India’s MSME sector last financial year saw credit outstanding of scheduled commercial banks and non-banking financial companies (NBFCs) reaching over Rs 30 lakh crore on the back of several measures introduced by the government to promote the formalisation of MSMEs and enable credit access. However, ensuring the financial inclusion of last-mile enterprises, which are usually nano and micro in size, and their sustainable expansion remains among the primary challenges.
To address the concern, experts at the FE Inclusive Finance Conclave 2025: Breaking Barriers, Building Futures, held on February 27 in Delhi, highlighted the significance of partnerships, financial literacy and maturing lending mechanisms in order to make credit more accessible for businesses.
The speakers for a panel discussion on “Financial Inclusion for Unbanked & Underbanked: Easing Accessibility to Right Financial Products” included Manoj Mittal, Chairman & Managing Director, Small Industries Development Bank of India (SIDBI); Manu Sehgal, Chief Executive Officer, Brickwork Ratings; Sachin Seth, Regional Managing Director, India and South Asia, CRIF SpA; and Sharon Buteau, Executive Director, LEAD at Krea University.
Shift in lending paradigm
While credit to MSMEs traditionally has relied on collateral, data has emerged as the new collateral with the evolution of financial technology in banking and finance.
According to Brickwork Ratings’ Manu Sehgal, “For a long time, MSME lending was collateral and credit performance data-based. However, now, data has become the new collateral. Importantly, OCEN (Open Credit Enablement Network) and the Account Aggregator system can make use of data more efficiently to make MSME lending more impactful and inclusive.”
This evolution is likely to bridge the credit gap faced by businesses, particularly enterprises in semi-urban and rural areas, enabling them to raise credit based on their transaction history and financial behaviour.
In addition, the presence of strong intermediaries and partnerships can also help address the challenge of credit access at the last mile, said SIDBI CMD Manoj Mittal. “SIDBI has been an enabler contributing to different ecosystems of MSMEs for a multiplier effect,” he added.
Concern around financial literacy
As the government aims for India to become a developed nation (Viksit Bharat), the role of MSMEs has gained significance. CRIF’s Sachin Seth, underscoring the growing alignment among stakeholders to help MSMEs, said, “The amount of support, focus, and ecosystem collaboration to support MSMEs is in the right direction as the country becomes Viksit Bharat. MSMEs and everybody have realized that they need critical handholding and that financial inclusion is at the core of it.”
However, Seth also pointed out concern around financial literacy and prudent financial management. “From the intent perspective, everybody is aligned, which is a good beginning. However, financial management and prudence of MSMEs are areas of concern as banks are looking for borrowers who can fulfil their repayment obligations. Financial literacy levels among MSMEs are very low.”
As banks focus on the enterprise’s creditworthiness and ability to repay the loan, financial literacy assumes significance for enterprises to appropriately manage their credit and ensure sustainability in operations.
