FM Nirmala Sitharaman pitches customised credit models for MSMEs

FM Nirmala Sitharaman urged SIDBI and banks to adopt customised, cash-flow-based lending instead of standardised credit products for MSMEs

Finance Minister Nirmala Sitharaman on Monday asked the Small Industries Development Bank of India (Sidbi) and the banking system to go beyond “standard products” for Micro, Small, and Medium Enterprises (MSMEs), while emphasing India’s small businesses require customised credit structures aligned to their business cycles rather than uniform lending models. 

“Standard products cannot serve non-standard businesses,” Sitharaman said while addressing Sidbi’s Foundation Day event.

 

“A farmer-linked enterprise does not earn every month. A resort does not earn evenly throughout the year. A garment exporter waits for payment after shipment. A small auto-component supplier waits for invoice clearance. A woman entrepreneur may have regular transactions yet no property in her name. Then why should all of them be given the same repayment structure?” she said, adding that this is where Sidbi must lead. Credit must be designed around the enterprise’s business cycle. 

 

 

For agri-processing MSMEs, she suggested linking repayments to harvest cycles. Textile exporters, she said, needed financing aligned to export cycles, while tourism businesses required repayment schedules that recognised seasonal earnings.  “The aim should be to provide right credit for the right enterprise and at the right time for the right purpose,” Sitharaman said.

 

Sitharaman added that Sidbi must move beyond being merely a lender to becoming a “market-maker” and “risk-sharing partner” for MSMEs and startups.

 

“Sidbi should stop being in the comfort zone of saying, ‘I am a lender to small enterprises’,” she said. “You are now going to be the market-maker. You are now going to be the risk-sharing partner for all MSMEs and for the entire startup ecosystem.”

 

The finance minister also asked Sidbi to deepen the venture debt market for startups and expand cash flow-based lending and digital lending partnerships, particularly for first-time borrowers. She also flagged delayed payments as a major challenge for MSMEs, saying an estimated ~8.1 trillion remained locked in dues, and said the government regularly reviews payment timelines of central public sector undertakings to ensure MSME dues are cleared within the mandated 45-day period.

 

Linking MSME financing to the government’s broader economic agenda, she said over 320 million Indians were employed in and through the MSME ecosystem. “If we get MSME credit right, we get the Indian middle class right. If we get the Indian middle class right, we get Viksit Bharat right,” she said.