India’s MSME sector is poised for continued robust credit demand, but deep-rooted financing challenges continue to stifle its momentum. A new report from ICRA Limited and Assocham predicts that credit expansion for FY2026 will hit ₹26 lakh crore, reflecting a solid 14.3 percent growth from the prior year.
Looking ahead to FY2027, growth is expected to ease slightly to 11.3-12 percent, amounting to ₹23.5-25 lakh crore. Analysts attribute this to a high base from last year rather than any dip in underlying demand, pointing to a balanced trajectory ahead.
While demand thrives, fueled by economic recovery, stronger balance sheets, and formalization drives, the sector grapples with limited access to funds. This gap curtails growth and innovation among small businesses, which are crucial to India’s economic fabric.
Overall bank lending is set to hold steady, with MSMEs and retail borrowers leading incremental growth. Assocham Secretary General Saurabh Sanyal stressed, ‘Ensuring seamless credit flow to MSMEs is essential for inclusive prosperity and widespread economic gains.’
Echoing this, ICRA’s K. Ravichandran noted the financial system’s improved stability but urged a shift from conventional lending paradigms to meet modern needs effectively.
MSMEs are at the heart of supply chain diversification and formal economy integration, boosting activity in cities and towns alike. Policy measures enhancing formalization and data transparency have aided lenders in better evaluating risks, spurring credit disbursement.
Nevertheless, structural hurdles loom large: varied borrower risks, collateral shortages, and opacity in operations make funding hard to secure promptly, particularly for informal or semi-formal units. The report calls for holistic reforms to close this divide, empowering MSMEs to propel India’s growth story forward.