India’s MSME sector is showing strong confidence in growth, but a persistent gap in access to finance continues to hold it back—creating a paradox at the heart of the country’s credit ecosystem.
A recent joint report by ICRA and ASSOCHAM highlights that credit demand from MSMEs is expected to remain robust, playing a key role in driving overall bank lending growth. India’s total credit expansion is projected at around ₹25–26 trillion in FY26, with MSMEs and retail segments leading the momentum.
However, this strong demand is not being matched by adequate supply. The report points to a structural financing gap that continues to limit the sector’s potential. Despite improvements in formalisation and policy support, many small businesses still struggle to access timely and sufficient credit.
Looking ahead, credit growth is expected to moderate slightly to around 11–12% in FY27. This slowdown is attributed not to weakening demand, but to a normalisation after a high growth phase—indicating that the appetite for borrowing among MSMEs remains intact.
The underlying issue lies in how credit is distributed. While the financial system has become more resilient and data-driven, traditional lending models still fail to fully accommodate the needs of small enterprises, especially those without strong collateral or formal credit histories.
At the same time, ongoing formalisation efforts, improved borrower data, and policy interventions have made it easier for lenders to assess MSMEs, gradually expanding credit visibility. This has helped bring more businesses into the formal financial ecosystem, particularly in semi-urban and emerging markets.
The report ultimately underscores a critical challenge: MSMEs are increasingly becoming central to India’s economic expansion and supply chains, but without bridging the financing gap, their full contribution may remain constrained.
In essence, the story is no longer about whether MSMEs want to grow—they clearly do. The real question is whether the financial system can evolve fast enough to support that ambition.