The MSME sector, often hailed as the backbone of the economy, continues to grapple with challenges that go far beyond the headline credit gap.
“We are looking at the credit gap in isolation, but it is a corollary to deeper structural issues,” said Partha Pratim Sengupta, MD & CEO, Bandhan Bank, said at the FIBAC 2025 event.
He identified five critical pain points: Lack of equity infusion, elongated working capital cycles due to delayed payments, limited access to technology and skilling, high utility costs, and vulnerability to climate risks. “If the working capital cycle gets elongated, mainly due to non-receipt of payments from large industries, units become unviable.”
The data and credit dilemma
A major hurdle is the lack of structured financial data among micro enterprises, which comprise over 90% of the MSME universe. Despite the existence of 60–70 million MSMEs, only around 10 million have active loans, largely because most operate outside the formal financial system.
Traditional underwriting models struggle to assess creditworthiness in the absence of GST filings, income tax returns or bank statements. “When I asked stall owners about their profits, they said ‘gujara ho jata hai.’ Translating that sentiment into a quantifiable credit metric is the real challenge,” said Sengupta. “This calls for new assessment frameworks that can interpret unstructured data such as local reputation, generational business history and informal cash flows to make lending more inclusive.”
Bankers called for simplification of guarantee schemes, which currently offer limited recovery to lenders despite promising high coverage. “The scheme may say 70%, but banks often end up recovering just 35–40%. It has to be straightforward and implementable,” adds Sengupta.
Call for systemic reforms
Ashwini Kumar Tiwari, MD at State Bank of India, emphasised the need for seamless data sharing across government and financial platforms. “Digitisation has made strides, especially in onboarding and sanctioning loans, but challenges persist in fragmented API integrations, lack of centralised consent mechanisms for GST data, and limited access to income tax records.”
Bridging the MSME credit gap requires more than capital; it demands a systemic overhaul involving banks, NBFCs, state institutions, and targeted government support. Only then can we move from informal resilience to formal empowerment, said bankers.