the beneficiaries.

· Shishu: Loans up to Rs.50,000

· Kishore: Loans from Rs.50,001 to Rs.5,00,000 lakhs

· Tarun: Loans from Rs.5,00,001 to Rs.10,00,000 lakhs

In addition, the overdraft amount of Rs.5,000 sanctioned under PMJDY has

been also classified as a MUDRA loan. Need based term loan, overdraft limit or

composite loan for acquiring capital assets and/or working capital and marketing

related requirements to eligible borrowers are provided under PMMY. The project cost

to sanction loans is accepted on the basis of a business plan and proposed investment.

Banks, NBFCs, MFIs, and other financial intermediaries enrolled by MUDRA

periodically, are eligible to extend Mudra loans.

To facilitate hassle free and flexible working capital assistance to the

borrowers, MUDRA introduced the MUDRA card a debit card on RuPay platform

which can be operated across the ATMs and ‘Point of Sale’ (POS) Machines. A

borrower would be able to manage his credit needs by drawing funds from ATMs or

make payments through POS machines, based on the requirement and repay as and

when funds are available with him. Many partner banks / MFIs disbursed working

capital loans by adopting the MUDRA card scheme.

The lending terms of PMMY, such as, margin, interest rate, security, etc., are

as per the RBI stipulations. In terms of RBI guidelines issued vide ‘Master Circular on

lending to Micro, Small & Medium Enterprises (MSME) Sector’ (para 4.2) dated July

01, 2014, banks are mandated not to collect collateral security in the case of loans up

to Rs.10 lakh extended to units in the micro and small enterprises (MSE) sector. Banks

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are required to encourage their branch level functionaries to avail of the Credit

Guarantee Scheme cover, wherever desirable. In this case, a dedicated guarantee fund

‘Credit Guarantee Fund for Micro Units’ (CGFMU) has been constituted and has

started its operations.

1.2 Statement of the Problem

One of the components in the implementation of PMMY is the financial

intermediaries and hence effectiveness from the supply side can be studied by

evaluating the efficiency of the financial intermediaries like the Banks. It is imperative

to study the efficiency of banks in providing loans under PMMY in particular because

of the nature of its beneficiaries. The demand for loans under the programme comes

from individuals who are keen to start a small business and do not have adequate

documents to prove their credibility. The beneficiaries of PMMY loan are

informational opaque and the banks have to rely on unverifiable, soft information to

evaluate their creditworthiness as most of them don’t have an external credit rating.

The amount and number of loans sanctioned under the programme signify the bank’s

ability to cater to the requirement of beneficiaries who do not have documents to prove

their repayment capacity. The efficiency of banks in using their resources like number

of branches, total assets, profitability and number of employees is seldom considered

for evaluating their performance in implementing the programme. Instead, it is only

the number of loans sanctioned that is considered for evaluating their performance in

implementing the programme.

In this aspect, the difference in size, profitability, back-end technology and

coverage gives undue advantage to large banks. Therefore, it is pertinent to study the

bank’s relative performance after considering the resources at their disposal as well as

beneficiaries level of satisfaction on MUDRA operations as it provides a fair

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evaluation of the performance of the banks in the implementation of the government

scheme.

1.3 Need of the Study

In India the main trouble that acts as a hurdle for the improvement of

entrepreneurship is financing. Micro organizations face many troubles so it is very

backward of their function. Other main issues confronted with the aid of micro

businesses, small business and entrepreneurs includes financial illiteracy, lack of

records, and lack of financial get admission to, access stage policies, lack of

infrastructure, excessive price and technology obstacles. In budget speech 2015-2016,

are according to Finance Minister Shri. Arun Jaitely, there are approximately five.

Seventy-seven crore small commercial enterprise devices and micro units, majorly

sole proprietorship which can be worried in small manufacturing, buying and selling

or service businesses. 62% are of them are held by the Scheduled Cast, Scheduled

Tribe and Other Backward Class. For these weaker sections and occasional earnings

groups, it is difficult to approach monetary offerings and credit easily. The aforesaid

overview indicates the importance of micro unit sectors and its financial requirement

about credit.

Government of India (GOI) has added some principal scheme to fund the

unfunded micro corporations section known as Pradhan Mantri Mudra Yojana

(PMMY). The statistics used is secondary and are obtained thru journals, articles,

studies papers, SLBC, and Annual reports available at reliable internet site of

MUDRA scheme.

1.4 Scope of the Study

Formalization of MSMEs has made the path of MUDRA easier as it has

become easier to keep track of the credit needs of the sectors. The impact of MUDRA

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bank can be seen in drastic increase in the number of MSMEs registered in the last

three years. A huge number of loans availed in Shishu category implies that the new

generation of entrepreneurs is enthusiastic about grabbing this opportunity. Also,

MUDRA loans have been targeted well as 70 per cent of loans were availed by women

entrepreneurs and other 35% by ST/ST/OBC entrepreneurs combined. After careful

evaluation of the performance of MUDRA Bank in its initial years, we can say that the

establishment of mudra bank is a landmark step in Small business financing. This

Study title of the study focuses on the various aspects of Pradhan Mantri Mudra

Yojana (PMMY) through MUDRA operations in Tirunelveli district, the penultimate

district of southern India and one among the district of Tamilnadu. The study will be

beneficial and it will highlight the pros and cons of the scheme, which will help the

government in resolving the difficulties in implementation of the scheme, so that the

scheme may reach to more people across the state.

1.5 Objectives of the Study

The study “Pradhan Mantri Mudra Yojana (PMMY) – An Empirical Study with

Special Reference to the State of Tamilnadu” has the following objectives;

Ø To study the employment generation and entrepreneurial promotion measures

in India.

Ø To know the MUDRA scheme of Pradhan Mantri Mudra Yojana in general.

Ø To examine the growth and prospects of MUDRA operations of PMMY in the

study area.

Ø To assess the beneficiaries awareness on MUDRA operations of PMMY in the

select study area.

Ø To analyse the beneficiaries level of satisfaction on MUDRA operations of

PMMY in select study area.

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1.6 Hypothesis of the study

In order to fulfil the above objectives, the following necessary null hypotheses

were framed.

HO 1: There is no significant association between age of beneficiaries and

loan availed under different category of PMMY.

HO 2: There is no significant association between gender of Beneficiaries and loan

availed under different category of PMMY.

HO3: There is no significant association between income level of beneficiaries and

their venture sector of loan obtained under PMMY.

HO 4: There is no significant association between number of members/ working and

administration system of the organization PMMY.

HO 5: There is no significant association between awareness NGO in self-

employment promotion measures and their nature of business under PMMY.

1.7 Methodology of the Study

Research Methodology is a way to systematically solve the research problem.

It is a science of understanding research scientifically. Research methodology does not

only include research methods but also logic in the context of research study. This

includes the choice of collection of data, sampling technique adopted, period of the

study and tools for analysis.

1.7.1 Source of Data:

The required data for the study was collected from both the primary and

secondary sources.

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Primary Data: Primary data were collected so as to get first hand information about a

topic and for the purpose of analyzing information. The collection of data is mainly

done through sample study with the help of structured interview schedule. Separate

interview schedule was prepared for beneficiaries. Some of the information was

observed and noted for improving in research work.

Secondary Data: The Secondary Data were collected from various Books, Journals,

Success Story of MUDRA, Newspapers, Study Papers, Annual Reports (PMMY),

State Level Bankers Committee (SLBC), Government Reports and Websites.

1.7.2 Sample Design:

Sampling Technique: This research is based on Primary data which is collected

through face to face interviews with beneficiaries using a structured Interview

Schedule. The collected data is tabulated for analysis and required information is

mined out using statistical tools. The population is scattered over the Tirunelveli

District, so the researcher had to select sample for the study. Stratified sampling

technique is used to select samples from Tirunelveli districts in Tamil Nadu. The total

number of beneficiaries of the schemes Shishu, Kishore and Tarun of MUDRA

operation of the top 10 commercial banks in Tirunelveli district constitutes the

population of the study. Among the total 6,94,713 beneficiaries of Shishu, Kishore and

Tarun schemes of MUDRA operations of the top 10 performing commercial banks in

Tirunelveli district during the year 2019-2020, the size of sample is determined as 384

by using the following formula.

Z2.p. q 1.962 x 0.20 x 0.80

n = ---------------- = -------------------------- = 384
e2 0.042

The quantities ‘z’,’ p’, ’q’ and ‘e’ are represented below,

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Z The ‘z value respects the Z score from the standard normal distribution for

the confidence level desired by the researcher. For example, a 95 percent confidence

level would indicate (from a standard nor distribution for a two-sided probability value

of 0.95) a Z score of 1.96. Similarly, at 90 per cent confidence level, the

corresponding Z scores would be 1.645 (again, from the standard normal distribution,

for a two-sided probability of 0.90.

Generally, 90 or 95 present confidence is adequate for most social science

research studies. A 100 per cent confidence level is not practical, as it means we have

to take a census of the entire population, instead of using a sample. This study is

conducted at 95 percent confidence level, Z =1.96.

P is the frequency of occurrence of something expressed as proportion. For

example, if the number of users we would expect to find in a sample is 1 out of every

5 beneficiaries ‘P’ would be ⅕ or 0.20.

Q is simple the frequency of non occurrence of the same event, and is calculated as

(1-p). In other words, ‘p’ and ‘q’ always add up to 1. It should be noted that we are

actually trying to determine ‘p’ or estimate ‘p’. In this research for determining ‘p’

value a pilot study was conducted q = 1-0.20=0.80.

e is called acceptable error in estimating the variable in questions. This can be

decided only by the researcher for the study. Usually find the e for a population

proportion easier to establish and usually respond with a 3percent (03) or a 4 percent

(.04) ‘e’ as acceptable. This study is establishing 4 percent (.04) of acceptable error.

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 TABLE 1.1

Sample Distribution of Beneficiaries

Kishore (No. of

Tarun (No. of
sanction a/c)

Total (No. of
sanction a/c)

sanction a/c)

sanction a/c)
Shishu
(No. of
SL.No Bank Name Beneficiaries

1 HDFC Bank 157575 13034 2238 172847 96

2 Indian Overseas Bank 50809 47772 1408 99989 54

3 Canara Bank 74282 19408 4535 98225 55

4 Axis Bank 83878 1202 1167 86247 47

5 Tamilnad mercantile Bank 30379 26228 3626 60230 33

6 Bank of Baroda 45658 5369 684 51711 29

7 ICICI Bank 38397 3205 2821 44423 26

8 Indian Bank 10398 25783 1502 37683 21

9 State Bank of India 5047 12503 11131 28681 16

10 Union Bank of India 3678 9075 724 13477 7

TOTAL 384

1.7.3 Statistical Tools Used

The researcher has used the following statistical tools for analysis.

v For data analysis – weighted arithmetical mean, Garrett ranking and weight age

points, Percentages are used.

v For data representation – Tables and Charts are used.

v For testing Hypotheses – Chi-square test, Kaiser-Meyer-Olkin and Bartlett‘s test of

Sphericity, One-way ANOVA, Factor analysis are used.

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v One-way Analysis of variance (ANOVA)

Response collected from every sample beneficiary has been fed into SPSS and

some of the relevant statistical tools were applied.

The panel data contains general information about the PMMY, state and bank

wise performance related data, opinion of the beneficiaries on the benefits and

awareness relating PMMY. Throughout the questionnaire the Likert’s Five Point Scale

has been applied at appropriate questions. The research design is made in such a

manner that the researcher would be able to compare the opinion of PMMY from

different demographic points of view. In this study the following statistical tools were

applied.

Formulae for calculating F value in One-way analysis of variance

Degrees of
Source of Mean square
freedom Sum of squares (SS) F ratio
variation (df) (MS)
Between K
Tk2 T2 SSA
MSC = MSC
Samples K–1 SSC = S nk
-
N K-1
F =
MSE
(C) k =1

Within SSE
Samples N–K SSE = SST – SSC MSE =
(E) N-K
n K 2
T
Total (T) N–1 SST = S S X 2-N
i = 1 k= 1

Where K = The number of samples

N = The total number of all the observations

After forming the variance analysis table, the calculated F value must be

compared with Table value of F which is computed as (K-1) and K (n-1) at the

significant level of 0.05. If the calculated value of F is bigger than the table value of F,

the Null hypothesis (H0) would be rejected. It means that groups Mean have difference

with each other. At the same time, if the calculated value of F is smaller than table

value, Null hypothesis (H0) will be accepted; it means that group Mean do not have

difference with each other.

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v Factor Analysis

Factor analysis was applied to identify the factors perceived by PMMY while

taking loan from commercial banks. Mathematically, factor analysis is somewhat

similar to multiple regression analysis. Each variable is expressed as a linear

combination of underlying factors. The amount of variance a variable share with all

other variables included in the analysis is referred to communality. The co-variation

among the variables is described in terms of a small number of common factors plus a

unique factor for each variable.

These factors are not over observed.

If the variables are standardized, the factor model may be represented as: Xi =

Ai1 F1 + Ai2 F2 + Ai3 F3 + …… + Aim Fm + ViUi

Where,

Fi = Estimate Of ith Factor

Wi = Weight of Factor Score Coefficient

K = Number of Variables

It is possible to select weights or factor score coefficients so that the first factor

explains the largest portion of the total variance. Then a second set of weight can be

selected, so that it is the second factor, which accounts for most of the residual

variance subject to being uncorrelated with the first factor. The same principle could

be applied to selecting additional weights for the additional factors. Thus, the factors

can be estimated so that their factor scores, unlike the value of the original variables,

are not correlated. Furthermore, the first factor accounts for the highest variance in the

data, the second factor the second highest, and so on.

Correlation Matrix was used to find out the degree of relationship of variables

on one and each other. Principal Component Analysis and Varimax of Orthogonal

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Rotations Method were used to find out the loadings of development factors

respectively. Before using the Factor Analysis, Kolmogorov- Smirnov test used to find

out the sampling adequacy.

v Garrett Ranking

In this study, the researcher has used Garrett ranking to identify the important

problems relating to finance, problems associated with government and preference

sources of capital.

As per this method, beneficiaries have been asked to assign the rank for all

factors and the outcomes of such ranking have been converted into score value with

the help of the following formula:

100 (Rij – 0.5)

Per cent position = ---------------------------------------------------------

Nj

Where,

Rij = Rank given for the ith variable by jth beneficiaries

Nj = Number of variables ranked by jth beneficiaries

With the help of Garrett’s table, the percent position estimated is converted

into scores. Then for each factor, the scores of each individual are added and then total

value of scores and mean values of score is calculated. The factors having highest

mean value is considered to be the most important factor.

1.7.4 Period of the Study

The period of the study reveals the period of collection of Primary data as it is

considered the actual period of study because the perspective or views of the

beneficiaries may change over a period of time. The period of study for the present

study is March 2019 to December 2020.

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1.8 Operational Definitions and Concept

1.8.1 Micro Credit

The lending of small amounts of money at low interest to new businesses in the

developing world.

1.8.2 Financial Inclusion

Financial Inclusion is described as the method of offering banking and

financial solutions and services to every individual in the society without any form of

discrimination.

1.8.3 Entrepreneurs

An entrepreneur is an individual who creates a new business, bearing most of

the risks and enjoying most of the rewards. The entrepreneur is commonly seen as an

innovator, a source of new ideas, goods, services, and business/or procedures.

1.8.4 Beneficiary

A beneficiary is any person who gains an advantage and/or profits from

something. In the financial world, a beneficiary typically refers to someone eligible to

receive distributions from a trust, will, or life insurance policy.

1.8.5 Small Enterprises

A business which functions on a small-scale level involves less capital

investment, a smaller number of labour and fewer machines to operate is known as a

small business.

1.8.6 MUDRA

It’s a financial initiative for facilitating micro-units and providing them with

sufficient funds to help them develop their business. Medium and small businesses are

often incapable of availing loans from banking institutions due to lack of security and

inadequate funds for paying off the interest.

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1.8.7 Self-Employment

The state of working for oneself as a freelance or the owner of a business rather

than for an employer.

1.8.8 Five-Year Plan in India

The Planning Commission visualised projects with a five-year plan

perspective. The aim of the Five-Year Plans was to identify and priorities certain

sectors to attain the given targets.

1.8.9 Commercial Bank:

The term commercial bank refers to a financial institution that accepts deposits,

offers checking account services, makes various loans, and offers basic financial

products like certificates of deposit (CDs) and savings accounts to individuals and

small businesses.

1.8.10 Micro, Small and Medium Enterprises (MSMEs)

The Micro, Small and Medium Enterprises (MSMEs) sector has emerged as a

highly vibrant and dynamic sector in the Indian economy over the last five decades.

MSME sector had saved India's economy from great recession in 2008 and still

contributing like the backbone of the economy.

1.9 Limitations of the Study

· Exact results will be obtained only if the entire population is taken for study,

since the study is based on the samples there is possibility of Bias.

· The perspective or views of the beneficiaries may change over a period of time

so the findings and suggestions of the study are suitable only for the period

mentioned.

· The study did not include the changes in the scheme after the data collection was

done.

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 · The researcher focused only on the beneficiaries of the scheme, the other side

i.e., the government or the authorities issuing the scheme are not taken into

consideration.

1.10 Chapter Scheme

This research work entitled “Pradhan Mantri Mudra Yojana- An Empirical

Study with Special Reference to the State of Tamilnadu” has been divided into five

sections. Each section is organized as a chapter and following is the chapter scheme.

The first chapter is entitled as “Introduction and research design”. It states

the way in which the research work is done. It provides the statement of problem, the

objectives, hypothesis framed and analysed, research methodology used, sampling

method followed, statistical tools applied for analyzing the data, period of study and

also the chapter scheme.

The Second Chapter is given the title “Review of Literature”. It encompasses

the literary review of previous studies. The researcher has focused mostly on the

studies related to self employment, employment generation, entrepreneurial promotion

measures done during the past ten years. All the previous studies were reviewed

chronologically starting from 2005.

The Third Chapter entitled “Microcredit and Economic Development- Plan

Periods” it provides an elaborate explanation on the present scenario of microcredit

and economic development of India during the five year plan period. Also, it presents

the financial inclusion schemes in the country. The importance of Micro Units

Development and Refinance Agency (MUDRA), objectives of PMMY, performance

of the Micro credit and financial inclusion sector in India during the five years plan

period, and current status of financial inclusion in India. And it also Scenario of

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PMMY in India, growth of PMMY in Tamilnadu and progress of MUDRA operations

in the select district.

This Fourth chapter deals with the “Beneficiaries Satisfaction on Pradhan

Mantri Mudra Yojana (PMMY) - An Analysis. An empirical analysis has been

made with the data on beneficiaries awareness level on MUDRA operations of PMMY

with appropriate statistical tools, keeping in mind the objectives and the hypotheses

formulated.

The last chapter is summation of the research work and it is entitled as

“Summary of Findings, Conclusion and Suggestions”. This chapter provides

findings of the research work. Based on the findings, conclusion has been drawn and

relevant suggestions are offered. In addition, scope for further research is also given in

this chapter.

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