MSME credit surges threefold in a decade, MUDRA loans drive financial inclusion: SBI Research

India’s micro, small, and medium enterprises (MSMEs) are witnessing a significant surge in credit availability, with lending to the sector more than tripling in the past decade, State Bank of India (SBI) Research said in a report on Wednesday.

The PMMY: A Decade of Audacious Dreams: Bolder, Bigger and Indeed Beautiful report underscores the pivotal role of MSMEs—along with agriculture and allied activities—as key drivers of economic expansion.

“The renewed emphasis on building blocks of production, chiefly MSMEs (apart from agri/allied activities) as twin growth enablers has seen credit off-take to MSMEs more than trebling to ₹27.25 trillion in FY24, from ₹ ₹8.5 trillion in FY14 (and estimated to hover around ₹30 trillion in FY25),” the report said.

“In the priority sector, MSME credit stood at about 19.3% of SCBs (scheduled commercial banks) adjusted net bank credit (ANBC) in FY24, compared to about 15.8% in FY14,” it added.

Impact of MUDRA loans

According to the report, a key catalyst in this growth has been the Micro Units Development and Refinancing Agency (MUDRA), launched in 2015 to provide collateral-free financing to small businesses.

Over the past decade, more than 520 million MUDRA accounts have been opened, with the majority of them under the ‘Shishu’ category (for loans up to ₹50,000).

However, the share of Shishu loans has declined from 93% in FY16 to 51.7% in FY25, indicating a natural progression of businesses graduating to higher credit limits under the ‘Kishor’ category, the report said.

The average loan size has also grown significantly, from ₹38,000 in FY16 to ₹1.02 lakh in FY25, reflecting deepening financial inclusion and expanding market opportunities, it added.

Financial inclusion

The SBI report highlights MUDRA’s substantial role in fostering financial inclusion, with nearly 50% of MUDRA loan accounts belonging to SC/ST and OBC borrowers, while 68% of account holders are women entrepreneurs, demonstrating the scheme’s impact on marginalized communities.

Among states, Bihar leads in the number of PMMY (Pradhan Mantri Mudra Yojana) women entrepreneurs with 42 million accounts, followed by Tamil Nadu (40 million) and West Bengal (37 million). Maharashtra, Jharkhand, and West Bengal have the highest proportion of women account holders, with 79%, 75%, and 73%, respectively.

The report also finds that women-led MSMEs now make up 20.5% of all registered enterprises on the UDYAM portal, contributing 18.73% to total employment generated.

Tamil Nadu leads employment generation among women-led MSMEs (15.7%), followed by Maharashtra (12.1%), Karnataka, and Uttar Pradesh (8% each).

Fueling economic convergence

The SBI Reserach analysis suggests that states with historically lower financial inclusion have benefitted the most from MUDRA disbursements.

Bihar, Uttar Pradesh, Odisha, and the North-East have seen a marked increase in their share of Mudra loans, while developed regions have seen a relative decline in allocations.

This strategic shift has enabled economic convergence, improving financial inclusion in underdeveloped states and reinforcing the efficacy of targeted lending policies.

“Mudra disbursements are benefiting financially weaker regions more, improving financial inclusion in underdeveloped states rapidly leading to convergence…. states that are less financially included receive proportionately greater benefits from the scheme, in a self-fulfilling prophecy,” it added.

The report added that states with higher disbursements to women entrepreneurs have also reported increased employment generation, further validating the scheme’s role in economic empowerment.