Small business credit woes to end? Loans to MSMEs likely to more than double in these many years

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December 17, 2019 6:33 PM

Credit and Finance for MSMEs: Increase in consumers willing to take loans along with more consumer data available, better usage of data analytics and regulatory initiatives is fueling the increase in MSME and low-cost housing loans.

The growth in MSME loans is part of the rise of retail loans that are likely to double in five years.

Credit and Finance for MSMEs: MSME loans are likely to more than double in five years growing at 15 per cent CAGR between FY19 and FY24, private sector lender ICICI Bank and Crisil said in a report on Tuesday. Access to credit remains among the key challenges for small businesses to scale even as the amount outstanding in FY14 at around Rs 3.1 lakh crore doubled up to estimated Rs 6.6 lakh crore in FY19. The amount is expected to grow to Rs 13.2 lakh crore in FY24, said the report titled Mining the Golden Opportunity in Retail Loans.

“Small businesses are badly in need of funds not for setting up a new factory but for addressing the current liquidity crisis they are facing. The money is required for Opex, not Capex,” Anil Bhardwaj, Secretary-General, Federation of Indian Micro and Small & Medium Enterprises had told Financial Express Online. The gross bank credit to micro and small enterprises (MSE) grew by 6.2 per cent as on September 2019 from the year-ago period, according to the RBI November bulletin. The credit outstanding as of September 27, 2019, to MSEs was Rs 10.56 lakh crore up from Rs 9.94 lakh crore as on September 28, 2018.

Also read: MSMEs’ access to funding gets easier as government makes key changes to one of its flagship schemes

The number of MSME loans is also likely to see significant growth. From an average 0.6 million annual accounts added during FY17-19 period, the number is expected to increase to 1.8 million average annual accounts during FY20-24 period. The growth in MSME loans is part of the rise of retail loans that are likely to double from Rs 48 lakh crore in March 2019 to Rs 96 lakh crore in five years as the demand for private consumption such as home, car, consumer durables, credit cards etc) is expected to grow.

Moreover, an increase in consumers willing to take loans along with more consumer data available, better usage of data analytics and regulatory initiatives are fueling the increase in MSME and low-cost housing loans. Out of the total growth in retail loans by FY24, digital lending — where loans are sourced, sanctioned, and underwritten digitally, will have a share of 16 per cent (Rs 15 lakh crore) from existing 6 per cent (around Rs 2.7 lakh crore).

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