INTERNATIONAL JOURNAL OF LATEST TECHNOLOGY IN ENGINEERING,

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ISSN 2278-2540 | DOI: 10.51583/IJLTEMAS | Volume XV, Issue I, January 2026

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An Economic Evaluation of the Pradhan Mantri Mudra Yojana and Its

Impact on MSMEs in Karnataka: A District-Level Study of Mandya

Pradeep Kumar S P,

Dr. Varadarajegowda G.C.

Research Scholar in Economics, Department of Economics and Research Centre, Government College

for Women (Autonomous), Mandya, Mandya University, Mandya

Associate Professor & Research Guide, Department of Economics and Research Centre, Government

College for Women (Autonomous), Mandya, Mandya University, Mandya

DOI:

https://doi.org/10.51583/IJLTEMAS.2026.150100075

Received: 29 January 2026; Accepted: 04 February 2026; Published: 09 February 2026

ABSTRACT

The Pradhan Mantri Mudra Yojana (PMMY), launched in April 2015, is a transformative financial inclusion

initiative designed to empower India's vast informal enterprise sector by providing collateral-free institutional

credit. This study conducts a comprehensive economic evaluation of PMMY’s impact on Micro, Small, and

Medium Enterprises (MSMEs) in Karnataka, with an in-depth empirical focus on Mandya District. Utilizing a

mixed-method research design that synthesizes primary field data from 60 MSME beneficiaries with secondary

sources, the analysis assesses changes in key performance indicators: capital formation, turnover, employment,

income levels, and financial integration. The findings demonstrate that PMMY has been instrumental in driving

enterprise growth, facilitating job creation, enhancing incomes, and reducing reliance on informal credit.

However, the study also identifies persistent structural challenges, including procedural inefficiencies, limited

financial literacy, and insufficient post-loan support mechanisms, which constrain the scheme's full

developmental potential. The paper concludes that while PMMY stands as a critical pillar for inclusive and

regional economic growth, its long-term success necessitates institutional strengthening and integrated

entrepreneurial ecosystem support.

Keywords: Pradhan Mantri Mudra Yojana (PMMY), MSMEs, Financial Inclusion, Entrepreneurship, Regional

Development, Karnataka, Mandya District, Collateral-free Credit

INTRODUCTION

Micro, Small, and Medium Enterprises (MSMEs) form the backbone of the Indian economy, accounting for

approximately 30% of the GDP and employing over 110 million people. They are pivotal engines of industrial

output, export promotion, and, most critically, regional and socio-economic development. In rural and semi-

urban landscapes like Mandya District in Karnataka, MSMEs are often the primary drivers of non-farm

employment, entrepreneurship, and upward mobility for marginalized communities, women, and first-generation

business owners.

Despite their strategic importance, MSMEs have historically been plagued by a chronic "missing middle"

syndrome in finance. Traditional banking institutions, with their requirements for collateral, extensive

documentation, and established credit histories, systematically exclude a vast majority of micro-entrepreneurs.

This credit gap forces enterprises into the clutches of informal moneylenders who charge usurious interest rates,

perpetuating a cycle of financial vulnerability and stunting sustainable growth.

To bridge this gap and formalize the informal, the Government of India instituted the Pradhan Mantri Mudra

Yojana (PMMY) under the Micro Units Development and Refinance Agency (MUDRA). The scheme

categorizes collateral-free loans into three tiers: Shishu (up to ₹50,000) for seed-stage ventures, Kishor (₹50,001

to ₹5 lakh) for established enterprises, and Tarun (₹5 lakh to ₹10 lakh) for expanding businesses. By targeting

INTERNATIONAL JOURNAL OF LATEST TECHNOLOGY IN ENGINEERING,

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ISSN 2278-2540 | DOI: 10.51583/IJLTEMAS | Volume XV, Issue I, January 2026

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non-corporate, non-farm micro-enterprises, PMMY aims to catalyze entrepreneurship, job creation, and

comprehensive financial inclusion.

Karnataka, with its diversified industrial base and proactive policy environment, presents a fertile ground for

examining PMMY's impact. Mandya District, traditionally agrarian but witnessing a steady diversification into

manufacturing, trade, and services, serves as an ideal microcosm for a localized, district-level study. This

research investigates the tangible effects of MUDRA financing on the economic trajectory of MSMEs in this

region.

Objectives of the Study

This study is guided by the following specific objectives:

 To examine the conceptual framework and operational mechanics of the Pradhan Mantri Mudra Yojana.

 To analyze the developmental trends and significance of the MSME sector in Karnataka, with a spotlight on

Mandya District.

 To assess the improvement in access to formal institutional finance for micro-entrepreneurs post-PMMY.

 To evaluate the impact of MUDRA loans on key business performance metrics: capital investment, annual

turnover, and operational productivity.

 To examine the employment generation outcomes attributable to the scheme.

REVIEW OF LITERATURE

Academic and policy literature unequivocally positions MSMEs as catalysts for inclusive growth. Studies

consistently identify access to affordable, timely credit as the most critical determinant of MSME survival and

expansion. Research on PMMY highlights its success in reducing financial exclusion, with scholars noting

positive impacts on enterprise formation, asset acquisition, and working capital management across sectors.

State-specific studies in Karnataka underscore PMMY's role in enhancing women's entrepreneurship and

business continuity. However, a critical thread in the literature points to unresolved challenges: bureaucratic

delays, information asymmetry between banks and borrowers, risk aversion among lending institutions, and a

glaring lack of structured post-disbursement support.

A significant gap exists in micro-level, district-focused analyses, particularly in regions with strong agrarian

foundations transitioning towards enterprise diversity. This study aims to fill this gap by providing a granular,

empirical assessment of PMMY's impact in Mandya District.

RESEARCH METHODOLOGY

Research Design: A descriptive and analytical framework was employed, integrating quantitative data for

statistical robustness with qualitative insights for contextual depth.

Data Sources: Primary Data: Collected through structured questionnaires administered to 60 MSME owners in

Mandya District, purposively selected across manufacturing, trading, and service sectors to ensure

representativeness.

Secondary Data: Sourced from MUDRA annual reports, RBI publications, Ministry of MSME reports,

government statistical abstracts, and relevant academic journals.

Sampling Technique: A random sampling method was used to select beneficiary enterprises from various

geographical blocks within Mandya District, covering a spectrum of business sizes and types.

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Analytical Tools: Data analysis employed percentage and ratio analysis, comparative assessment of pre- and

post-loan business conditions, and descriptive statistical interpretation.

Profile of the Enterprises

The respondent enterprises comprised: Manufacturing (35%) Engaged in food processing, garment making,

and small-scale fabrication. Trading (40%) Including retail shops, agricultural input dealers, and wholesale

distributors. Services (25%) Covering repair workshops, transport services, catering, and hospitality. Prior to

accessing PMMY, the overwhelming majority were micro-enterprises, operating with fewer than five employees.

Impact on Business Performance: Capital Formation Approximately 60% of beneficiaries directed loan funds

towards productive capital expenditure procuring machinery, upgrading tools, and purchasing inventory and raw

materials. This investment directly enhanced production capacity and operational efficiency.

Turnover Growth: A significant 68% of respondents reported a marked increase in annual sales turnover. This

growth is attributed to improved working capital management, allowing for larger inventory holdings and better

fulfilment of market demand.

Enterprise Expansion: Around 72% of enterprises expanded their operational scope post-financing. This

expansion manifested as diversification of product lines, introduction of new services, or the establishment of

additional sales outlets.

Employment Generation: The study recorded a substantial increase in average employment per enterprise,

from 2.1 workers before PMMY to 4.3 workers after loan utilization. This doubling effect signifies meaningful

local job creation, with significant uptake among youth and women, contributing to regional socio-economic

stability.

Income Enhancement: Beneficiaries experienced greater income stability and improved profit margins. The

resultant increase in disposable income enabled higher household consumption, investment in children's

education, better healthcare access, and gradual asset accumulation, thereby elevating overall standards of living.

Financial Inclusion Outcomes: PMMY served as a gateway to formal finance for 75% of respondents, who

were first-time borrowers from institutional sources. The scheme fostered banking habits, encouraged the use of

digital payment systems, and instilled basic practices of financial record-keeping. Concurrently, dependence on

informal credit sources saw a dramatic decline, reducing financial vulnerability.

Identified Implementation Challenges

Despite its successes, the study uncovered several constraints:

Awareness & Design: Limited awareness of Kishor and Tarun loan categories, leading to a concentration in

Shishu loans.

Procedural Hurdles: Documentation complexity and delays in loan sanctioning and disbursement.

Capacity Gaps: Low financial literacy among entrepreneurs and cash flow management difficulties.

Systemic Issues: Risk-averse behavior by bank officials, absence of post-loan mentoring, and challenges in

"graduating" enterprises to higher loan categories and formal business structures.

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External Factors: Market volatility and intense competition.

Theme

Sub-Themes / Key

Issues

Description and Analytical Interpretation

Awareness and

Scheme Design

Limitations

• Limited knowledge

of Kishor and Tarun

loan categories

• Overdependence on

Shishu loans

• Inadequate outreach

programs

Beneficiaries largely remained unaware of higher-value loan

options intended for business expansion. This resulted in

disproportionate utilization of Shishu loans, restricting

enterprise growth and preventing upward mobility within

the credit framework. Weak financial awareness campaigns

contributed to suboptimal scheme outcomes.

Administrative and

Procedural

Barriers

• Complex

documentation

requirements

• Delayed approval

and disbursement

• Bureaucratic

inefficiencies

Lengthy procedures and strict documentation norms

discouraged applicants and disrupted business planning.

Delays particularly affected micro-entrepreneurs who rely

on timely capital, thereby reducing the practical

effectiveness of institutional credit mechanisms.

Entrepreneurial

Capacity

Constraints

• Low financial

literacy

• Poor cash flow

management

• Limited business

planning skills

Many entrepreneurs lacked essential financial management

capabilities, affecting efficient loan utilization and

repayment capacity. The absence of structured training

limited the translation of credit access into sustainable

business development.

Institutional and

Systemic

Challenges

• Risk-averse banking

behavior

• Limited access to

higher loan categories

• Absence of post-

loan mentoring

• Weak enterprise

graduation pathways

Conservative lending practices restricted credit expansion

beyond micro-level loans. Additionally, the lack of

institutional support services prevented enterprise scaling

and formalization, thereby constraining long-term economic

transformation.

External Market

Constraints

• Market volatility

• Rising input costs

• Intense competition

• Economic

uncertainty

Fluctuating market conditions reduced profit margins and

increased business vulnerability. These external pressures

often counteracted the benefits of credit access and

heightened repayment risks.

DISCUSSION

The empirical evidence strongly aligns with development finance theory, affirming that access to credit is a

powerful catalyst for micro-enterprise growth. PMMY has successfully addressed the initial capital constraint,

triggering a virtuous cycle of investment, expansion, and employment.

The predominance of Shishu loans confirms the scheme's effectiveness in supporting startups and subsistence-

level enterprises. However, the limited progression to Kishor and Tarun stages suggests the existence of a

"growth ceiling," where enterprises struggle to scale beyond a certain point without complementary non-

financial support.

The remarkable financial inclusion achieved underscores PMMY's transformative potential. Yet, for sustainable,

scalable development, credit access must be integrated with a holistic support ecosystem.

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CONCLUSION AND POLICY IMPLICATIONS

The Pradhan Mantri Mudra Yojana has unequivocally emerged as a cornerstone policy for fostering inclusive

and regionally balanced economic growth in India, as evidenced by its positive impact in Mandya District,

Karnataka. It has empowered micro-entrepreneurs, generated employment, and accelerated financial integration.

To amplify its impact and ensure long-term sustainability, the study recommends the following policy

interventions:

Enhanced Outreach & Awareness: Launch targeted grassroots campaigns to educate entrepreneurs about all

three loan categories and their purposes.

Process Streamlining: Digitize and simplify application and documentation procedures, with strict adherence to

defined processing timelines.

Capacity Building Integration: Mandate and fund financial literacy and basic business management training as

a core component of the scheme.

Strengthened Post-Loan Ecosystem: Establish a structured network of mentoring and advisory services to guide

entrepreneurs in marketing, technology adoption, and business planning.

Incentivize Graduation: Develop clear pathways and incentives (like interest subventions) for successful Shishu

borrowers to graduate to higher loan categories, fostering scaling.

Focus on Vulnerable Groups: Continue and strengthen targeted support for women and youth entrepreneurs

through dedicated counselling and potentially faster processing channels.

Sensitization of Banking Personnel: Train bank officials to adopt a more entrepreneurial and supportive approach

towards micro-enterprise lending.

By evolving from a pure credit-distribution scheme to a comprehensive enterprise support system, PMMY can

fully realize its potential as a engine of sustainable and equitable economic development.

REFERENCES

1. Government of India. (2023). Annual Report 2022–23. Ministry of Micro, Small and Medium Enterprises.

(Provides official statistics on MSME sector performance and policy updates.)

2. Reserve Bank of India. (2021). Report on Trend and Progress of Banking in India.

(Includes data on credit flow to MSMEs and the role of schemes like PMMY.)

3. MUDRA. (2022). Annual Report 2021–22. Micro Units Development and Refinance Agency Ltd. (Official

report on PMMY disbursements, beneficiaries, and sector-wise coverage.)

4. Kumar, S., & Sharma, P. (2020). “Impact of Mudra Yojana on Entrepreneurship Development in

India.” Journal of Small Business Management, 58(3), 521–540.

(Empirical study on PMMY’s role in fostering new ventures.)

5. Chakraborty, A., & Mukherjee, S. (2019). “Financial Inclusion through PMMY: A Study of Eastern

India.” Economic and Political Weekly, 54(45), 65–72. (Regional analysis of PMMY’s reach and

challenges.)

6. Bandyopadhyay, T. (2021). The Microfinance Revolution and MSME Financing in India. Oxford

University Press. (Book covering the evolution of microfinance and schemes like PMMY.)

7. NSSO. (2019). *Survey of Unincorporated Non-Agricultural Enterprises (73rd Round)*. National Sample

Survey Office. (Key source for understanding the informal sector and credit needs.)

8. Singh, R., & Dhawan, S. (2020). “MUDRA Loans and Women Entrepreneurship: Evidence from Rural

Karnataka.” Journal of Gender and Enterprise, 8(2), 112–130.

(Focuses on gender dimensions of PMMY.)

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9. Planning Commission (NITI Aayog). (2018). Strategy for New India @75.

(Policy document highlighting MSME growth and financial inclusion goals.)

10. Rao, K. S., & Patnaik, B. (2021). “Credit Accessibility and MSME Growth: A Pre- and Post-PMMY

Analysis.” Indian Journal of Finance and Banking, 5(1), 33–47.

(Compares credit access before and after PMMY implementation.)

11. Wo rld Bank. (2020). India: Improving Access to Finance for Small and Medium Enterprises. World Bank

Group. (International perspective on SME financing challenges in India.)

12. Panda, D. K., & Kumar, A. (2022). “Post-Loan Challenges in Micro-Enterprise Development: A Study of

PMMY Beneficiaries.” Journal of Entrepreneurship in Emerging Economies, 14(4), 789–810. (Highlights

post-disbursement issues and sustainability.)

13. SEBI & RBI Joint Committee Report. (2019). Developing a Vibrant MSME Equity Market. (Discusses

alternative financing models beyond debt.)

14. Ghosh, S., & Saha, B. (2020). “Financial Literacy and Loan Utilization among PMMY

Beneficiaries.” International Journal of Bank Marketing, 38(6), 1385–1403.

(Examines the role of financial education in scheme effectiveness.)

15. Karnataka State MSME Directorate. (2022). Karnataka MSME Policy 2022–2027. Government of

Karnataka. (State-level policy document relevant to the regional focus of the study.)