Loans to MSMEs: The number of MSMEs in the country is expected to grow from 6.30 crore, of which only 2.50 crore have ever availed credit from formal sources, to “approximately 7.50 crore in the coming times”, growing at a projected compound annual growth rate (CAGR) of 2.5 per cent, said a SIDBI-TransUnion CIBIL report. Of the 7.5 crore MSMEs, around 5 crore are expected to be new-to-credit (NTC) entities and lenders can tap into this vast segment by identifying deserving NTC MSMEs, connecting with them and customising credit products for their requirements, the report on Q4 FY23 MSME credit performance said.
NTC MSMEs are first-time or new loan borrowers and are first-generation entrepreneurs or first time exporters seeking credit for expansion or technological innovations in existing businesses.
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As per the National Sample Survey (2015-16) reported by MSME Ministry, there were around 6.34 crore MSMEs in the country, of which micro enterprises were 6.3 crore, accounting for more than 99 per cent of total MSMEs. On the other hand, small and medium units accounted for only 0.52 per cent and 0.01 per cent, respectively.
Commercial Loans at the entity level are classified into different segments according to the credit exposure aggregated. According to the report, micro enterprises are those with investments less than Rs 1 crore. These units are further categorised into three sub-categories viz., Very Small with credit exposure under Rs 10 Lakh, Micro 1 where the credit exposure is between Rs 10 lakh to Rs 50 lakh and Micro 2 where the credit exposure is between Rs 50 Lakh to Rs 1 crore.
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These NTC entities will drive the next phase of MSME growth, the report noted. In FY23-Q4, NTC borrowers accounted for 56 per cent of new loan origination in the MSME lending space. Specifically within the micro segment, NTC borrowers contributed over 61 per cent of originations.
“The high credit demand for commercial loans within this ‘micro’ segment, coupled with positive lender sentiment and robust demand, has propelled the growth of NTC borrowers, significantly contributing to greater financial inclusion,” the report said. Among NTC borrowers, retail traders constituted the largest proportion.