MSME's and Rural India

The MSME sector in India has been a silent hero in uplifting rural India, driving economic growth, creating employment opportunities, and fostering entrepreneurship with low capital investment. This vibrant sector has been a key driver of India's economy, contributing approximately 30% to the GDP and providing employment to more than 50 million people in the country.

One shining example of the MSME sector's impact on rural India is the Agra footwear industry, where MSMEs account for 28% of India's footwear exports. These small and medium enterprises play a crucial role in boosting India's total exports, contributing nearly 45% to the country's export earnings.

Despite their significant contributions, MSMEs face a plethora of challenges, with access to finance being a major hurdle. Traditional banks often view MSMEs as high-risk borrowers due to limited credit history and collateral, making it difficult for them to secure funding for their businesses. This issue is further exacerbated in rural areas, where information asymmetry and lack of formal credit reporting systems make it even more challenging for MSMEs to access financial resources.

However, the scenario is changing with innovative lending models like co-lending and the emergence of Non-Banking Financial Companies (NBFCs) as surprise lenders. NBFCs have been growing their MSME loan portfolios over 3 times faster, offering custom-fit financing solutions to these small businesses with unique needs. This has been a game-changer for many MSMEs in rural areas, enabling them to access the much-needed capital to expand their businesses and create more job opportunities in these regions.

Rural India has a significant presence of MSMEs, with 32 million out of the total 63 million MSMEs based in rural areas. These small businesses play a vital role in driving economic development in rural communities, creating a ripple effect of prosperity and growth. In Q3 FY24, the total value of new MSME credit originations reached ₹2.4 lakh crore, with small enterprises accounting for the largest share at 42%. The loan portfolio delinquency rate of MSME declined to a two-year low of 2.3 per cent in the September quarter of 2023-24 (Q2FY24), according to the TransUnion CIBIL-SIDBI report. The MSME loan demand across lenders — private sector, public sector banks (PSBs) and non-banking finance companies (NBFCs) — rose 29 per cent year-on-year (Y-o-Y). The private banks have the least number of delinquent portfolios at 1.5 per cent, while the PSBs stood at 3.2 per cent. The delinquency rate for NBFCs was 2.9 per cent. This demonstrates the significant potential for growth and development in rural MSME financing, as more entrepreneurs are able to access the funding they need to succeed.

While states like Maharashtra, Tamil Nadu, and Uttar Pradesh have the largest registrations of MSMEs and generate the most employment, states like Karnataka, Madhya Pradesh, Telangana, and Andhra Pradesh have also shown promising growth in this sector, with a disproportionate share of MSMEs.

Overall, the MSME sector's contribution in uplifting rural India cannot be overstated. With their entrepreneurial spirit, resilience, and determination, these small businesses are transforming rural economies, creating opportunities, and fostering inclusive growth in the country. It's truly a joy to see the impact of MSMEs in uplifting & building credit culture in rural India, and potential they hold for a brighter and more prosperous future for the ecosystem.