Accelerating credit flow to MSMEs essential to $5 trillion economy dream by 2025: KPMG report

Credit and finance for MSMEs: Even as the current global slowdown and rising interest rates have raised concerns for the near-term outlook, the sector is on the cusp of major transformation,” the report said.

Written by MSME Desk

November 27, 2022 15:21 IST

The MSME loan market has expanded from Rs 31 lakh crore in March 2020 to Rs 33 lakh crore in March 2021 to Rs 35 lakh crore in March 2022 and Rs 36.4 lakh crore as of June 2022.

Credit and finance for MSMEs: Accelerating the flow of credit to small enterprises is essential for India to achieve its $5 trillion economy dream by 2025 as the MSME sector has a been major driver in the country’s rise as the world’s fifth largest economy, said industry body KPMG in its latest November 2022 report on non-banking financial companies (NBFCs) and housing finance companies (HFCs).

The report ‘Role of NBFCs and HFCs in driving sustainable GDP growth in India’ noted that although the economic losses to the MSME sector from the Covid pandemic were huge, it has been recovering well on the back of strong policy initiatives from the government. Moreover, even as the current global slowdown and rising interest rates have raised concerns for the near-term outlook, the sector is on the cusp of major transformation on the back of deeper digitalization initiatives, a wider pool of young entrepreneurs and closer collaboration between the private and public sectors.

The MSME loan market has expanded from Rs 31 lakh crore in March 2020 to Rs 33 lakh crore in March 2021 to Rs 35 lakh crore in March 2022 and Rs 36.4 lakh crore as of June 2022, with 88 per cent of registered borrowers belonging to micro segment, 10 per cent to small segment and only 2 per cent to medium segment, the report showed.

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However, with respect to NBFCs, deploying innovative tools, unconventional risk modelling and personalized offerings, NBFCs have boosted the flow of credit to MSMEs, especially in underserved pockets of the country, KPMG said. As of June 2022, NBFCs outstanding credit to MSMEs stood at Rs 3.6 lakh crore while the credit opportunity in the MSME market was Rs 40 lakh crore.

“Compared to banks, they (NBFCs) have been more agile and have introduced personalized products and offerings based on the risk profiles and demands of different segments of the sector. NBFCs are also striking partnerships with fintech players, banks and alternative lenders to extend credit and bundled products for businesses,” the report added.

Meanwhile, the aggregate credit to the MSME sector, including MSEs and medium enterprises, in September stood at Rs 18.55 lakh crore, up 27 per cent from Rs 14.61 lakh crore in September 2021, according to the Reserve Bank of India (RBI) data on sectoral deployment.