New Delhi [India]: Alternative finance and digital lending models are witnessing rapid growth among Micro, Small, and Medium Enterprises (MSMEs) in India, according to a new survey released by the Small Industries Development Bank of India (SIDBI).
The report, titled “Understanding Indian MSME Sector: Progress and Challenges”, highlights the growing adoption of digital credit platforms, with fintech companies, banks, and lending institutions actively investing in digital awareness and lending infrastructure.
“Although digital lending is at a nascent stage, it is expected to grow faster with the government and financial institutions taking measures to increase its reach,” the report states.
Key Findings from the SIDBI Report
- Digital Lending Growth:
Digital credit disbursals to MSMEs, which were negligible in 2017, are projected to surge to 17% of all MSME lending by FY 2026. - Adoption Rates:
Around 18% of MSMEs are currently using digital lending platforms, while a striking 90% accept digital payments, signaling a broader digital transformation. - High-Potential Sectors:
Digital lending is seeing maximum traction in:- Defence equipment manufacturing
- Information Technology and IT-enabled Services
- General-purpose machinery
- Auto components
- Plastics & plastic products
- Transport & logistics
- Moderate-Potential Sectors:
These include Hotels, Readymade garments, Food processing, Hospitals, Pharmaceuticals, Cotton textiles, Electronics retail, and Grocery stores. - Low-Potential Sectors:
Sectors like Electrical equipment, Paper products, Basic metals (iron & steel), and Tiles & sanitaryware lag behind in digital credit adoption.
Alternative Lending Channels Expanding
The report identifies several emerging finance channels for MSMEs beyond banks:
- Trade Receivables Discounting System (TReDS)
- Capital Markets
- Digital Public Infrastructure (DPI)
These options help shift MSMEs from collateral-based to cash-flow-based lending, enabling greater financial inclusion.
Credit Gap Still Persists
Despite progress, the sector still faces a 24% addressable credit gap, amounting to ₹30 lakh crore:
- Services sector: 27% gap
- Women-led MSMEs: 35% gap
The report emphasizes that 76% of women-led MSMEs have credit access, but 41% cite credit access and market competition as key growth barriers.
Traditional Marketing Practices Limiting Growth
An estimated 70% of MSMEs still rely on traditional marketing, hampering scalability and competitiveness in digital-first markets.