CRISIL SME Tracker: Lending boost can give service-sector MSEs a lift

This is in line with the trend seen in the recent edition of CriSidEx, where 60 per cent of lenders reported highest credit growth in the sub-~10 million exposure segment

Bank credit to micro and small enterprises (MSEs) in the services sector has much scope for improvement despite a visible uptrend so far this decade, a CRISIL study indicates.

As of September 2018, MSEs’ share of the total advances of scheduled commercial banks to all services entities stood at 29 per cent, compared with 23 per cent as of March 2010. In other words, the share of large and medium peers has fallen from 77 per cent to 71 per cent. 

This has reduced the MSEs’ credit gap vis-à-vis larger peers. And while the six percentage point improvement per se may not appear significant, it is expected to have improved the credit access of a large number of units given the smaller ticket size of MSE loans.

This is in line with the trend seen in the recent edition of CriSidEx, where 60 per cent of lenders reported highest credit growth in the sub-Rs10 million exposure segment.

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Credit to all MSEs (including manufacturing) has logged a compound annual growth rate (CAGR) of 12 per cent since 2010. As against this, credit to services-only MSEs has logged a CAGR of 17 per cent. 

The importance of micro, small and medium enterprises (MSMEs) to the economy cannot be overstated. As per the Economic Survey 2017-18, the services sector contributed 55 per cent to India's gross value added. Around 69 per cent of India's 63 million MSMEs operate in the services sector. These MSMEs — especially MSEs — are critical to the government's inclusive growth agenda, as these also provide employment to a large percentage of the population. Yet, credit to services MSEs remains low at barely 8 per cent of gross bank credit.

That seals the case for better credit flow to the segment. In the context, increased usage of credit assessments and goods and service tax data can make it easier for banks to lend to MSEs, while sharper government focus on developing the skilled-labour base and offering market linkages can spur growth overall.