Huge Untapped Market For Indian Banks? Rs 20 Lakh Crore MSME Loans In 2018 To Come From The Informal Sector

According to a new report by Omidyar Network and BCG (Boston Consulting Group), nearly 40 Per Cent of the credit availed by MSMEs (Micro, Small and Medium Enterprises) still come through informal channels, as reported by The Hindu Business Line.

The report, titled ‘Credit disrupted: Digital MSME lending in India,’ estimated that around Rs 20 lakh crores of funding required by the MSMEs in 2018, will be provided by sources outside of the formal banking system. The total credit demand will touch Rs 45 lakh crore.

“Roughly 40 per cent of MSME lending is done through the informal sector, where interest rates are at least twice as high as in the formal market,” the report noted. The report also stated that MSMEs use personal loans taken out by proprietors for commercial purposes. Such loans provide an additional 25 per cent funding which does not figure in the above numbers.

Noting that MSMEs are the growth engines for new India, the government recently announced a scheme that would allow these firms to obtain loans of up to Rs One crore from banks within 59 minutes.

“MSMEs in India continue to struggle with traditional banking challenges that, if addressed by digital lenders, could accelerate both formalisation and digitisation among businesses in this sector,” the report cautioned.