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‘Absence of credit, financial services for MSMEs risk undercutting India’s sustainable, inclusive development below its actual potential’

The challenges of MSMEs, who are primarily thin-file applicants, to access formal credit can be recounted as many, including small ticket sizes, incomplete documentation and lack of collateral.

India today stands at a crossroads, with its socio-economic and geopolitical resolve being increasingly acknowledged on the global stage and home front alike. As the Nation passed the 77th annual milestone of emancipation from foreign dominance in 2023, its aspirations are rightly embodied in the vision of Azadi Ka Amrit Kaal: a clarion call upon 1.4 billion Indians to help the country reach a higher state through sustained excellence in all spheres of individual and collective efforts over the next 25 years.

Indeed, with the ethos of Atma Nirbhar or self-reliant Bharat rekindling the audacity of hope in India’s shared mindset, the goals apparently look well within reach. Nevertheless, this piece seeks to advocate that ensuring universal financial well-being for both individuals and institutions is an indispensable pivot for enabling the future that India envisages for her people. But, the paradox in a country where 90% of citizens have bank accounts, but merely 14% of MSMEs have access to credit insinuates that there remains a rather extensive ground to be covered!

But what does this gap at the bottom of the country’s socio-economic pyramid mean for India’s growth story? More importantly, can it possibly derail the constitutional commitment to securing a welfare state for the present and future Indian generations?

Alongside agriculture, the MSMEs are the engine of progress and the pulsating heart of India’s nearly $4 trillion economy. While accounting for 30% of the national income, the businesses in this sector also contribute to 45% of the country’s exports at present. 

However, besides their overarching economic significance, a paper titled “Policy Brief: The Role of Micro-Small and Medium Enterprises in Achieving SDGs” by the UN also points out that the social implications of MSMEs worldwide are more than just speculative. It is no different for India, where such businesses have employed over 110 million citizens, with their earnings having a multiplying and transformative effect at the grassroots, enhancing disposable income and driving upward social mobility.