MSME Sector Needs Structural Reforms Beyond Credit Access: Bankers

New Delhi, Aug 26 (KNN) The Micro, Small and Medium Enterprises (MSME) sector, often described as the backbone of the Indian economy, continues to face challenges that extend well beyond the widely discussed credit gap.

Speaking at the FIBAC 2025 event, Partha Pratim Sengupta, MD & CEO of Bandhan Bank, highlighted that the financing gap is a result of deeper structural issues, reported FE.

He pointed out five key problem areas: insufficient equity infusion, prolonged working capital cycles due to delayed payments, limited access to technology and skilling, high utility expenses, and climate-related vulnerabilities. “When payments from large industries are delayed, smaller units become unviable,” Sengupta said.

Reacting to the news, Secretary General of Federation of Indian Micro and Small & Medium Enterprises (FISME) Anil Bhardwaj said, “Difficulties in access to finance is one issue but there are other structural issues especially with regards to lack of competition in factor markets and presence of monopolies. Most raw material produced by large companies are over protected but MSME produce face global competition”.

A major hurdle lies in the lack of structured financial data among micro enterprises, which make up over 90 per cent of the MSME sector. Out of 60–70 million MSMEs, only around 10 million have active loans, as most remain outside the formal credit system.

Traditional underwriting struggles in the absence of GST filings, ITRs, or bank statements. Sengupta stressed the need for innovative frameworks that evaluate unstructured data like local reputation, family business history, and informal cash flows to enable wider lending.

Bankers also raised concerns about existing guarantee schemes. Although they claim to cover up to 70 per cent, lenders often recover just 35–40 per cent. “The process has to be simpler and more effective,” Sengupta noted.

Ashwini Kumar Tiwari, MD at State Bank of India, called for smoother data-sharing between government and financial institutions. While digitisation has improved loan onboarding and sanctioning, fragmented API integrations and limited access to GST and income tax data remain key obstacles.

Experts concluded that bridging the MSME credit gap requires systemic reforms involving banks, NBFCs, state agencies, and targeted government support—moving enterprises from informal survival to formal growth.

(KNN Bureau)