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MSMEs deployed 14.3% of India’s non-food credit in September by banks

The September deployment was 14.3 per cent of India’s Rs 151.3 lakh crore non-food credit during the month.

Bank credit to MSMEs: Scheduled commercial banks have deployed Rs 21.69 lakh crore to micro, small and medium enterprises (MSMEs) under priority sector lending in September 2023, up 17.2 per cent from Rs 18.50 lakh crore deployed in September 2022, according to the latest data on sectoral deployment released by the Reserve Bank of India (RBI). The September deployment was 14.3 per cent of India’s Rs 151.3 lakh crore non-food credit during the month vis-a-vis 14.6 per cent of Rs 126 lakh crore non-food credit in September last year.

Out of the total priority lending to the MSME sector in September, credit to micro and small enterprises (MSEs) grew by 18.2 per cent to Rs 17.46 lakh crore from Rs 14.78 lakh crore during the year-ago period. With respect to medium enterprises, credit deployed in September increased by 13.7 per cent to Rs 4.23 lakh crore from Rs 3.71 lakh crore in September last year.

Despite growth in credit to MSMEs, access to funds has remained a perennial issue for small businesses. During the G20 Summit in September, A G20 Policy Recommendation paper by the World Bank noted that the finance gap for formal MSMEs in developing economies is estimated at $5 trillion while women-owned businesses comprise 23 per cent of MSMEs and account for 32 per cent of the MSME finance gap. 

The paper suggested a number of steps on easing credit access to MSMEs such as digital payment systems, which allow MSMEs to accept payments from customers electronically, to make it easier for SMEs to track their revenue and expenses and build a credit history. It also suggested digital public infrastructure for fast and seamless information sharing from traditional sources. 

Moreover, improving access to finance for MSMEs was one of the two priority areas for the next three years by the Global Partnership for Financial Inclusion (GPFI), a platform for G20 and interested non-G20 countries to advance financial inclusion globally.

The challenge in credit access was also echoed by industry body FICCI in its latest survey last month. According to the survey, collateral-free credit is only on papers and not implemented as banks provide loans only when SMEs offer collateral. To boost MSME financing, the survey suggested cash-flow-based lending which replaces lending based on physical assets as collateral with information-based system lending. 

In FY23, the credit outstanding to the MSME sector by scheduled commercial banks grew by 12.3 per cent to Rs 22.6 lakh crore from Rs 20.11 lakh crore in FY22, according to the data shared by Bhanu Pratap Singh Verma, Minister of State in the MSME Ministry in a written reply to a question in the Rajya Sabha in July this year.