Micro-Credit Access and Women’s Enterprise Creation in India: An Econometric Study Leveraging PMMY Disbursement Trends

Although millions of Indian women now access formal micro-credit through the government's Pradhan Mantri MUDRA Yojana (PMMY), it remains empirically unclear whether this finance produces women-run enterprises, or why its effect varies so widely across states. This study estimates the state-level relationship between PMMY micro-credit to women and women-run business creation using a balanced panel data of 36 Indian states and union territories over seven financial years (2017–2024). Because specification and diagnostic tests revealed autocorrelation and heteroscedasticity, the model was estimated using the Feasible Generalized Least Squares regression method. The results contradict the key hypothesis, revealing that the coefficient on the log number of loan accounts sanctioned to women is negative (−1.366, p = 0.004), the opposite of a positive credit effect. Moreover, female higher education and female unemployment are also negatively influencing women's enterprise. However, as hypothesised, female population share has a direct impact. This suggests that credit quantity is not the key determinant. PMMY lending appears to finance existing micro-businesses rather than create new ones; educated women become employees rather than entrepreneurs, and weak local demand prevents business formation. Between-state variability accounts for more than 84% of the unexplained variance. Credit alone, without the structural conditions needed to complement it, cannot foster women's business creation.