MSMEs struggle with access to formal credit due to limited formalisation

Other factors such as information asymmetry, lack of comprehensive financial records, weak credit histories, and insufficient collateral contribute to this issue

Access to timely and adequate formal credit remains a persistent challenge for micro, small, and medium enterprises (MSMEs). Factors such as information asymmetry, limited formalisation, lack of comprehensive financial records, weak credit histories, and insufficient collateral contribute to this issue. 

According to SIDBI’s report ‘Understanding the Indian MSME Sector: Progress, and Challenges’, in primary interactions with MSMEs, 17 per cent of the respondents did not avail any form of credit, while 8 per cent availed it from informal sources. Given the higher level of difficulty in accessing credit for micro enterprises, 12 per cent of those surveyed borrowed from informal sources, versus 3 per cent of small and per cent of medium enterprises.  Credit off-take by women-led MSMEs was at 76 per cent with 24 per cent of the respondents’ not availing credit vis-à-vis men-led MSMEs which saw credit off take of 84 per cent. The percentage of women availing informal credit was higher than men.