In the financial year (FY) 2024, the credit demand for micro, small and medium enterprises (MSMEs) grew by 35 per cent compared to the previous year, according to a report by Kinara Capital, an Indian fintech firm.
According to the MSME Insights report, immediate plans for business expansion is the primary reason for MSMEs to seek access to formal credit.
While all three MSME sectors of Manufacturing, trading and Services exhibited demand, the Trading sector is leading with a 45 per cent increase in credit demand, followed by the services sector at 31 per cent and Manufacturing at 18 per cent.
The report added that B2B sub-sectors of trading MSMEs experienced a significant increase in business loans in the last financial year. The key 5 B2B sub-sectors to have flourished were electrical and electronics, houseware goods, industrial products, construction and building materials and paints and varnishes.
Notably, in FY24, the houseware goods sub-sector experienced a 150 per cent YoY growth in the number of loans disbursed, followed by the industrial products sector at 138 per cent and paints and varnishes at 120 per cent. The trading sector also saw a 106 per cent growth in construction and building materials, an indication of rapidly evolving urban development in tier 2 and tier 3 metros as well.
Seeking Funds For Expansion:
Business confidence emerged strongly among MSMEs across all three manufacturing, trading and service sectors. It added that this confidence is translating into growing demand for credit specifically for business expansion.
More than 89 per cent of the MSMEs have indicated investing in growth initiatives as the reason for seeking business loans. Trading MSMEs at 88 per cent demonstrate the most optimism regarding their plan for business expansion compared to manufacturing MSMEs at 83 per cent and services MSMEs at 78 per cent.
Over 84 per cent of Trading MSMEs claimed boosting their inventory levels was the topmost reason for seeking business loans. Purchasing inventory in bulk leads to quick improvement in their unit economics and they can provide their customers with a wider variety of products.
They also gain a competitive edge with their ability to fulfill customer orders quickly with available stock. Boosting Inventory was followed by product/market expansion and business premises renovation as the main reasons for trading MSMEs to seek loans for business expansion.