Unlocking MSME Credit Growth in India Requires a Stronger Focus on Rural and Tier 2-3 Markets
Despite rising formal credit supply, India's MSME sector continues to battle a ₹30 lakh crore credit gap—most pronounced in rural and women-led enterprises. SIDBI's latest report highlights the urgent need for inclusive, localized financial solutions to unlock growth in India's tier 2, tier 3 cities and rural heartlands. By Riddhima Jain Published on June 2, 2025, 16:51 IST
India's MSME sector continues to face a significant credit gap of ₹30 lakh crore, despite an overall increase in formal credit supply, as highlighted in SIDBI's latest report 'Understanding Indian MSME Sector: Progress and Challenges'.
The rural-urban divide is particularly stark. MSMEs in rural regions face a credit gap of 32%, compared to 20% in urban areas. This shortfall is rooted in factors such as sparse lender presence, limited industrial infrastructure, and information asymmetry. Meanwhile, women-led MSMEs face an even steeper 35% gap, often turning to informal sources due to barriers in accessing structured financial support. Despite this, MSMEs are showing digital readiness: 90% now accept digital payments, although only 18% have accessed digital lending platforms pointing to a latent but significant opportunity for growth in digital credit.
There's a pressing need to refocus the lens on Bharat — the tier 2, tier 3 cities and rural heartlands that form the roots of India's economic tree. These regions are no longer just untapped markets; they are drivers of inclusive growth waiting to be empowered.
'While the expansive branches are our urban centers, the roots: India's tier 2, tier 3 cities, and rural belts hold untapped potential. As businesses invest in these regions, they don't just cultivate markets; they cultivate hope, opportunity, and resilience,' said Pankaj Gupta, Chief Business Officer, Godrej Capital. By nurturing these hidden economic engines with tailored credit solutions and strong on-ground partnerships, the industry can shift from addressing gaps to unlocking enduring growth.
As the ecosystem evolves, bridging the MSME credit gap will depend on how effectively financial institutions, fintechs, and policymakers collaborate to design solutions that are not just accessible, but truly inclusive. The next phase of India's growth story will be written in its smallest towns and remotest corners — provided the financial roots grow deep and wide. BusinessesMake in IndiaMSME
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