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MSMEs Pivot to Credit Lines for Cash Flow
23 Feb
Summary
- MSMEs now use credit lines primarily for working capital management.
- Lenders offer flexible, cash-flow-linked credit facilities.
- Real-time risk assessment replaces periodic balance sheet checks.
Micro, small, and medium enterprises (MSMEs) are increasingly deploying credit lines to effectively manage their working capital cycles. This strategic shift, observed by Ambit Finvisnt CEO Sanjay Agarwal, indicates a growing maturity among these businesses. Instead of focusing on capacity expansion, MSMEs are prioritizing liquidity to manage receivables and inventory, ensuring reliable servicing of larger order books.
Lenders are responding by designing more flexible credit products, such as revolving facilities that align with specific business cycles and order flows. This move away from traditional term loans reflects a broader trend towards formalization within organized supply chains. Real-time risk assessment, based on transaction data and banking behavior, is also becoming central to underwriting practices, allowing for dynamic credit limit adjustments.
This evolution in credit utilization signifies a displacement of informal credit sources, with new-to-credit borrowers constituting over 20% of micro-segment originations. Repeat borrowing now signals increased trust in formal finance rather than caution. The focus on usage-led lending, supported by data-driven models, aims to build a more resilient financial ecosystem for a broader base of emerging enterprises across diverse sectors and geographies.
