MSMEs Need Credit Longevity, Not Just Liquidity

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.

Strengthening credit guarantees and recovery frameworks is also essential. Broadening partial credit guarantee schemes and rationalizing recovery processes like SARFAESI would reduce risk perception and borrowing costs. Aligning policy with MSME realities, such as revising Priority Sector Lending norms and ensuring timely payments, will foster sustainable credit expansion and build lasting credit confidence for these vital enterprises.