MSME Credit Surges In Sept 2023, Over INR 21 Lakh Crore Allocated

Scheduled commercial banks extended INR 21.69 lakh crore in credit to micro, small, and medium enterprises (MSMEs) as part of priority sector lending in September 2023, an increase of 17.2 per cent compared to the INR 18.50 lakh crore deployed in September 2022, as per the Reserve Bank of India's (RBI) latest sectoral deployment data. In September 2023, this credit constituted 14.3 per cent of India's total non-food credit of INR 151.3 lakh crore, slightly down from 14.6 per cent of INR 126 lakh crore non-food credit in September the previous year.

Within the total priority lending to the MSME sector, credit to micro and small enterprises (MSEs) saw growth of 18.2 per cent, reaching INR 17.46 lakh crore from INR 14.78 lakh crore in the previous year. Credit extended to medium enterprises also increased by 13.7 per cent to INR 4.23 lakh crore from INR 3.71 lakh crore in September of the previous year.

However, despite this growth in credit to MSMEs, access to funding remains a persistent challenge for small businesses. During the G20 Summit in September, a G20 policy recommendation paper from the World Bank highlighted the estimated USD 5 trillion finance gap for formal MSMEs in developing economies. Notably, women-owned businesses represent a significant portion of MSMEs and account for 32 per cent of the MSME finance gap.

The policy paper highlighted several recommendations to ease credit access for MSMEs, including the adoption of digital payment systems, which enable MSMEs to accept electronic payments and maintain financial records. Additionally, it suggested the establishment of digital public infrastructure for seamless information sharing from traditional sources.

Improving access to finance for MSMEs has been identified as a priority by the Global Partnership for Financial Inclusion (GPFI) for the next three years. GPFI, a platform for G20 and non-G20 countries, focuses on advancing financial inclusion globally.

The issue of credit access for MSMEs was also raised in a recent survey by the Federation of Indian Chambers of Commerce and Industry (FICCI). The survey revealed that collateral-free credit often remains a theoretical concept, with banks requiring collateral for loans. To enhance MSME financing, the survey recommended transitioning to cash-flow-based lending, which relies on information-based assessments rather than physical assets as collateral.

In September, the Standing Advisory Committee (SAC) of the Reserve Bank of India (RBI) conducted an assessment of the credit distribution to Micro, Small, and Medium Enterprises (MSMEs). Within this meeting, the SAC scrutinized the credit allocation to MSMEs and engaged in discussions concerning topics such as evaluating and addressing the credit shortfall within the sector, investigating digital approaches to enhance credit accessibility, expediting the utilization of TReDS (Trade Receivables Discounting System), extending credit support to women entrepreneurs, revitalizing and rehabilitating financially distressed MSMEs, and credit assurance initiatives, among various other subjects.

In FY23, credit outstanding to the MSME sector from scheduled commercial banks increased by 12.3 per cent to INR 22.6 lakh crore, up from INR 20.11 lakh crore in FY22, as reported by Bhanu Pratap Singh Verma, Minister of State in the MSME Ministry in a response to a parliamentary question in July.

In conclusion, the growth, amounting to INR 21.69 lakh crore, demonstrates a positive trend in addressing the financial needs of the MSME sector. Despite this encouraging development, the persistent challenge of access to funding for small businesses remains evident. The estimated USD 5 trillion finance gap for formal MSMEs in developing economies, as highlighted by a G20 policy recommendation paper from the World Bank, underscores the importance of continued efforts to bridge this gap.