New Delhi, May 17 (KNN) The Indian government is taking steps to bolster the underwriting model for micro, small, and medium enterprises (MSMEs) to facilitate easier access to loans for these businesses.

Underwriting is the process through which lenders evaluate risks to safeguard their interests, and the proposed development aims to reduce defaults by MSMEs while increasing financing opportunities for smaller businesses, reported Mint.

According to sources familiar with the matter, a sub-group has been recently formed to strengthen the underwriting model and expand the use of digital public infrastructure for MSMEs and self-help groups.

This sub-group falls under the purview of a working group established by the Department of Expenditure, Ministry of Finance, to enhance responsible lending for MSMEs.

One source stated, "There is no collateral as such in terms of lending towards smaller businesses. This is what the group is looking at – how the risk can be assessed and covered."

The lack of collateral has been a significant hurdle for micro-enterprises, predominantly operating in the unorganised sector, in accessing credit.

Another source confirmed that the sub-group would specifically focus on developing underwriting methods for businesses in the unorganised sector, which often face challenges in securing loans due to a lack of collateral.

The government's initiative aims to address the challenges faced by MSMEs in obtaining financing by strengthening the underwriting process and leveraging digital infrastructure.

By enhancing the risk assessment and mitigation mechanisms, the move is expected to increase lenders' confidence in extending loans to smaller businesses, thereby fostering growth and development in the MSME sector.

(KNN Bureau)