DMPQ- MSME’s (Micro,small and medium sized enterprises) Are key to India’s goal of 5 trillion dollar Economy. MSME’s access to credit is very important in this regard.” Elaborate.

. The Prime Minister’s dream of a USD 5-trillion Indian economy by 2025 along with effective financial inclusion and sustainable economic outcomes is premised on investment from both domestic and foreign investors.

Government expenditure can only provide a stimulus, but cannot alone take India to PM’s goal. For domestic private investments to happen,the role of timely, adequate and quality (low cost) credit cannot be overstated, particularly during the current times when Covid-19 induced stress is maximum on almost all industries.

Most of the MSMEs are in rural and semi-urban areas where access to credit is extremely limited. They are vulnerable to predatory moneylenders and often fall into a cycle of debt. Lack of access to finance and timely credit support in business has been a long-standing issue for these MSMEs.

Starting from difficulties faced in seeking loans and working capital from banks to delay in receiving government payments and tax refunds, most of the MSMEs are under severe debt.

As per an IFC study, there is an overall debt demand of ₹69.3 trillion of which 84 per cent is financed by informal sources such as moneylenders, family, friends, chit funds. Formal sources such as commercial banks, NBFCs and government institutions cater to a mere 16 per cent.  Out of these ₹10.9 trillion, ₹8.8 trillion is supplied by commercial banks while ₹1.5 trillion by NBFCs.

The failure of traditional lending mechanisms to guide credit towards these MSMEs have led to a scenario where financing is often not reliable, and steady.  This has been particularly exacerbated by the pandemic, as well as the poor state of micro financing in the country, highlighted by India’s estimated credit gap of over $330 billion.

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