By Ashok Chandra, MD & CEO, Punjab National Bank
India’s economic future hinges on the sustained growth and empowerment of its MSME sector. It is, therefore, imperative to focus on this segment that fuels the country’s entrepreneurial spirit and economic resilience. Contributing 30% to the GDP, nearly 46% to exports, and employing a staggering 62% of the workforce in the business sector, MSMEs are India’s economic backbone.
With 5.93 crore MSMEs employing over 25 crore individuals, their role in regional development, livelihood generation, and industrial growth is undeniable. However, despite this potential, MSMEs continue to face challenges like credit constraints, limited market access, and infrastructure bottlenecks. Addressing these requires a robust systemic response.
1. A Stronger Financial Foundation
MSMEs must be at the center of India’s financial inclusion agenda. The government has made strides — from enhancing credit guarantees to launching MSME Credit Cards and schemes targeted at women, SC, and ST entrepreneurs. The Union Budget 2025–26’s allocation of ₹23,168 crore for the sector reaffirms this commitment.
Banks are actively stepping up their efforts through initiatives such as PAN India and Monthly MSME Outreach Programmes. To maintain this momentum and ensure sustained support for the sector, there is a pressing need to accelerate credit disbursal via digital platforms, adopt alternative credit assessment models, and expand the reach of schemes like CGTMSE and PMEGP. Additionally, promoting cluster-based lending will further strengthen the MSME ecosystem.
2. Technology-Led Transformation
Digital adoption is proving to be a game changer. From AI-driven credit evaluations to real-time loan monitoring, digital innovations are accelerating both access and efficiency. Government platforms like Udyam, ONDC, and TReDS are simplifying compliance and market access.
Financial institutions must prioritise investments that empower small businesses, starting with enhancing digital literacy, providing access to affordable SaaS platforms for inventory management, billing, and compliance to streamline operations. Additionally, leveraging AI-backed customer engagement tools will help deliver more tailored financial products, ensuring that solutions are relevant, accessible, and impactful.
3. Reimagining Policy and Risk
With recent RBI guidelines increasing credit limits for village industries and artisans, and a shift toward data-driven risk management, the environment is evolving. Empowering MSMEs calls for a more responsive credit system. This includes reducing the turnaround time (TAT) for loan approvals, integrating CRM tools to enhance lead conversion and customer management, and designing sector-specific financial products.
4. Inclusion and Innovation at the Core
True MSME empowerment must include first-time entrepreneurs, marginalized communities, and women-led ventures. With targeted schemes offering up to ₹2 crore for such groups, we’re moving in the right direction. Leveraging, govt initiatives like PM Vishwakarma and focused efforts to enhance financial literacy and enable digital onboarding for micro entrepreneurs, will ensure broader inclusion and long-term resilience.
5. MSMEs: The Banking Sector’sGrowthEngine
For banks, MSMEs offer not just financial returns, but strategic alignment with national goals. High-yield, low-ticket loans backed by government guarantees offer both scale and safety. To further maximize the opportunity within the MSME sector, banks must strengthen MSME-dedicated verticals within their operations to offer focused and efficient services. Collaborating with fintechs can enable more agile and responsive lending mechanisms, while regional outreach programs coupled with digital onboarding initiatives will help expand the formal credit ecosystem.
Scaling Up the Road Ahead
India’s goal to become a $5 trillion economy by 2030 is inseparable from the growth of its MSMEs. By enhancing credit access, embracing digital transformation, and fostering inclusion, we can build the world’s most vibrant MSME ecosystem. Let MSME Day 2025 be a reminder that when small businesses grow, India grows.
