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Bank loan sanctions to MSMEs for job creation down nearly a third in FY25
Bank loans sanctioned to India's micro, small, and medium enterprises (MSMEs) under the Prime Minister's Employment Generation Programme (PMEGP) dipped by nearly a third to ₹12,315 crore in FY25, from ₹17,759 crore in FY24.
The development assumes significance since MSMEs contribute around 29% to India's GDP. This comes in the backdrop of the government reworking its revival framework for MSMEs to ensure continuity of bank credit during their stress period.
Launched in 2008 by merging Prime Minister's Rojgar Yojana and Rural Employment Generation Programme, PMEGP is a flagship credit-linked subsidy scheme of the government.
Entrepreneurial demand weakens
Bank loans sanctioned to MSMEs increased in FY22 in the wake of the covid-19 pandemic, and continued to increase till FY24. From FY22 to FY24, the amount of bank loans sanctioned to MSMEs nearly doubled from a little over ₹9,000 crore to nearly ₹18,000 crore, before falling to FY25 levels of ₹12,315 crore, according to data provided by the MSME ministry.
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The dip in sanctioned loans also reflected a reduction in the number of businesses seeking credit. The number of businesses which received bank loans under the scheme in FY25 is lower than that in FY22, according to MSME ministry data.
In FY25, about 1,08,923 MSMEs received loans from banks under the PMEGP, less than FY22's 1,09,127, after peaking in FY24 with 1,65,725 businesses, the data showed.
Global uncertainty is likely to have doused entrepreneurial sentiment for smaller businesses in FY25, banking experts said.
MSME growth is driven by domestic and global macroeconomic environment, said Vivek Iyer, partner and financial services risk leader, Grant Thornton Bharat. "FY25 has been categorized with many uncertainties ranging from geopolitical stress points in west Asia, the Russia Ukraine conflict, Sino-American rivalry, the impending US election outcome and then the subsequent outcome of the US election. When sentiment is poor, demand to start ventures is poor and hence demand for credit is poor," he said.
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Iyer clarified that banks had not changed their assessment criteria for MSME loans, highlighting that the dip in sanctioned bank loans is a demand-side issue, and not a supply-side problem.
Access to finance still a hurdle
The key objective of the PMEGP was to aid micro enterprises of self-employment ventures to provide employment to artisans and youth in both rural and urban regions. The intention of the scheme was to curb the migration of youth from rural to urban regions, the MSME ministry annual report for FY25 said.
Under the scheme, the central government provides a part of the capital required to start a venture. Nearly one million micro enterprises have been assisted since the inception of the scheme till December 2024 with aid of ₹26,124 crore, providing estimated employment opportunities to over 80 lakh people, the MSME ministry FY25 annual report said.
Lack of access to capital has been a key hurdle in MSME growth in India. A study by Niti Aayog and the Institute for Competitiveness in May 2025 cited Reserve Bank of India (RBI) data to show that MSMEs continued to have a small share of the credit to businesses deployed by 41 scheduled banks from 2020 to 2024.
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In September 2020, 14% of all credit deployed by these banks went to micro and small enterprises, while 4% went to medium enterprises. The situation improved by September 2024, when 20% went to micro and small enterprises, and 9% went to medium enterprises. The share of credit deployed to large businesses, however, still remained 71% in 2024, according to the data.
In a 2022 World Bank Enterprise Survey, over a fifth of Indian MSMEs said access to finance is their biggest obstacle.
