Lack of Collateral Continues To Be Major Hurdle In MSMEs’ Access To Credit: ICRIER-ADBI Report

New Delhi, Jul 18 (KNN) A recent policy brief by the Indian Council for Research on International Economic Relations (ICRIER) and the Asian Development Bank Institute (ADBI) highlights the ongoing credit challenges faced by Micro, Small, and Medium-sized Enterprises (MSMEs) globally, despite their crucial role in economic growth.

The June edition of the report identifies several key obstacles impeding MSME access to credit. These include insufficient collateral, difficulties in assessing creditworthiness, and high transaction costs associated with small loans.

The brief also notes a lack of information infrastructure for MSMEs, which widens the information gap between lenders and borrowers.

A 2023 ICRIER survey of over 2,000 registered MSMEs in India revealed that approximately 70 per cent rely primarily on their own capital for financing. Only 20 per cent reported using bank loans as their main source of business funding.

To address these challenges, India is leveraging its Digital Public Infrastructure (DPI) to enhance financial access for MSMEs.

The country is utilising a comprehensive set of digital tools, including Aadhaar, the national unique identity number used for electronic know-your-customer (eKYC) processes and Aadhaar-enabled payments.

Another key component is the Account Aggregator (AA) network, regulated by the Reserve Bank of India, which allows secure sharing of financial information between institutions within the network.

The report states, "The AA ecosystem has eased MSMEs' access to credit by facilitating secure and consent-based data sharing of financial information between providers and users."

Additionally, the brief highlights other public digital platforms such as DigiLocker, UMANG, and India Stack Global as crucial components of India's DPI. These platforms, emphasised during India's G20 presidency, aim to improve public service delivery across sectors.

While the report acknowledges that MSMEs continue to face significant financial hurdles, it suggests that India's innovative use of digital infrastructure presents a promising solution.

By enhancing financial inclusion through tools like India Stack and the AA network, the country aims to narrow the credit gap and provide MSMEs with improved access to essential financial resources.

As global economies continue to grapple with MSME financing challenges, India's digital approach may offer valuable insights for other nations seeking to support their small business sectors.

(KNN Bureau)