MSMEs are major contributors to the Indian economy. Despite this, there exists a gap in loan request fulfillment for such enterprises.
Avendus Capital, an investment banking company, revealed a thought-provoking estimate that showed a $530 billion credit gap in the MSME sector. It turns out that only 14 percent of over 64 million MSMEs in India have access to credit options.
Astonishingly, this is not because there is a lack of credit demand. In fact, the total demand for debt-based finance from MSMEs was pegged at approximately $1,544 billion!
So, What is Causing the Gap?
The unfortunate truth is that 47 percent of debt demand from the MSME sector is “unaddressable.” These demands were from enterprises that are either financially non-viable or ones that prefer informal sources of financing, leaving behind a debt demand of $819 billion. Currently, only $289 billion of this demand is fulfilled through formal credit lenders.
What does this mean for MSMEs? Despite this alarming report, small-ticket MSME NBFCs are expected to fill this gap, allowing a 23-percent growth in the number of small size loans. Thus, these MSMEs now stand a chance to tap into an unreserved market and fuel their growth even further
