Micro, Small, and Medium Enterprises (MSME) are the backbone of India’s economy, contributing significantly to employment and industrial output. The government has prioritized financial inclusion for these enterprises, with schemes aimed at formalizing operations and easing access to credit. The Udyam registration initiative, for instance, has registered nearly 6 crore enterprises, a move expected to boost access to formal loans.
Credit flow to MSMEs has increased, with scheduled commercial banks lending ₹27.25 lakh crore in FY24, a 20.6% growth over the previous year. However, many enterprises, particularly micro and small businesses, still struggle to secure financing. The primary barriers include lack of collateral, stringent documentation requirements, poor or no credit history, and high interest rates. Additionally, delayed payments from buyers and the perception of high risk associated with MSME lending further restrict access to formal credit.
Government Schemes and Expanding MSME Definition
The government and the Reserve Bank of India (RBI) have implemented several initiatives to address credit-related challenges. The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), MUDRA loans, the 59-minute loan approval scheme, and TReDS are among the key programs. In the Union Budget 2025, the MSME Ministry expanded the definition of MSMEs to include businesses with turnover up to ₹500 crore (up from ₹250 crore), making more enterprises eligible for these benefits.
Additionally, the CGTMSE scheme’s credit guarantee cover was raised from ₹5 crore to ₹10 crore, which is expected to facilitate an additional ₹1.5 lakh crore in credit over the next five years. These measures aim to enhance financial inclusion and ensure that businesses receive the working capital required to sustain and grow operations.
Alternative Lending Platforms and the Role of Digital Finance
Recognizing the demand for faster and more flexible credit options, alternative lending platforms have gained traction. Fintech firms and digital lenders are leveraging AI and machine learning to offer credit based on cash flows rather than traditional asset-based lending. These platforms assess GST records, bank statements, and transaction history, reducing documentation requirements and speeding up loan approvals. Many also provide customized repayment options based on a company’s revenue cycle, making credit more accessible.
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The Path Forward: Collaborative Growth Strategies
Despite significant progress, credit gaps remain in the MSME sector. Moving forward, a collaborative approach involving government agencies, policymakers, traditional banks, and fintech firms will be essential to bridge this divide. Strengthening the digital lending ecosystem, enhancing financial literacy, and expanding credit guarantee frameworks will be crucial to ensuring sustainable growth for India’s MSMEs. With the right support, these enterprises can continue to drive India’s vision for Viksit Bharat and bolster economic resilience in the years to come.