Bridging India’s Rs. 60 Lakh Crore MSME Credit Gap: Why Smaller Enterprises Need Better Access to Formal Finance

India has made significant strides in digitising payments strengthening financial infrastructure and expanding access to digital business tools Yet for millions of micro small and medium enterprises MSMEs access to timely and affordable credit remains a persistent challenge Despite progress in digital finance the gap between credit demand and formal lending continues to constrain the growth of smaller businessesAccording to a report released at the Global Fintech Fest by Bain amp Company and NPCI Bharat BillPay Limited NBBL titled Indiarsquos Next Growth Frontier B2B Commerce Payments and Credit Indiarsquos MSME sector faces a formal credit gap exceeding 60 lakh crore or approximately 720 billion This highlights a fundamental challenge while digital payments have become increasingly accessible the systems governing business transactions receivables and credit assessment remain fragmentedFor smaller enterprises operating with limited working capital delayed payments and restricted access to institutional finance can affect daily operations business expansion and participation in larger supply chainsUnderstanding the scale of the credit gapThe report highlights a considerable imbalance between credit demand and formal lending supply Total debt demand stands at approximately 92 lakh crore while formal credit supplied is estimated at around 34 lakh crore leaving a gap of nearly 60 lakh croreMicro and small enterprises are disproportionately affected Traditional institutional lending channels meet only 3037 to 4037 of their total credit demand leaving many businesses struggling to secure adequate financingA key reason is the continued reliance on conventional credit assessment models Smaller businesses often lack substantial physical collateral extensive financial histories or the documentation required to satisfy traditional underwriting criteria Consequently enterprises with genuine business activity and revenue potential may struggle to access formal credit pushing some towards highercost informal financingBridging this gap requires more than increasing loan availability It calls for improvements in how lenders assess business performance verify transactions and evaluate creditworthinessDelayed payments continue to constrain working capitalAccess to credit is only one part of the challenge For many MSMEs receiving timely payments for goods and services already delivered is equally criticalAn estimated 8 lakh crore in receivables owed to MSMEs remains locked due to payment delays These are often triggered by information mismatches including unconfirmed delivery notes discrepancies in purchase orders and fragmented communication between buyers and sellersFor a smaller enterprise an unpaid invoice can create an immediate working capital constraint Businesses must continue meeting expenses such as salaries procurement and transportation even when payments remain outstanding Delayed receivables can therefore affect production schedules order fulfilment and investment in growthThe problem is compounded by administrative inefficiencies Corporate finance teams across India spend an estimated 3037 to 4037 of their bandwidth on routine tasks including manual invoice matching payment reconciliation exception handling and followups These processes consume valuable time increase the likelihood of errors and delay the movement of funds across supply chainsAddressing these inefficiencies is essential to improving liquidity and enabling smaller enterprises to operate more effectivelyBuilding an interoperable digital infrastructure for B2B tradeA potential solution lies in developing a centralised interoperable digital ecosystem that connects businesses lenders payment providers and public databases through standardised application programming interfaces APIsAs proposed by Bain amp Company and NBBL such a framework would connect enterprise resource planning ERP systems commercial banks nonbanking financial companies NBFCs payment providers and databases such as the Goods and Services Tax Network GSTN enabling relevant information to flow more seamlesslyThe objective is to improve visibility across the business transaction lifecycle from purchase orders and delivery confirmation to invoicing payment reconciliation and credit assessmentAutomated invoice reconciliation could help resolve discrepancies faster and reduce administrative workloads Connecting Indias more than 20 crore monthly GST einvoices with business workflows could support more efficient ordertocash processes and improve visibility into outstanding paymentsEqually important is the opportunity to strengthen credit assessment through verified transaction data Buyerconfirmed invoices can serve as verifiable digital assets allowing lenders to evaluate business cash flows and transaction histories rather than relying predominantly on physical collateral Such cashflowbased underwriting could help viable smaller enterprises access formal finance while enabling lenders to make betterinformed decisionsArtificial intelligence AI and advanced analytics could further strengthen this framework through realtime cashflow intelligence dynamic risk scoring and automated credit underwriting However their effectiveness will depend on the quality reliability and interoperability of the underlying data alongside successful integration into existing business workflowsThe larger economic opportunityIndiarsquos formal business sector generates more than 130 lakh crore in economic activity and contributes approximately 4537 of the countrys Gross Value Added GVA Improving credit access and reducing friction in business transactions could therefore have implications extending well beyond individual enterprisesWhen MSMEs receive payments on time and gain access to affordable finance they are better positioned to manage working capital fulfil orders invest in operations and pursue new opportunities More efficient transaction systems can also reduce administrative costs and improve capital movement across supply chainsFor financial institutions reliable business transaction data could create opportunities to serve enterprises underserved by conventional lending models For the wider economy stronger MSME financing mechanisms could encourage greater participation in formal commerce and improve supply chain resilienceBridging Indias 60 lakh crore MSME credit gap will require coordinated efforts across lenders technology providers businesses and the broader financial ecosystem Digitising payments has established an important foundation but the next phase must focus on connecting the systems that govern business transactions working capital and credit deliveryAs India advances towards its vision of Viksit Bharat ensuring that MSMEs have access to timely payments reliable digital infrastructure and appropriate financing will be critical Empowering these enterprises is not merely about closing a credit deficit it is an essential step towards building a more efficient inclusive and resilient economy

Bridging India’s Rs. 60 Lakh Crore MSME Credit Gap: Why Smaller Enterprises Need Better Access to Formal Finance

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Bridging India’s Rs. 60 Lakh Crore MSME Credit Gap: Why Smaller Enterprises Need Better Access to Formal Finance

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Mid-Day Fast