MSMEs' Credit Share Slumps To 6.3%, Despite GDP Contribution

Although micro, small and medium enterprises (MSMEs) contribute about 30 per cent to gross domestic product (GDP) and generate significant employment, their share in commercial credit (non-food credit) remains low at around 6.3 per cent in FY24, said UGro Capital, a datatech non-banking financial companies (NBFCs) focused on MSME lending in a report. 

However, the report in collaboration with Dun & Bradstreet (D&B) stated that this share improved by 60 basis points across both scheduled commercial banks (SCBs) and non-banking financial companies (NBFCs) from FY19 to FY24. 

The report stated that compared to overall non-food bank credit growth at around 20 per cent in FY24, SCBs’ credit growth to micro and small businesses stood at 14.7 per cent, and to medium businesses it was 13.3 per cent, although this was higher than large industries at 6.5 per cent.

Interestingly, according to a TransUnion CIBIL-Sidbi report the overall loan portfolio delinquency rate of MSMEs declined to a two-year low of 2.3 per cent in Q2 FY24. This suggests that MSMEs are managing their credit repayments responsibly, thus improving their borrowing prospects.

Small businesses are rapidly moving into the formalisation lane and the impact of this is evident. This is seen from the number of MSMEs registering on the UDYAM portal nearly doubling each year since its launch in FY21. 

This formalisation improves their access to various government schemes, financial support, subsidies, and market access. Also, for greater contribution of MSMEs to the GDP kitty, they must move towards formalisation and increase in size. This contribution remained at around 29 to 30 per cent during FY18-FY22.

The report added that the initiatives taken by the government towards technology adoption and digitalisation will further support the formalisation of MSMEs and improve their access to credit. The ticket size of large loans taken out by MSMEs has increased post-pandemic and has risen from 24 per cent of the pie in FY21 to 40 per cent in FY24.

Women Entrepreneurs
MSME registration on UDYAM signals rapid formalisation of small businesses, including women entrepreneurs. Women MSMEs account for 20 per cent of total MSMEs registered on Udyam. This share increases when informal micro enterprises (IMEs) are considered. 

As of January 2024, women-owned IMEs account for more than 71 per cent of the total IMEs, contributing to more than 71 per cent of employment since the portal's inception in January 2023. The registration of women-led MSMEs on the Udyam portal is doubling annually, despite their small share of the overall MSMEs on Udyam. 

Currently, one in five Udyam-registered MSMEs is led by women, and these businesses contribute to one in five jobs created by MSMEs, even with lower investment and turnover. Women-led MSMEs are generally smaller than their counterparts, accounting for only Rs 1 in Rs 10 of investment and turnover.