AADHAAR, EKYC AND OTHER DIGITAL SOLUTIONS DRIVE FINANCIAL INCLUSION FOR MSMES (ICRIER-ADBI)

A 2023 ICRIER survey shows that 70% of Indian MSMEs rely primarily on owner-contributed capital, with only 20% using bank loans as their main financing source

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Micro, Small, and Medium-sized Enterprises (MSMEs) are pivotal to global economic growth yet encounter significant credit challenges, as outlined in the June edition of the ICRIER-Asian Development Bank Institute’s (ADBI) Policy Brief. This report identifies key obstacles, including inadequate collateral, difficulties in verifying MSME creditworthiness, and the high transaction costs of small loans. These issues collectively render MSMEs less appealing to financial institutions.

A critical concern highlighted by ADBI is the lack of information infrastructure for MSMEs. Unlike larger enterprises, MSMEs often lack connections to capital markets, making continuous monitoring of small loans by financial institutions costly and challenging. This situation leads banks and lenders to view MSMEs as riskier investments.