India’s small businesses want more credit, but banks are tightening lending.
According to the latest MSME Pulse report, MSME loan demand grew by 11% year-on-year in the January–March 2025 quarter. However, actual loan disbursements dropped by 11% in the same period.
This shows a growing credit gap in the MSME sector. Entrepreneurs are keen to expand, but lenders appear cautious due to market uncertainty.
Key insights from the report:
- Total MSME credit exposure touched ₹35.2 lakh crore by March 2025.
- That’s a rise from ₹31 lakh crore in March 2024.
- Delinquency rates dropped to 1.79%, the lowest in five years.
- Nearly 47% of new loan takers were new-to-credit MSMEs.
- Maharashtra, Gujarat, Tamil Nadu, Uttar Pradesh, and Delhi led MSME lending, accounting for 48% of total loan value.
Despite the decline in disbursements, MSMEs remain hopeful. A business confidence score of 58.3 was recorded for the upcoming quarter. Many small firms expect better sales, profits, and financing access in the months ahead.
Digital finance is also growing. While only 18% of MSMEs take loans online, over 90% accept digital payments. This shows high potential for digital lending adoption.
The challenge now is to bridge the credit gap. Lenders need confidence, while MSMEs need easier, faster access to funding.
India’s growth depends on MSMEs-unlocking finance for them is the next big step.
