Micro, Small, and Medium Enterprises (MSMEs) can strengthen their financial health and credibility by embracing formal registration, maintaining accurate financial records, and adopting digital payment systems to create a transparent financial footprint, said Swaminathan J, deputy governor at the Reserve Bank of India (RBI), on November 16. The speech was uploaded on the RBI website on Monday.
While speaking at the CEO Forum of the Federation of Telangana Chambers of Commerce and Industry held in Hyderabad, he said, “MSMEs should strive for greater credit discipline, which starts with careful selection of the appropriate credit product suited to their requirements and cash flows. MSMEs should familiarise themselves with different credit products such as term loans, working capital loans, overdrafts, and invoice discounting to match them with their borrowing needs. It is vital to tailor borrowing to business cycles and avoid over-leveraging.”
He further emphasised that MSMEs should prioritise credit discipline by selecting appropriate credit products, maintaining a strong credit score, and avoiding over-leveraging. Investing in capacity building through skill development, fintech adoption, and mentorship from industry bodies can enhance operational efficiency. Additionally, leveraging platforms like Trade Receivables Discounting System (TReDS) can unlock liquidity, streamline cash flows, and build trust with financial institutions.
The deputy governor highlighted that despite their importance, MSMEs often struggle to secure timely and adequate credit. Challenges such as information asymmetry, limited formalisation, and inadequate collateral leave many enterprises unable to meet their financial needs. The RBI’s Expert Committee on MSMEs estimated the credit gap at Rs 20 trillion-25 trillion, underscoring the urgent need for focused interventions.
“Many MSMEs lack comprehensive financial records or credit scores, and in some cases, they may not have sufficient collateral to support the scale of financing they require. These issues result in a substantial gap between the credit needs of these units and the available supply—creating what is known as the credit gap. Five years ago, the Report of the Expert Committee on MSMEs (Chair: U K Sinha), constituted by the RBI, estimated this credit gap to be between Rs 20-25 trillion, underscoring the pressing need to address the financial barriers that continue to constrain this vital sector,” he said.