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MSMEs Need Credit Longevity, Not Just Liquidity
29 Jan
Summary
- MSMEs contribute over 30% to India's GDP.
- Access to affordable credit remains a persistent challenge for MSMEs.
- Budget offers chance to shift focus to long-term credit longevity.
India's Micro, Small, and Medium Enterprises (MSMEs) are pivotal to the nation's economy, contributing over 30% to the GDP and employing more than 100 million people. Despite their resilience, access to timely and affordable credit remains a significant hurdle. The upcoming Union Budget offers a crucial opportunity to redefine MSME financing, shifting the focus from temporary liquidity support to ensuring long-term credit longevity and sustainability.
The current MSME lending model heavily relies on collateral, excluding many viable businesses. Leveraging India's digital public infrastructure, including GST data and e-invoicing, lenders can increasingly assess MSMEs based on their cash flows and business behaviour. The Budget could accelerate this transition by promoting co-lending models that combine bank capital with NBFC expertise.
Furthermore, MSME-focused Non-Banking Financial Companies (NBFCs) require a stable funding backbone. Establishing a dedicated NBFC MSME category and a structured refinance window, possibly via SIDBI, would provide predictable, countercyclical funding. This ensures MSME lenders can support businesses through economic cycles without pulling back during periods of stress.
