The MSME sector has a total credit demand of Rs 69.3 trillion, growing at a compound annual growth rate (CAGR) of 11.5 per cent
The credit gap of Rs 25 trillion in the micro, small and medium enterprises (MSME) sector can be potentially addressed through emerging business models, said BLinC Invest in a report.
The MSME Lending Report 2022 stated that the quarterly MSME disbursements have grown two times over the last two years, the majority of the growth has happened on account of increased penetration in tier three and four cities.
The report added, “This can be grown significantly with improvements in credit underwriting policy and processes.”
This is indicated by the fact that approval rates for the medium-risk tier segment have remained unchanged, hovering around 30 per cent to 35 per cent, for private banks in the last year and have decreased for PSUs and NBFC over the last two years.
The report highlighted nine business models such as payment gateways/QR codes, POS financing, Neobanks, P2M Lending, anchor-based supply chain finance etc. which paved the way for the development of the MSME sector.
The total funding garnered into this sector stands at USD 5.5 billion for the period 2016-2021 with the majority of the funding received by neobanks, NBFCs with branch networks and payment gateway/QR code business models.
Amit Ratanpal, Founder and MD, BLinC Invest said, “Businesses need funding to grow. The MSME market is largely underserved in terms of financing and solving this huge credit gap is critical to growing the Indian economy as a whole.”
Ratanpal added that the market lacked a comprehensive MSME lending report, which not just highlighted the gap but also understood key pain points to propose business models that will solve the problem.
The Indian MSME sector comprising 63.4 million MSMEs, contributes 30 per cent to India’s gross domestic product (GDP).
The MSME sector has a total credit demand of Rs 69.3 trillion, growing at a compound annual growth rate (CAGR) of 11.5 per cent.