Authored by Ramkumar Gunasekaran, Director and Head of Sales, CRIF High Mark: Micro, Small, and Medium Enterprises (MSMEs) have long been recognised as the backbone of India’s economy, contributing significantly to GDP growth and playing a vital role in job creation, inclusive development, rural progress, and industrial diversification.
As of May 2025, India hosts approximately 639 lakh MSMEs registered on the UDYAM portal (including UAP), with Micro Enterprises making up a dominant 99% (633 lakh). While traders, both retail and wholesale, account for the largest share at 44%, the service sector comprises 223 lakh MSMEs and manufacturing 133 lakh, together representing 56% of registered entities. To enhance support for the sector, the government has revised the MSME classification criteria effective April 1, increasing the investment limit for small enterprises from ₹10 crore to ₹25 crore, and the turnover threshold from ₹50 crore to ₹100 crore, expanding access to targeted benefits and incentives.
Despite their critical role and numerous government initiatives, MSMEs continue to face significant challenges in accessing finance. Growth is often constrained by limited collateral, thin or no credit history, and complex lending procedures. Traditional lenders, such as banks and financial institutions, tend to view MSMEs, especially borrowers with low credit history, as high-risk due to the absence of formal financial records and established credit profiles. As a result, credit penetration in the sector remains low. This gap is even more pronounced in rural areas, where inadequate banking infrastructure and higher perceived risks further limit access to finance. Overcoming these barriers is essential to fully unlock the growth potential of the MSME sector.
The growing involvement of NBFCs, particularly digital-first lenders, have unlocked new avenues for MSME lending in India. These firms are harnessing data analytics, artificial intelligence (AI), and machine learning to evaluate creditworthiness more efficiently and inclusively. In such data-driven digital or phygital lending journeys, credit reports and credit scores become vital tools for assessing borrower risk. A strong credit profile allows MSMEs to access loans at lower interest rates and better terms. Lenders today, by using alternative data and real-time assessments, can help bridge this gap, making formal credit more accessible. As MSMEs improve their credit health, they can qualify for larger loans and secure capital needed for expansion, technological upgrades, and scaling their operations.
Frequent cash flow disruptions, driven by seasonal demand fluctuations or delayed payments, make it essential for MSMEs to maintain a strong credit profile. This not only improves access to flexible financing options like working capital loans and invoice financing, but also signals financial discipline and business reliability. Today, credit reports and credit score serves as more than just a measure of loan eligibility, as it builds confidence among suppliers and vendors, often leading to favourable terms such as extended payment cycles, discounts, or priority service. These advantages enhance cash flow management and supply chain stability, which are especially critical for MSMEs in rural and semi-urban areas where traditional banking infrastructure remains limited.
Today, many businesses assess an MSME’s credit report before engaging, not just as a supplier, but also as a customer. A strong credit profile boosts credibility, making MSMEs more attractive to clients, investors, and strategic partners. Large corporations often require vendors to meet minimum credit standards, and those with solid credit histories can tap into high-value contracts, government tenders, and private partnerships, expanding their market reach. A positive credit track record also strengthens future investment prospects by easing access to capital for product launches, market expansion, or tech adoption.
The future of MSME lending in India is bright, powered by innovation, supportive government schemes, and evolving credit assessment models. MSMEs are key drivers of growth, jobs, and rural development. By building strong credit profiles, they can access capital, strengthen partnerships, and scale sustainably.
It is authored by Ramkumar Gunasekaran, Director and Head of Sales, CRIF High Mark
The views expressed in this article are those of the author and do not represent the stand of this publication.