




































Indian Journal of Finance and Banking 

 Vol. 7, No. 1; 2021 

                                       ISSN 2574-6081   E-ISSN 2574-609X 

Published by CRIBFB, USA 

 

51 

FINANCING MICRO AND SMALL ENTERPRISES: ASSESSING 

THE IMPACT OF MUDRA LOANS IN AN EMERGING 

ECONOMY 

 
 

Dr. Yogesh Mahajan 

Associate Professor 

Indira School of Business Studies 

Pune, India 

E-mail: yogeshdmahajan@yahoo.co.in 

 

 

ABSTRACT 

This paper studies the impact of mudra on small and micro enterprises in terms of income 

generation, business expansion, standard of living, and employment generation in the process. 

The research is socio-economic research. The project applied mean difference method for 

quantitative data analysis and relative importance index method to analyse qualitative data. 

Paper used Schedule to conduct personal interviews to collect data from 384 respondents using 

convenience sampling. It was found that to some extent, the schemes have been successful in 

providing loans to MSME sector. The enterprises are benefitted due to collateral free mudra loan 

in terms of income generation and business expansion. But there was no significant impact on 

employment generation and standard of living as proved from the data collected from the 

respondents due to mudra loan. Also, no significant improvement in human development index 

was found among the respondents. No significant improvements in quality of food and nutrition 

were found as informed by the respondents. Financial independence has not been achieved for 

the women entrepreneurs. Policy implications for government and bank has been discussed at 

the end of paper. The paper is based on the project funded by Indian Council of Social Science 

Research, New Delhi. This is a first kind of study conducted to study the impact of mudra loans 

on small and micro enterprises in India. 

 

Keywords: Impact, Mudra Loan, SME Finance, Income Generation, Business Expansion, 

Standard of Living, Employment Generation. 

 

JEL Classification Codes: M10, E21. 

 

INTRODUCTION 

An economy like India with a population of more than 1.25 billion cannot sustain, if it does not 

have vibrant small, medium, and micro enterprises (MSMEs) to create jobs for the burgeoning 

population. According to the World Bank report, growth alone won't be enough for other 

developing countries to achieve the higher employment rates. More than 1.8 million young 

people in South Asia are expected to reach their working age every month through 2025. 

Economic growth creates jobs in the region is good news, said Martin Rama, Chief Economist of 

the South Asian Region. However, providing the young entrants with opportunities while 

attracting more women to the labour market will require even more employment for every point 



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of economic growth, added Rama. Today small, micro and medium scale provide employment to 

more than 20% of the working population in India (Indian Institute of Banking & Finance, 

2013). So, it is necessary that this MSME enterprises are provided with government support in 

the form of loans, training, exposure, and support in marketing of their products. The pillars of 

economic development in India are micro, small, and medium-sized enterprises. They make up 

45 percent of the country's GDP with more than 30 million SMEs unit units in India. After 

agriculture, MSME is the second largest sector to generate jobs. MSMEs in India contribute 

30.27 to the GDP off the country. Approximately 31% of the total exports and production, while 

45% and 34% of the total are provided by MSMEs in India. As per National Sample survey, 

there are approximately 633.88 lakh in India (Ministry of Micro, 2021). The Government 

recently took several steps to boost manufacturing in India, 'Make in India' is one such initiative, 

and is announced for a new industry. The lack of timely and adequate funding is one of the major 

obstacles to expansion. Today the total funding gap for SMEs is estimated at around 126 billion 

dollars. The debt gap of this is about 84 billion dollars (Kumari & Trivedi, 2019).  

MSMEs face many problems. They are in backward position compared to large 

corporates (Wasiuzzaman, 2020) in India. The main problems faced by MSMEs are information 

availability, credit constraints (Sandhu, 2020), policies at the entry level, high costs, 

infrastructure shortages and barriers to technology.  Also, sixty-two percent of the cast, tribal and 

other backward classes are held in the Scheduled Caste, who have less accesses to loans. It is 

difficult to get into formal financial services and credit for these low-income groups and the 

weaker sections. Global governments have credit guarantees in place to alleviate loan constraints 

on medium and small enterprises. These schemes are aimed at encouraging lenders to lend to 

small companies. Credit guarantee schemes (Gai et al., 2016) reduce the lender' s risk by 

ensuring that a portion of the loan is reimbursed in case the borrower is defaulting. SMEs can 

therefore receive credit; they would not otherwise have received.  

Government of India introduced collateral free and guaranteed loan scheme Pradhan 

Mudra Mutra Yojana (PMMY), for the non-corporate, non-farm small/micro enterprises, to 

provide loans up to Rs 10 Lakh in April 2015. Under PMMY, all banks, i.e., public, private 

sector, rural banks and micro-finance institutions, state co-operative banks and foreign banks are 

obliged to lend income to the non-farm sector generating activities below Rs. 10 Lakh. This 

credit is classified as PMMY's MUDRA credit. In addition to the micro-finance sector in general, 

the Government has created a new institution for implementing the system called MUDRA 

(Micro Units Development & Refinance Agency Limited).  

It offers refinancing to all small businesses in India. MUDRA is thus refinancing for all 

the last-mile finance for banking and non-banking companies, which lend to micro/small 

companies engaged in the production, trade and other services, MUDRA was established with 

the primary purpose of developing the country's micro-business sector by broadening various 

supports, such as financial refinancing support and entrepreneurship assistance. The MUDRA 

loan objective of “Funding the Unfunded‟ has twin purposes, seeding new entrepreneurs (Doan 

Winkel et al., 2013) and expanding existing units. Allocation under PMMY has been doubled in 

Union Budget in 2017-2018 from previous 1.22 Lakh Crore to Rs. 2.44 Lakh Crore from with 

priorities to Tribals, Dalits, Minorities, Women and Backward class.  

 

STATEMENT OF THE PROBLEM AND RELEVANCE 

Small firms play a significant role in contributing to nation-wide gross domestic product (GDP) 

and in providing jobs to many people in developing countries with a large population (Indian 



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Institute of Banking & Finance, 2013). The government's objective is to give this sector loans to 

create jobs in India. The government of India (GOI) has launched a new financial inclusion 

initiative like Pradhan Mudra Mutra Yojana to finance the unfunded micro-entities segment. 

India Today, a magazine, submitted a request to the Financial Services Department for an RTI 

request for aggregate loans used and the aggregate sum paid under the Mudra scheme to date? 

The RTI also sought to know number of people who had received credits up to Rs 10 lakh and 

how many had been repaid up to now? On 8 August 2018, the response from RTI disclosed most 

of the loans, which fell by approximately 93 per cent in the lower category of Rs 50,000. So far 

about 13.5 crore loans, of which approximately 93 percent (12.1 crore) is 'Shishu,' up to 50,000 

rs, have been paid out, replied the RTI . "Such micro loans are only useful for small businesses 

like single cattle dairy farmers or some 'thela wala' but it will not be sufficient to create 

substantial employment," Ajit Ranade, an Economist said (India Today, 2018). In addition, more 

than 1,4 crore loans paid out in the Mudra regime varied from Rs 50,000 to Rs 5 lakh (category 

Kishore) and more than 19,6 lakh loans were in the size of Rs 5 lakh. The 'sizeable loans' 

therefore accounted for only 1.45% of the total loans provided under the scheme. The survey, 

conducted by the (Ministry of Statistics, 2019) showed that the unemployment rate stood at 6.1 

percent between July 2017 and June 2018, higher than the previous high point reached in 1972-

1973. 

In the light of this data, it is necessary to study the degree of impact of mudra loans on 

small business in India. It is necessary to study how much employment generation has happened 

due to Mudra Loans. Also, it is necessary to study how Mudra loans had been utilized by 

entrepreneurs for business expansion and income generation. The study will seek to understand 

how the loan was utilized, how it had helped the micro enterprises and how much employment 

was created in the process. The study is conducted in Pune city of Maharashtra state in India. The 

research is necessary as it affects society in terms of employment generation and standard of 

living. The research is a socio-economic research.  

 

Performance of Mudra Scheme in India- 

The performance of PMMY scheme for the last 5 years is given below. 

 

        Table 1. Total Sanctioned Amount from 2015-2020 (All India) 

 

Sr. No Year Total Amount Sanctioned (Rs. Crores) 

1 2015-16 137449.27 

2 2016-17 180528.54 

3 2017-18 253677.1 

4 2018-19 321000.00 

5 2019-20 337000.00 

Source: https://www.mudra.org.in 

 

Based on the initial survey by the researcher, by meeting various stakeholders like bank 

managers, mudra loan beneficiaries and review of past literature from journal papers, articles in 

newspapers, magazines etc., we propose following research questions to be studied in this 

research project.  



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RESEARCH QUESTIONS TO BE STUDIED 
 Have the Micro enterprises benefitted from the MUDRA loans? 

 To what extent, they have been benefitted? 

 Measuring the extent of success and founding the gaps? 

 What has been the impact in terms of income generation, employment generation, 

standard of living and business expansion? 

 

OBJECTIVES OF THE PAPER 
 To study the benefits derived by micro enterprises from MUDRA loans. 

 To study and measure the extent of impact on micro enterprises in terms of employment 

generation, income generation, business expansion and standard of living. 

 To study the gaps in providing Mudra loans to Small and Micro enterprises.  

 

REVIEW OF LITERATURE 

Every nation steadfastly tries to support small, medium, and micro enterprises because they 

provide employment to masses and helps to increase GDP of the country.  The role of micro, 

medium and small enterprises is critical for the economy. Focusing on developing MSMEs, they 

has the potential to improve economic diversification and create jobs. To boost this segment, the 

Government has launched several measures including soft loans and extended financial 

guarantees. The importance of small and micro enterprises has been highlighted by various 

others. For example, the role of the lending segment in the upliftment of MSMEs in India has 

been identified by Raj Kumar. The findings showed that the contribution of enterprises 

(MSMEs), both in their contribution to GDP and in the creation of jobs, was significant in 

economic development. In the last decade, researchers have analysed the growth of bank loans 

for the MSME sector. The examination revealed that credits of the Bank for the MSME sector 

have increased considerably since government implemented priority sector lending standards, 

but there is still a major gap that must be met in terms of the loan requirements of this sector 

(Kumar & Biswas, 2016). The support to these enterprises from the government is in various 

forms. It may be in the form of loans, marketing (Carmona-Lavado et al., 2020) support, 

technology upgradation, import export support, skilled manpower, strategic support (Gosenpud 

& Vanevenhoven, 2011) etc. Past research papers have studied this impact and access (Bewaji et 

al., 2015) of various schemes offered by governments all over the world to MSMEs. Below is a 

review of such literature to understand the methodology, statistical tools, and actual impact of 

this schemes on MSMEs in India and around the world. 

Holscher and his co-authors studied the effect of loans on the productive efficiency and 

performance of SMEs from transitional countries. By using propensity score matching, 

regression and stochastic frontier approach, they showed that loans result in enhanced 

performance and create statistically significant reduction in inefficiency (Hoelscher et al., 2016). 

Arraiz studied firm performance when partial credit guarantees are provided to SMEs. They 

studied the data of firms across ten years. They found that both production and employment in 

these companies have grown (Arráiz et al., 2014). (Aivazian & Santor, 2008). Kersten et al. 

(2017) found that few evaluations of SME finance programs were done by experiment methods. 

It has also found a significant impact of finance on company performance, investment in capital 

and employment within the supported company, while the summary effect is insignificant on 

profitability and wages. In short, the degree to which SME funding helps economic development 

and poverty reduction (Morris et al., 2020) remains unclear (Kersten et al., 2017). Azzim found 



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that collateral has positive relation with default and guarantees and default were negative related. 

Secondly, the authors found a negative relationship between collateral and high-credit influences 

and a good relationship between collateral and low-credit and default influences (Duarte et al., 

2018). Raghu Kumari studied the determinants of credit in India for SMEs. Focus group 

interview were used to determine factors. Age and net worth of owner were 2 impact factors 

while giving credit to SMEs. Authors suggested that banks should focus on start-ups who have 

creative ideas and innovative products. Also, SME owners should have clarity of though and 

approach, while applying for SME loans (Kumari & Trivedi, 2019). When the loan was granted 

to SMEs, Harri examined SME productivity. When lending to small and medium-sized 

enterprises he found productivity increased (Ramcharran, 2017). 

In the field of business funding, there is an ongoing issue in which women borrowers 

have more funding difficulties than men because of gender bias on the loan marketplace (Shoma, 

2019). Rahman aimed to analyse the credit constraints of the Visegrad countries experienced by 

female borrowers. It was observed by authors that both male and female borrowers have similar 

perceptions of financial problems, while demanding bank loans and have a similar priority. It 

shows, therefore, that in these countries gender discrimination is not the case (Rahman & 

Zbrankova, 2019). In Surabaya, Indonesia's 2nd biggest city, Adwin (2015) surveyed more than 

100 women entrepreneurs. Applied to evaluate social, financial, and human relationships, the 

ordered probit technique is applied. This research establishes a positive relationship between 

social capital and human capital and a negative relationship between financial capital and 

performance. In terms of non-financial factors, policy makers might consider creating and taking 

account in the design of credit policies incentives for spousal participation in micro-enterprises 

run by women. Meetings should be offered to expedite the participation of representatives in 

business dialogues and the development of social relations. It seems important that group leaders  

and loan officers can facilitate such discussions (Atmadja et al., 2016). To assess the effects of a 

micro-credit programme targeted at women, Attanasio et al. (2015) from a randomised field 

experiment, presented evidence in rural Mongolia. The authors found that an encouraging impact 

on women's entrepreneurship is found due to access to group loans and the consumption of home 

food, but not on income or overall hours. A personally liable microcredit programme 

simultaneously implemented does not have significant impacts on poverty reduction (Attanasio 

et al., 2015). Some researcher examined the restrictions on access to loan for female SMEs in the 

municipality of Ghana city. The study showed that weak market demand and unavailability of 

capital and loan are constrained. In addition, even though there are collateral agreements for 

small enterprises, the patrilineal legacy system in this area discriminates against women micro-

enterprises.  

Garcia-Tabuenca and Crespo-Espert (2010) analysed the assignment of guarantees 

through the Spanish system of guarantee, one of the most traditional support measures for SMEs 

using a counterfactual approach. Two groups (guarantees, preferential financing, or just 

preferential funding) of companies forming a treatment group for long-term financial support to 

companies, as well as other two control groups, were studied. The benefits can be observed 

mainly in weaker companies that are able to deal with their projects, although their financial 

costs cannot be reduced until they reach a relatively high level similar to those reached by 

companies that are not covered by the guaranteed system (Garcia-Tabuenca & Crespo-Espert, 

2010). The potential presences of credit restrictions faced by Irish SMEs have been investigated 

by Gerlach-Kristen et al. (2015), and the effect of those restrictions on jobs and investment by 

companies are investigated. For companies which are discouraged from applying for credit, 



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authors found a negative and significant effect on employment by credit constraints of SMEs. 

Authors also found a negative impact on the likelihood of a SME investment by restrictions. This 

effect is driven by companies that ration loans when looking for capacity expansion loans 

(Gerlach-Kristen et al., 2015). 

The economic consequences of the SMF credit programme for Canada were reviewed by 

Chandler (2012). This analysis suggests that programme participation would have increased by 

12, 12 and 7 points in salary, employment, and income growth between 2004 and 2006 

respectively. Programme also have created around 5,000 jobs, approximately 3.8 percent of the 

jobs created by companies over the period (Chandler, 2012). The correlation between earnings 

retention, commercial loans, trade loans, managerial operations, and the performance of SMEs 

was explored by Khan and Burki (2020). The results confirmed the positive and significant 

impacts on SME performance of commercial loans, trade credit, and retained earnings. The 

higher the performance of small enterprises among the firms under study, the greater the amount 

of trade credit activities (Khan & Burki, 2020). The evaluation of rural household perceptions of 

their standard of living in the framework of SMEs that they operate was conducted by Straka et 

al. (2015). The outcomes are based on the authors' survey of rural households in Czech in 2014. 

The skewed opinion of households on the level of satisfaction and the contribution of SME to 

positive economic development among households are analysed according to the characteristics 

of SME, where the home leader works. The article points to the link between the legal form of 

SMEs and distance from households to the contribution of SMEs to economic development and 

to the distance between SMEs from home and the satisfaction of the household with living 

standards (Straka et al., 2015). 

Uesugi et al. (2010) examined the efficacy of public credit guarantee programmes in 

Japan. While authors note that loans are more accessible to programme participants, the 

increased liquidity only lasted a few years when loan from undercapitalized banks were 

provided. Moreover, the ex-post performance of the participants of the programme deteriorated 

in relation to their non-participating partners with the exception of companies with a significant 

net value. Some researcher studied the efficiency of public credit for the promotion of Brazilian 

companies. In terms of employment growth, labour productivity and export, the authors focus on 

the impact of credit lines. Findings reliably demonstrate that entry to public lines of lending has a 

substantial and significant optimistic effect on employment and export growth, while authors 

have not seen any significant impact on productivity measurement (DeNegri et al., 2011). 

Santoso et al. (2020) conducted research in Bantul district, Indonesia, by gathering primary 

information and a structured questionnaire was administered to rural families. The logistical 

model was used by the authors to assess the social effects of microcredit debtors. The study 

found that monthly income, loan, mensural expenditure, credit amounts, interest rates, marital 

status and education have major effects on the likelihood of increasing the benefit of borrowers 

following access to micro-credit (Santoso et al., 2020). The evidence and theory have raised 

concerns, that microcredit is harmful rather than good, especially when offered at high interest 

rates. The authors use a randomised household survey of qualifying borrowers and their 

businesses to calculate the impact of Mexico's largest micro lender. Average effects of 18-34 

months after expansion on a large number of outcomes indicate no transformational 

consequences (Angelucci et al., 2014). 

Bertrand and Crepon (2014), by studying the country's largest microfinance institution Al 

Amana, reported the results of a randomised assessment of the microcredit programme launched 

in Morocco. It showed that microcredit (Mahmood & Matlay, 2014) has a large, although 



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heterogeneous, impact on the assets and profits made from work, but small, impact on 

consumption, amongst those who chose to borrow (Crépon et al., 2014). Tinajero evaluated 

credit programmes using ten-year panel data from 1994 to 2005 panel data for the firms using 

DID model combined with methods for adjustment of propensity score (PSM). This study found 

evidence of enhancements in key variables such as gross production, value added, and wages for 

small and medium-sized enterprise programmes. The study also shows that it may take several 

years to determine some of the positive impacts. (Lopez-Acevedo & Tinajero, 2010), (Aivazian 

& Santor, 2008).  Ondřej evaluated two EU-funded schemes of credit guarantee from Czech 

countries. No statistically conclusive findings for most of the outcome variables were obtained 

two years after the programme. For the programme participants, authors only found positive 

changes in real fixed assets. The authors cannot, say that the funded companies are better off in 

the short term compared with those that are not supported  (Dvouletý et al., 2019). Blasio 

analysed the impact on credit access for medium and small enterprises of the Italian scheme 

Fondo di Garanzia. It also evaluates to what extent the scheme has influenced firm performance 

in investment and sales. By using techniques of regression discontinuity, the paper shows that 

there are no impacts for company investments and only a mixed sales impact is detected; 

guaranteed loans have been used mostly for working capital finance (de Blasio et al., 2018). 

The authors have found certain evidence that increasing loans for SMEs contribute to 

financial stability by reducing non-performing loans and the likelihood of bankruptcy (Morgan & 

Pontines, 2018). An empirical study was carried out to identify the link between MFI 

microcredits and the financial performance of SMEs. The results have shown significant links 

between the amount of micro-loans and the variables dependent on them. In Lebanon, the 

number of women recipients of credits is low, and services and trade are the main categories of 

companies in Lebanon, the beneficiaries of which are located mainly in Lebanon, South and the 

North (Moussa, 2020). Ibe study looks empirically on the effect on poverty reduction and the 

improvement of the development of human capital in Nigeria in 1999-2008 by the micro-credit 

provided by microfinance banks. The results show that the intermediation actions of small banks 

have adverse, negative impacts on the index for poverty and a positive effect on human capital 

development in Nigeria in this period of study (Onwumere et al., 2012).  

Access to financing, especially for service-based industries and new firms without real 

assets to use as collateral has become increasingly difficult. Between 1990 and early 2011, 

authors examined credit guarantee schemes (CGs) literature. Authors have largely found 

descriptive studies of the different conditions and research gaps in guarantee. It appears that the 

desirability of CGs is assumed while measuring CGs performance results are ambiguous. 

Authors propose study in fields like risk minimisation factors, impacts of different risk sharing 

ratios, unintentional CGS impacts, social dimension reporting, default rates in Asia, and security 

in a knowledge economy (Samujh et al., 2012). Gampala studied credit for supporting and 

stimulating growth and performance of the MSE sector for micro and small companies in India. 

The study showed that the loan has an impact on the performance of MSME (Gampala, 2018).  

This research explores the impact of state aid on fiscal performance of firms using a 

sample of private manufacturing medium and small firms (SMEs) in the period 2007-2015 in 

Vietnam. Unlike many other studies, the research suggests that government support influences 

the financial performance of companies after control of heterogeneity, dynamic endogeneity, and 

non-observable issues. The conclusion reinforces the institutional theory perspective. The 

research also shows that support actions, such as soft loans, tax exemptions, and financial 

incentives, are vital to Vietnam's private SMEs' development (Nguyen et al., 2018). Ramcharran 



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study expands the literature on SME performance through empirical observation assessing the 

effectiveness of credit to India's SME firms through data between 1979 to 2013. The results 

show that bank credit productivity increases (output elasticity) from 0.76 to 1.23; the labour 

productivity is negligible but rises from -1.57 to -0.628. Efficiency of the sector improved from -

0.89 to 0.607 returns, largely because of increased bank credit productivity (Ramcharran, 2017). 

The author shows that small enterprises with access to formal funding generate additional jobs 

than companies without access, with employment in companies with more affordable and bigger 

loans increasing the quickest. The effects of finance access for production companies are greater 

than for services and are indicative of sectoral finance targeting as a possible industrialization 

policy (Brixiová et al., 2020). Cravo analyses and summarises 40 meticulous assessments of 

small and medium enterprises assistance services and provides proof to inform policy debates on 

small and medium-sized enterprises and corporate support. Authors show that corporate support 

measures improve corporate performance and create jobs (Cravo & Piza, 2019). 

Ruslan examined the connection between the performance of SMEs and access to 

microcredit. The article examines how access to microcredits affects employment and sales 

growth of SMEs by using data from the 2016 survey of owners and management of SMEs in 

Malaysia. The study showed, using the Propensity Score Matching (PSM) approach, that 

microcredit sales of SMEs were 25.6 to 25.7 percent higher than those of non-microcredit 

lenders. But the impact of microcredit access on SME growth was not disclosed by the PSM and 

the DID analyses. These results were confirmed by the Endogenous Switching Regulation (ESR) 

method (Ruslan et al., 2020). Anke offers a significant outline of the recent research situation 

and emphasises current study gaps. An alternative approach to research is derived from these 

lacunae. Since further research is required to give a clear statement on the impact of the scheme 

on SMEs' loans, implementing this method may aid bridge the existing research gap (Valentin & 

Wolf, 2013). The efficiency of micro-business credit on increasing business income and 

innovation is also being reviewed. It is found that FIs provide careful screening and monitoring 

of micro-enterprise loans linked to appropriate business talents, knowledge, and tools to ensure 

the efficient utilisation of lending capital.   

Zecchini and Ventura (2009) provides a thorough evaluation of the impact of government 

loan guarantee on SMEs, without jeopardising their sustainability in finance, in terms of 

increasing credit availability and cutting borrowing costs. Evaluating the results of the medium 

and small enterprises that benefitted from the guarantees in Italy with a sample of similar 

companies have carried out extensive econometric tests. The results confirm that guarantee and 

the greater level of loan leverage of guaranteed companies are related to a causal relationship, as 

is their lower debt cost. In this respect the guaranteed instrument of Italy has proven to be an 

effective instrument. From the above review, the ability of companies with access to guaranteed 

loans to grow in output and jobs and to increase their income each day can be summarised. Some 

papers indicate that it is still questionable whether collateral free loans play their part in 

accelerating poverty reduction, since many poor households are unable to access the programme. 

Also, Small-scale industries and start-ups perform a key role in increasing the living standards of 

our population especially in India. There is mixed view in literature regarding impact of loans on 

business expansion, employment, income generation and standard of living. 

 

RESEARCH GAP 

Review of literature provides mix results in terms of impact of loans on income, employment, 

and business expansion. There is hardly any comprehensive investigation in case of mudra loans 



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in India. There is a significant research gap in case of study of impact and gap analysis of Mudra 

loans in India. It is necessary to study the impact of this loans on income, employment 

generation and business expansion. There is also a need to study the problems faced by small 

scale industries in availing mudra loans and gaps in providing mudra loans to small scale 

industries. With the help of a comprehensive and theoretically grounded investigation proposed 

here, this research intend to bridge an existing gap in literature empirically.  

 

HYPOTHESIS OF THE PROJECT 

Due to mix reviews in literature and pilot study, project proposed following null hypothesis, 

 

Hypothesis 1: There are no significant changes in business expansion for small/micro 

enterprises due to mudra loans in Pune city area. 

 

Hypothesis 2: There are no significant changes in income generation for small/micro enterprises 

due to mudra loans in Pune city area 

 

Hypothesis 3: There are no significant changes in employment generation of entrepreneurs for 

small/micro enterprises due to mudra loans in Pune city area 

 

RESEARCH METHODOLOGY 
The review of literature found use of different methodologies to study the impact of loans on 

SMEs. For example, the available approaches to public intervention evaluation are discussed in 

(Khandker et al., 2010). The simplest approach is to have an experiment as described in his most 

recent article in full randomisation as (Bruhn & McKenzie, 2009). The methods used most 

frequently are the RDD approach (de Blasio et al., 2018) and the PSM approach (Arráiz et al., 

2014), DID approach (Lopez-Acevedo & Tinajero, 2010), counterfactual method (Garcia-

Tabuenca & Crespo-Espert, 2010), focus groups (Kumari & Trivedi, 2019) and mean difference 

method. Menon used descriptive design with regression analysis to study the impact of credit 

guarantee on SME’s in Italy (Alessio D’Ignazio & Menon, 2012). Aivazian and his co-author 

used accelerator model for the same purpose (Aivazian & Santor, 2008). 

Our study uses both qualitative and quantitative factors to study the impact of mudra loan 

on micro and small enterprises in India. We adopt a mean difference method to analyse 

quantitative data collected from the respondents (Kothari & Garg, 2019), which considers 

changes in results before and after the intervention, based on real time data collected directly 

from the respondents through interview method. We have used relative importance index method 

to analyse qualitative data collected from the respondents and Cronbach Alpha to test reliability 

of the scale. Because the beneficiaries are the right source for assessing the impact of mudra 

loan. The present study is descriptive in nature (Kothari & Garg, 2019). Schedules were prepared 

and canvassed for the collection of data (Blumberg et al., 2011). The data needed for the study 

was collected from the respondents by personal interviews method using pre-tested schedule 

prepared for the purpose. A pilot study of 20 respondents was done to further develop the 

Schedule by the researcher. The final schedule was then prepared. The field investigator 

collected data from 400 respondents from Pune city area in a span of 7 months, out of which 384 

were considered for analysis. Some of the respondents did not keep records of the costs and 

revenues for the company they took up. The collected data of some respondents were therefore 

based on the respondents' memory. During the interview, the personal bias of the sample was 



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minimised by persuading them that the data was collected for research purpose only. Data on the 

socio-economic status of the sample were collected from the beneficiaries. Sample distribution 

was also gathered, like caste, age, education, and family size. Similarly, the data on sales, profit 

and employment generated through their enterprise before and after mudra loan was collected in 

the study area. 400 interviews were conducted as per statistical formula, out of which 384 were 

considered for analysis. Each interview was for a period of 20-30 minutes. The data of 

beneficiaries was obtained from public sector banks such as Bank of Maharashtra and Bank of 

Baroda. The field investigator appointed for the study used to take appointment one day before 

the interview and conduct interview at the time given by the respondent.  The data collection 

took place within a span of seven months from August 2020 to February 2021.  

Secondary data was collected through reference books, newspapers, websites, discussions 

with bank officials etc. Both qualitative and quantitative data was collected from the 

respondents. The loans in the all the three categories were considered for this study. Only micro 

and micro enterprises as per new classification of industries were taken for the study. Also, 

enterprises receiving loans in 2016-17 and 2017-18 were only considered, as they can only have 

meaningful impact on employment generation, standard of living and business expansion. As the 

micro and small enterprises is well dispersed in Pune city, convenience sampling (Probability 

Sampling) was used to collect data from the respondents (Blumberg et al., 2011). Cooper, 

Pamela, Schindler, 2018).  

 

DATA ANALYSIS AND INTERPRETATION 

Statistical Packages for Social Sciences (SPSS) Version 25 and MS Excel was used for data 

analysis. Data was collected by the field investigator through a schedule from 384 respondents. 

The data was then converted into a soft copy in MS Excel sheet. The data was then cleaned for 

missing fields and then coded to be used on SPSS software by the Research Assistant of the 

project. The final analysis was done using SPSS software.  

Maximum respondents (40.6%) were in the age group of 36-45, followed by 37% in the 

age group of 46-55. Remaining respondents were in the age group of 26-355 and 55-67. The 

average age of respondents was 43 years. The educational qualification profile is as follows. 

Maximum respondents (30.7%) were graduates followed by 10th (32.6%) and 12th (25.8%). 74 % 

(285) of the respondents were male and 25.8% (99) respondents were females. The social 

classification based on caste is as follows. 35.7% belong to open category, followed by 27.6% 

from SC category and 23.6% from OBC category. This classification also shows that 

approximately 65% of backward class has been benefitted under mudra loan scheme. 97.66 % of 

the respondents were married as can be seen from the table. 69% of the respondents have 2 

children, followed by 16.7% of the respondents, who had 3 children. Only 10.7% respondents 

have 1 child. 49.7% respondents said that their spouse does housework. 27.6% respondents said 

that their spouse is in the same business. 15.4% of the respondents said that their spouse is 

employed in another firm.   

Maximum 34.6% respondents are in the business from the last 6-10 years, followed by 

21.4% and 20.4% in the bracket of 11-15 years and 1-5 years. Also 15.6% respondents are in the 

business from 15-20 years. 65.1% of the respondents has start-up capital which was below 1 

Lakh rupees. 31.3% of the respondents has start-up capital of 1-5 Lakh rupees.  Maximum 59.6% 

of the respondents were service provider, followed by 29.7% of the respondents who were in 

trading business. 8.3% of the respondents were having food stall. Service providers include 

rickshaw drivers, cab drivers, fabrication, salon, beauty parlour, garage, paper agency, tailor, 



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mess etc. Maximum respondents (63.8%) have taken loan in 2017, followed by 31.51% in 2016. 

Maximum respondents (56%) have taken loan in the bracket of 3-5 Lakhs Rupees. 29.7% of the 

respondents have taken loan below 3 Lakhs Rupees.  Maximum 57.29% of the respondents have 

taken loan for a period of 3 years, followed by 17.45 % respondents, who have taken loan for 2 

years. 16.67% of the respondents have taken loan for a period of 5 years. 

 

Table 2. Purpose for availing loan 

 

What is the purpose of taking loan? 

Purpose of loan Frequency Percent 
Valid 

Percent 
Cumulative Percent 

Working Capital 155 40.4 40.4 40.4 

New Equipment/ Machinery Purchase 179 46.6 46.6 87 

Business Expansion 50 13 13 100 

Total 384 100 100   

 

Maximum respondents (46.6%) have taken loan to buy new equipment’s/machinery for 

their business, followed by 40.4% respondents, who said they took mudra loan for working 

capital requirement. Remaining respondents have taken loan for business expansion. 

 

Table 3. Products bought after income generation due to mudra loan 

 

Have you bought some Product after this income generation due to mudra loan 

Product Frequency Percent Valid Percent Cumulative Percent 

Yes 18 4.7 4.7 4.7 

Not Taken 366 95.3 95.3 100 

Total 384 100 100   

 

95.3% of the respondents have said that they have not bought any new household product 

in the after-income generation from mudra loan. This shows that though there has increase in 

income of micro enterprises, it has not converted in raising standard of living. This may be due 

to repayment of loan instalment, fear of corona pandemic etc., as informed by the respondents, 

Maximum respondents (48.44%) said that they have received loan in less than 15 days, followed 

by 46.09% in 15-30 days. 64.06% of the respondents said that it is easy to obtain mudra loan, 

while approximately 30% said that it was difficult to get mudra loan from banks. Maximum 

respondents (99.48%) said they have used mudra loan for the purpose, it has been taken.  

 

Table 4. Payment of loan instalment 

 

Do you Pay loan instalment regularly? 

Yes/No Frequency Percent Valid Percent Cumulative Percent 

Yes 216 56.3 56.3 56.3 

No 168 43.7 43.8 100 

Total 384 100 100   

 



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56.25% of the respondents said that they pay mudra loan instalments on time. But 

43.75% of the respondents said that they were not able to pay loan instalments on time due to 

corona, loss in business. 

 

Hypothesis Testing 

Hypothesis testing was carried out to using paired sample T-test as the data was collected from 

the respondents before and after the mudra loan was taken. 

 

Hypothesis 1:  There are no significant changes in business expansion due to mudra loans in 

Pune city area. 

 

Table 5. Hypothesis 1 Paired t-test 

 

Particular 

Paired Differences 

t df 
Sig. (2-

tailed) Mean 
Std. 

Deviation 

Std. Error 

Mean 

Sales (After Loan) – 

Sales (Before Loan) 
27328.13 57579.07 2938.32 9.301 383 0 

 

As p<0.05, hence it can be said that there is significant impact of Mudra loans on 

business expansion in Pune City area, Null Hypothesis 1 rejected. The SME’s were able to take 

advantage of collateral free loan for business expansion as sales of all this firms have 

significantly increases as per t-test. 

 

Hypothesis 2: There are no significant changes in income generation of entrepreneurs due to 

mudra loans in Pune city area 

 

Table 6. Hypothesis 2 Paired t-test 

 

Particular 

Paired Differences 

t df 
Sig. (2-

tailed) Mean 
Std. 

Deviation 

Std. 

Error 

Mean 

Profit (After Loan) – 

Profit (Before Loan) 
6962.24 28732.87 1466.27 4.748 383 0 

 

As p<0.05, hence it can be said that there is significant impact of Mudra loans on income 

generation in Pune City area, Null Hypothesis 2 rejected. The SMEs were able to take advantage 

of collateral free loan for income generation as profit of all this firms have significantly 

increased as per t-test. 

 

Hypothesis 3: There are no significant changes in employment generation due to mudra loans in 

Pune city area. 

 

 

 



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Table 7. Hypothesis 3 Paired t-test 

 

Particular 

Paired Differences 

t df 
Sig. (2-

tailed) Mean 
Std. 

Deviation 

Std. 

Error 

Mean 

No. of Employee (After Loan) – 

No. of Employee (Before Loan) 
0.02083 0.40825 0.02083 1 383 0.318 

 

As p>0.05, hence it can be said that there is no significant impact of Mudra loans on 

employment generation in Pune City area, Null Hypothesis cannot be rejected. The employment 

opportunities have not significantly increased due to mudra loans. 

 

QUALITATIVE DATA ANALYSIS 

Qualitative assessment of the respondents was carried out using Likert scale to assess the impact 

of Mudra loan on SME’s. Cronbach’s alpha test was used to assess the reliability, or internal 

consistency, of a set of scale or test items. 

 

Cronbach’s Alpha Test 

 

Table 8. Cronbach’s Alpha Test 

 

Reliability Statistics 

Cronbach's Alpha Cronbach's Alpha Based on 

Standardized Items 

No.  of Items 

0.759 0.751 12 

As Cronbach's Alpha>0.7, hence the questionnaire is consistent and valid for qualitative analysis. 

 

Relative Importance Analysis 

 

Table 9. Relative Importance (RI) Analysis table 

 

Qualitative Assessment of Mudra Loan and its Impact 
RI 

Value 

RI 

Index 
Importance 

I think mudra loan has been beneficial to me. 1562 0.813542 1 

My social status has improved due to increase in income 

due to mudra loan. 
1383 0.720313 3.5 

My food and nutrition inputs for family have improved 

after this loan. 
1244 0.647917 7 

My family is happier due to income generation due to 

mudra loan 
1313 0.683854 6 

My confidence has increased for future self-actualization 1447 0.753646 2 

Financial independence has been achieved for women 330 0.171875 12 



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This mudra loan helped me to send my kids to better 

school compared to previous school 
1098 0.571875 10 

I can afford doctor and medical expenses after getting 

mudra loan 
1126 0.586458 9 

My self-esteem has increased due to this loan 1383 0.720313 3.5 

I now frequently go to religious / social function / temples 

etc. after my Income generation due to this mudra loan 
1063 0.553646 11 

Time Pressure due to loan and repayment of loan has 

increased on me 
1334 0.694792 5 

Family relations has affected due to not able to give time 

to family 
1179 0.614063 8 

 

 Relative Importance Index method was used to analyse the qualitative data 

collected from the respondents. The relative importance values and index were calculated for 

each factor as represented in Table 9. The ranks based on the RI index were calculated. Table 9 

shows the 5 most important factors which displays the impact of mudra loan on SMEs.  It can be 

seen that Mudra loan has been beneficial to the beneficiaries to some extent. Also, the 

confidence has increased for future expansion and growth of business. Social status and self -

esteem of the respondents have also increased due to Mudra loan. But pressure has increased due 

to commitment to pay back the loan and more time is devoted to the business. Also, it is found 

that financial independence has not been achieved for the women, due to mudra loans in India. 

As per relative importance index, financial independence is ranked the last number (12), which 

shows that financial independence is not achieved due to mudra loans. 

 

RESULTS AND DISCUSSION 

The project studied the impact of mudra loans on micro and small enterprises in Pune city area of 

Maharashtra state in India. The project studied the impact of mudra loans on micro and small 

enterprises in terms of income generation, business expansion, employment generation and 

standard of living. Both qualitative and quantitative data was collected from the 384 respondents 

with the help of Schedule prepared for this study by the field investigator appointed for the same. 

The data was then analysed using SPSS and MS Excel. The analysis found that mudra loan has 

been beneficial to the SMEs in Pune city area to some extent. The SMEs were benefitted due to 

collateral free mudra loan in terms of income generation and business expansion. But there was 

no significant impact on employment generation and standard of living as proved from the data 

collected from the respondents due to mudra loan. As no new household product was bought by 

the respondents, no changes in food and nutrition habits, shows that there is no significant 

improvement in standard of living. Mudra's objective is to encourage businessmen and small 

business units to expand their skills and operations, reduce over-debt and create a formal loan 

system (finance). The objective of mudra loan scheme has been achieved as majority of the 

respondents said that they have taken mudra loan for business expansion, new 

equipment/machinery purchase and income generation. This is in line with research literature. 

Only 56% of the respondents said that they pay mudra loan regularly. Remaining respondents 

said that they were not paying the loan regularly. This is a cause of concern for banks as it will 

increase NPA of the banks.  This may be due to current pandemic situation, which resulted in 

loss of business, due to lockdown. Almost all respondents received mudra loan within one month 

of application to the bank. It shows that banks have implemented the scheme in an efficient 



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65 

manner. Qualitative data showed that mudra loan has been beneficial to the SMEs. But no 

significant improvement in human development index was found among the respondents. No 

significant improvements in quality of food and nutrition were found as informed by the 

respondents. Also, this mudra loan has not helped respondents to send children to better school 

compared to previous school. It can be said from the qualitative data collected that; no significant 

financial independence was achieved through mudra scheme for women. Though the mudra 

loans were taken on the name of women, the firm was operated by the male member of the 

family. In case of loans given to females, the application is processed by male family member. 

Females are not aware of the mudra loan scheme. They are also not aware that mudra loan is 

taken in their name.  

The documentation is also less while applying for the loan. Bank staff is also cooperative. 

The loan amount received is less than loan applied for. The loan amount should be increased. 

The disbursement is also quick and fast.  Social status and self-esteem of the respondents have 

increased due to benefits from the mudra loan. Also, confidence to expand and grow the business 

has also increased due to mudra loans. 

Time pressure has increased because of mudra loan as they must devout more time to 

business so that they can repay the loan on time. Approximately 65% of respondents were from 

backward class who have been benefitted under mudra loan scheme. The mudra loan was taken 

by majority of respondents for working capital, business expansion and new equipment/ 

machinery purchase. Only 5% of the respondents said that they have bought any new household 

equipment after deriving the benefits of the mudra loan. Almost all respondents received mudra 

loan within one month of application to the bank. 65% of the respondents said that it is easy to 

avail mudra loan from banks and 30% of the respondents said that it is difficult to avail mudra 

loan from banks. Only 56.3% of the respondents said that they pay the loan instalments 

regularly. 43.7% of the respondents said that they do not pay mudra loan instalments regularly. 

This is due to corona pandemic impact for the last one year. Most of the mudra loans were given 

to people who were in contact with the respective banks. Most of the respondents were not aware 

of exact rate of interest on mudra loan. No significant improvements in quality of food and 

nutrition were found as informed by the respondents. One extra instalment is charged for 

servicing of loan in each year. 

 

IMPLICATIONS OF THE PROJECT 

The project proposes following recommendations to the government, banks, and SMEs. 

 Most of the loans were given by banks to achieve the targets by the government to the 

banks at the end of financial year. This dilutes the objectives of such a scheme launched 

by the government. Proper procedure should be followed by banks to provide mudra 

loans, keeping in view the objectives of the mudra loan scheme. 

 Mudra loans should not be given by the banks based on relation, information about 

applicant, political interference etc. People, who are genuine, are overlooked in such 

situations. 

 Proper counselling and detailing of the mudra loan like interest rate, period of loan 

repayment, etc. should be provided to the applicant. Most of the applicants are not aware 

of these particulars. 

 Proposals submitted for mudra loan are not of good quality. So, banks should undertake 

training sessions for developing good business proposal for loan. 



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 More awareness about the scheme should be done by the bank through marketing and 

publicity. Banks should properly display banners in the bank premises, showing the 

procedure and eligibility criteria for mudra loan scheme. 

 As recovery rate is low, bank managers should connect with beneficiaries to understand 

their problems and support them in their time of crisis. 

 SMEs should prepare proper business proposal before applying for mudra loan. 

 Beneficiaries are facing loan repayment problem due to corona pandemic. Banks should 

provide support by either waiving off interest rate for some period or extending time of 

repayment of loan. 

 Such study should be conducted by banks, to assess the impact of such loans on 

enterprises. 

 In case of loans given to females, the application should be done by the female only. 

 Female entrepreneurs should be promoted by giving special interest rate on mudra loan. 

 Female entrepreneurs should be given separate training for business proposal 

development. 

 Loan amount should be increased considering the rate of inflation in the present scenario. 

 Separate staff should be provided for mudra loans process in the bank, as implementation 

of mudra loan scheme increases additional burden on the existing bank employees, which 

affects the quality of their work. 

 

CONCLUSION 

The project studied the impact of mudra loans on SMEs in Pune city area of Maharashtra state. 

The project studied the impact of mudra loans on SMEs in terms of income generation, business 

expansion, employment generation and standard of living. Both qualitative and quantitative data 

was collected from the 384 respondents with the help of Schedule prepared for this study by the 

field investigator appointed for the same. The research found that the mudra loan scheme has 

been beneficial to the small and micro enterprises in Pune city area. It has resulted in increase in 

income generation and business expansion for the beneficiaries. But there has been no significant 

improvement in employment generation and standard of living of the beneficiaries due to mudra 

loan. The research also found that no financial independence has been achieved for women due 

to mudra loan.  

 

LIMITATIONS AND FUTURE SCOPE FOR RESEARCH 

Every effort has been made to develop the research project. However, there are some limitations 

of the project, which are mentioned here. The project uses Mean Difference method and Relative 

Importance method to analyse quantitative and qualitative data respectively collected from the 

respondents. Other methods are also available to analyse this data as per literature review. 

Schedule was used to collect data from the respondents. Other methods are also available for the 

same as per literature review. The data collected and its analysis is solely dependent on the 

responses giving by the respondents to the interviewer.  The data was collected in corona 

pandemic period, the effect of which cannot be ruled out on the project. Time was also a major 

constraint as the project got delayed due to corona pandemic. Future research can be carried out 

in different states of India for more generalisations of the results. Also, comparative studies with 

different countries can be undertaken with India (Imarhiagbe et al., 2021). Cross sectional studies 

can be carried out to understand the impact of mudra loans over a period for different 



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67 

stakeholders. Studies with the help of panel data can be carried out in future to provide more 

validity to the results of this project.  

 

ACKNOWLEDGEMENT 

The scholar namely Dr. Yogesh Mahajan is the awardee of ICSSR Research Projects (Minor).  

This paper is largely an outcome of the Research Project sponsored by the Indian Council of 

Social Science Research (ICSSR).  However, the responsibility for the facts stated, opinions 

expressed, and the conclusions drawn is entirely that of the author. 

 

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