5 Secrets About The SME Lending Market In India

The MSME sector in India makes up for nearly a 3rd of the country’s economic output. Get to know the 5 secrets about the SME lending market at IIFL finance.

2 Sep,2022 19:04 IST 173 Views
5 Secrets About The SME Lending Market In India

The micro, small and medium enterprises (MSME) sector in India makes up for nearly a third of the country’s economic output, or gross domestic product (GDP), and almost half its exports.

More significantly, all but 5% of the country’s manufacturing sector units, which employ 40% of its workforce, fall within the MSME segment.

Unfortunately, however, most MSMEs often face a shortage of capital to sustain their operations and meet their growth objectives. It is critical, therefore, that credit to the country’s MSMEs needs to be beefed up significantly if India is to achieve its target of becoming a $5 trillion economy in the next few years.

Here are some of the most important points to note about the SME lending market in India.

1) Lucrative Credit Opportunity

The MSME sector offers a lucrative market for lenders, as nearly all of these businesses need short- or long-term loans to meet working capital requirements, buy new machinery or to capture a bigger market by expanding their operations to newer territories and demographics.

Easy and timely availability of adequate credit will ensure that the MSME sector in India blossoms and a significant proportion of these companies transform into mature enterprises that power the country’s GDP.

2) Systemic Challenges

The MSME sector is beset with systemic challenges that inhibit the credit growth to this important sector. As a result of the challenges, only about 7% of the share of the credit market goes to MSMEs.

Systemic issues like reliance on past credit history and a lack of awareness of digital lending solutions has meant that the MSME sector faces a credit gap in excess of $1 trillion. Creditworthy MSMEs are being excluded from the credit market owing to a lack of credit history, which itself is because they have remained out of bounds for formal lending channels.

Sapna aapka. Business Loan Humara.
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3) Government Initiatives

Having said all this, there have been a slew of government-led initiatives and schemes including allowing investments via the automatic foreign direct investment route. However, they have helped very little.

Several other initiatives that have been in force include the Credit Guarantee Trust Fund for Micro & Small Enterprises, Scheme for Promotion of Innovation and Rural Industries and Entrepreneurship, Scheme of Fund for Regeneration of Traditional Industries, Micro and Small Enterprises Cluster Development Scheme and the Credit Linked Capital Subsidy for Technology Upgradation.

Well-established lenders are looking to change precisely that. Not only do such lenders offer competitive rates of interest to their borrowers, but also offer flexible loan repayment options to suit the cash flow position of small companies, which often face a cash crunch.

4) Digital Revolution

New-age lenders are now heralding a fintech revolution in the Indian digital lending space. Not only are fintech companies offering loans in conjunction with non-bank lenders like IIFL Finance, they are also creating new data sets for underwriting and setting up the ecosystem for a ‘phygital’ distribution engine. Several online lending platforms have themselves evolved into full-fledged non-banking finance companies.

Several new trends are fast catching on in the MSME lending space. These include the use of a digital ledger; cloud-based accounting software; embedded finance, which integrates financial services into non-finance ecosystems; and models like buy-now-pay-later, which allow MSMEs to make purchases on credit.

5) Alternative Sources Of Capital

Over the past few years, a new type of non-bank financiers has emerged that offer capital to MSMEs. These are alternative investment funds. While most such funds provide equity capital to MSMEs, several also offer debt capital.

These venture debt investors don’t focus on collateral, like most traditional banks, but provide money on the basis of business viability and cash flows. They also customize the loan repayment structure to make it easier for MSMEs.

In fact, even the state-run Small Industries Development Bank of India (SIDBI) said recently that it was looking to launch a venture debt scheme for MSMEs.


Getting a loan for your small business is now easier more than ever before. All you have to do is approach a well-known lender like IIFL Finance, and they will take care of the rest. IIFL Finance provides both unsecured and secured loans ranging from less than Rs 10 lakh to as much as Rs 10 crore for up to 10 years.

Moreover, unlike many traditional banks, IIFL Finance uses a fully digital process to quicken the pace of approval and disbursement. It also offers attractive rates of interest, flexible repayment options, and other value-added services.

Sapna aapka. Business Loan Humara.
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Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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