It is necessary that all industries adopt the world class Digital Public Infrastructure (DPI)
FinTech BizNews Service
Mumbai, April 28, 2025: The government is introducing new regulations and measures to ease credit access for MSMEs. Santosh Agarwal, CEO, Paisabazaar, believes that six factors can play a key role in bridging the credit gap in the sector. The MSME sector contributes nearly 30% to India's GDP and provides employment to over 10 crore people, yet it has traditionally been deprived of credit.
Santosh also clarified that only 10% of the country's population is able to get a loan from a bank or other financial institution, only about 5% of the people file their ITR. And even among these very few people (especially those in the self-employed category) pay taxes as per their actual income.
She believes that digitalization is being adopted and the overall loan and financial services system is getting better. As this happens, it will become easier for MSMEs and self-employed consumers from different income groups and demographics to avail loans.
For this, Santosh believes that these 6 factors will play a key role in reducing the estimated Rs25 trillion (Tn) credit gap for MSMEs:
1. By industry Accelerating adoption of Digital Public Infrastructure (DPI)
The way the financial services industry is adopting initiatives like Account Aggregators), it will make it possible to share financial data in a secure manner. Banks and NBFCs will get accurate information about the financial and credit health of MSMEs. This will make underwriting easier , more economical and efficient, and will also help in offering the right loan. However, for this it is necessary that all industries adopt this world class DPI.
2️. Government promoting inclusiveness for MSMEs
The government is making access to loans and other finance easier for MSMEs not only through DPI but also through several other initiatives, including priority lending by banks to the MSME sector , providing loans up to Rs 10 lakh to MSMEs without any collateral security, increasing the limit of MSME classification from time to time and increasing the credit guarantee coverage of MSME loans. This will make access to loans easier for MSMEs.
The recently announced new credit assessment model based on digital footprint is designed to automate MSME loan appraisal, thereby improving access to credit across the country. This new model will enable automated credit assessment of both Existing to Bank (ETB) and New to Bank (NTB) MSMEs using relevant and verifiable data available in the ecosystem.
Will adopt fair and subjective decision-making process for borrowers. It is expected that this model will be more inclusive and provide a better assessment of loan eligibility compared to formal credit.
3. Expanding the scope of formal credit through GST
As GST is improving as a comprehensive and transparent tax framework for the self-employed and small businessmen , it is opening up new avenues for MSMEs to get loans. Digital tax records are increasing financial transparency , enabling faster , cheaper and more accurate credit assessments. Now, GST data is enabling cash-flow based lending , especially with initiatives like the Account Aggregator Framework, which will help MSMEs get better tailored loan solutions.
4️. Improving capital access for new age NBFCs
Another important factor is capital access for lenders , which is still quite limited and underdeveloped, especially for new age NBFCs, some of which are attempting to service MSMEs. While growth in unsecured lending is a bit slow at the moment, in the long run, digitization and increased use of digital public infrastructure (DPI) are likely to lead to the emergence of sustainable and affordable underwriting models, which can help meet the needs of traditionally credit-deprived segments such as MSMEs.
5️. Use of digital technology in collection processes
The industry has put a lot of emphasis on enhancing digital capabilities after the Covid pandemic. In the last four years, the lending industry has made a decade's worth of progress in the digitization process. The industry has done a great job in implementing end-to-end digital processes to ease access to unsecured loans and credit cards , however, I believe the next step now should be towards digitizing parts of the collection process.
6️. Development of a better credit bureau system
India's credit bureau system is still relatively new (just 20-25 years old), with only the recent There has been rapid growth over the years. Faster reporting, improved accuracy of data, and digital processes have increased awareness about credit health among consumers, including MSMEs, which has worked towards creating a broader and more inclusive ecosystem.
RBI has made a significant policy change , directing lenders to report credit information every two weeks instead of every month from the beginning of this year. This will help in updating credit related information quickly and reduce delays
will reduce for about a month , as well other segments This will also benefit the borrowers. This will identify excessive borrowers , improve risk analysis and also reduce the number of borrowers taking multiple loans at a time. For MSMEs and other segments , these changes will bring benefits such as better offers, favorable terms as well as faster response to positive financial behavior , which will lead to better credit management.
