MSMEs in the country have an overall finance demand of around $1,955 billion ($1.9 trillion), of which debt-based demand is estimated at $1,544 billion ($1.5 trillion), said Michael Debabrata Patra, Deputy Governor, Reserve Bank of India (RBI) at an event organised by industry body CII on Tuesday.
Speaking on the role of finance in actualising India’s growth ambitions at the ‘Financing 3.0 Summit: Preparing for Viksit Bharat’, Patra said MSMEs are crucial to India’s economic and social progress.
“It is estimated that the MSME sector accounts for around 30 per cent of India’s GDP, 45 per cent of exports and 62 per cent of employment in the business sector. MSMEs are expected to grow in number in the coming years,” he said.
The deputy governor noted that half of the $1.5 trillion debt-based demand comes from borrowers who prefer financing from informal sources or from financially unviable enterprises.
This leaves a debt demand of $819 billion by MSMEs, of which $289 billion demand is currently fulfilled by formal credit lenders like banks. Patra said the remaining unfulfilled demand of $530 billion makes up a huge addressable market for banks, fintechs and non-banking financial companies (NBFCs).
Speaking on the significance of digital transformation, Patra said India is undergoing rapid digital transformation with the banking sector, digital banking platforms, mobile banking apps and online services reducing cash dependency and furthering financial inclusion.
He said several fintech companies and digital lending platforms offer quick and hassle-free loans to individuals and businesses, using data analytics and AI to assess creditworthiness.
Moreover, the success of the Unified Payments Interface (UPI) has been a game-changer, making it one of the fastest-growing digital payment platforms globally, the deputy governor said.
Adding other developments, he said the central bank digital currency (CBDC) project or e₹ has the potential for transforming not only the payments landscape, but also the wider financial system.
Further, the Digital Supply Chain Finance (DSCF) is another emerging segment which seeks to integrate digital financial services into the supply chain, facilitating smoother transactions, reducing risks and enhancing overall efficiency, Patra added.