Loans to India’s micro, small, and medium enterprises (MSMEs) have surged past Rs 40 lakh crore, reaching Rs 40.4 lakh crore by March 2025, driven by robust policy support, digitalisation, and a sustained push for financial inclusion. This marks a 20-25% year-on-year growth, according to the latest MSMEx Spotlight Report by credit bureau CRIF High Mark.
Public sector banks continue to dominate micro business lending, holding a 45% market share, while private sector banks lead in the small and medium enterprise segments with a combined market share of about 50%. Non-banking financial companies (NBFCs) have also expanded their presence, aided by regulatory changes that allow bank credit to NBFCs for on-lending to small businesses to be classified as priority sector lending.
The report highlights a significant shift in the MSME credit ecosystem, with a move towards greater formalization. Proprietorships remain the primary business structure for micro enterprises, accounting for 62.8% of micro enterprises, though this share has declined as more private limited firms enter the sector. Micro businesses lead in the number of active loans (81.1%), while small enterprises account for the largest share of outstanding credit by value (about 40%). Working capital loans make up over half of the outstanding loans in the micro segment.
Government policy interventions have played a critical role. The Union Budget 2025 doubled the credit guarantee cover for micro and small enterprises from Rs 5 crore to Rs 10 crore, unlocking an additional Rs 1.5 lakh crore in credit over five years. Other measures include enhanced credit guarantees for term loans, the introduction of a customized credit card for microenterprises, and special schemes for women and first-time SC/ST entrepreneurs. These initiatives have substantially improved credit access and are expected to help bridge the sector’s longstanding funding gap.
Asset quality in the MSME loan portfolio has also improved. The portfolio at risk (PAR) in the 31-90 days category remained steady at 1.7%, while the 91-180 days PAR dropped to 1.2% and the 180+ days PAR improved by 90 basis points to 5.7% compared to the previous year. Despite the robust annual growth, the pace of new loan origination has slowed, with active loan growth dropping to 1.3% year-on-year in FY25, compared to 24% in FY24. Demand for MSME loans grew by 11% in the first quarter of 2025, but supply declined by 11% in the same period, reflecting some lender caution amid external economic challenges.
Also Read: RBI eases priority sector lending norms, Rs 41000 Crore for small finance banks
Overall, the expansion of MSME credit reflects the combined impact of targeted government schemes, regulatory support, and the sector’s ongoing digital transformation, positioning MSMEs for greater resilience and formalization in India’s evolving economic landscape.
