Report on MSME Credit Growth and Sustainable Development Goals (SDGs) in India

Introduction

India’s Micro, Small, and Medium Enterprises (MSMEs) sector has witnessed a significant increase in formal credit access. However, despite this growth, a substantial gap remains between the potential and the actual credit availability. This report highlights the current state of MSME credit, the challenges faced, and the implications for achieving the Sustainable Development Goals (SDGs), particularly those related to economic growth, decent work, and reduced inequalities.

Growth in MSME Credit Portfolio

1. The total outstanding MSME credit portfolio reached INR 40.4 lakh crore by March 2025, marking a 20.1% increase from INR 33.6 lakh crore in March 2024 and a significant rise from INR 28.3 lakh crore in March 2023.
2. Micro and small enterprises dominate this sector, with micro-exposure businesses constituting 81.1% of loan volumes as of March 2025.
3. Credit exposure for micro businesses grew by 19.7% year-on-year and 45.3% since March 2023, largely driven by the Udyam Assist Platform, which formalizes micro-enterprises and connects them to government schemes and collateral-free lending.
4. As of June 2025, nearly 6.5 crore enterprises were registered under Udyam and Udyam Assist, with 6.4 crore classified as micro enterprises.

Challenges in MSME Credit Access

• Traditional lending models rely heavily on collateral and formal documentation, which many MSMEs, especially in Tier II, Tier III cities, and rural areas, lack.
• Despite improvements through Non-Banking Financial Companies (NBFCs), fintechs, and co-lending models, challenges such as limited risk appetite, high interest rates, and uneven digital penetration hinder full financial inclusion.
• Active MSME loans increased by 23.7% year-on-year to 211.8 lakh as of March 2024 but showed only a 1.3% increase by March 2025, indicating a potential ceiling in institutional credit under current frameworks.
• Approximately 75% of MSMEs still depend on informal credit sources, reflecting a 48% formal credit gap.

Role of Financial Institutions and Government Initiatives

• Public sector banks hold a 45.7% market share in lending to micro businesses as of March 2025.
• Private banks dominate lending to Small and Medium Exposure businesses, commanding nearly 50% of that segment.
• NBFCs have expanded their role, supported by inclusion under the priority sector lending framework.
• Government schemes such as the INR 22,000 crore allocation to the Ministry of MSME, enhancement of Mudra Tarun loans to INR 20 lakh, and credit guarantees under RAMP and MSME Champions programs have contributed to credit growth but remain insufficient to close the financing gap fully.

Implications for Sustainable Development Goals (SDGs)

The development of MSMEs through improved credit access directly supports several SDGs:

• SDG 8: Decent Work and Economic Growth – Enhanced credit enables MSMEs to invest in machinery, inventory, and workforce expansion, fostering economic growth and job creation.
• SDG 1: No Poverty – Formal credit access reduces reliance on informal sources, lowering financial vulnerability among small business owners.
• SDG 9: Industry, Innovation, and Infrastructure – Financing supports MSMEs in scaling operations and adopting innovative technologies.
• SDG 10: Reduced Inequalities – Inclusive lending models targeting underserved markets promote equitable economic participation across regions.

Recommendations for Enhancing MSME Credit Access

1. Develop inclusive, flexible, and technology-enabled lending models to better serve MSMEs, especially in non-metro and rural areas.
2. Encourage greater private sector participation to complement government initiatives and expand outreach.
3. Address structural challenges such as collateral requirements, high interest rates, and digital divide to improve financial inclusion.
4. Strengthen government schemes and credit guarantee programs to bridge the formal credit gap effectively.

Conclusion

While the MSME credit sector in India has shown promising growth, significant structural challenges remain. Closing the formal credit gap is essential to unlocking the full economic potential of MSMEs and advancing the Sustainable Development Goals. A concerted effort involving government, financial institutions, and the private sector is required to create an inclusive lending ecosystem that supports sustainable economic development and equitable growth across India.

1. Sustainable Development Goals (SDGs) Addressed or Connected

1. SDG 8: Decent Work and Economic Growth
   • The article focuses on the growth and credit access of MSMEs, which are crucial for economic development and job creation.
2. SDG 9: Industry, Innovation, and Infrastructure
   • MSMEs’ access to credit enables investment in machinery, inventory, and expansion, supporting industrial development and innovation.
3. SDG 1: No Poverty
   • Improving access to affordable credit for micro and small enterprises helps reduce poverty by enabling economic participation and growth.
4. SDG 10: Reduced Inequalities
   • The article highlights the need for inclusive lending models to support underserved markets, including rural and Tier II/III cities.
5. SDG 5: Gender Equality (implied)
   • Although not explicitly mentioned, formalizing micro-enterprises often supports women entrepreneurs, contributing to gender equality.

2. Specific Targets Under Those SDGs

1. SDG 8 Targets
   • Target 8.3: Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity, and innovation.
   • Target 8.10: Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance, and financial services for all.
2. SDG 9 Targets
   • Target 9.3: Increase the access of small-scale industrial and other enterprises to financial services, including affordable credit.
3. SDG 1 Targets
   • Target 1.4: Ensure that all men and women, particularly the poor and vulnerable, have equal rights to economic resources, including access to basic services and financial services.
4. SDG 10 Targets
   • Target 10.2: Empower and promote the social, economic and political inclusion of all, irrespective of age, sex, disability, race, ethnicity, origin, religion or economic or other status.

3. Indicators Mentioned or Implied to Measure Progress

1. Outstanding Credit Portfolio
   • The article provides data on the total outstanding credit portfolio in the MSME sector (INR 40.4 lakh crore by March 2025), which can be used as an indicator to measure financial inclusion and credit access.
2. Number of Active MSME Loans
   • The count of active MSME loans (211.8 lakh as of March 2024) indicates the reach and utilization of formal credit facilities.
3. Credit Gap Percentage
   • The 48% credit gap in formal financing highlights the unmet demand for credit among MSMEs, serving as an indicator of financial inclusion challenges.
4. Market Share of Lending Institutions
   • Data on market shares of public sector banks (45.7%) and private banks (nearly 50%) in MSME lending reflect the distribution and accessibility of credit sources.
5. Growth Rates of Credit Exposure
   • Year-on-year growth rates for micro and small enterprises’ credit exposure (19.7% and 45.3%) indicate trends in credit expansion.
6. Number of Registered Enterprises
   • The registration of nearly 6.5 crore enterprises on the Udyam and Udyam Assist platforms reflects formalization progress.

4. Table: SDGs, Targets and Indicators

Source: entrepreneur.com