MSMEs to grow at an annual CAGR of 2.5%

The SIDBI TransUnion CIBIL report recently predicts an increase in the number of MSMEs from 6.30 to 7.50 crores across the country with 71% of the total being the NTC borrowers alone. 

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According to a SIDBI-TransUnion CIBIL report, the number of MSMEs in the country is anticipated to increase from 6.30 crore—of which only 2.50 crore have ever obtained credit from formal sources—to “approximately 7.50 crore in the coming times” at a projected compound annual growth rate (CAGR) of 2.5%. The research on Q4 FY23 MSME credit performance said that of the 7.5 crore MSMEs, around 5 crores are anticipated to be new-to-credit (NTC) businesses.

Lenders can cater to NTC MSMEs, first-time or new borrowers seeking funding for company expansion or technical breakthroughs, by finding eligible applicants and customizing loan products. As mentioned in the National Sample Survey (2015-16), released by the MSME Ministry, there were 6.34 crore MSMEs in the nation, of which 6.3 crore were micro firms and accounted for more than 99% of all MSMEs. However, just 0.52 percent and 0.01 percent, respectively, of the units were tiny or medium-sized. 

The report categorizes commercial loans into segments based on credit exposure, with micro-enterprises categorized into three sub-categories: Very Small, Micro 1 (Rs 10 lakh to Rs 50 lakh), and Micro 2. NTC entities are expected to drive MSME growth, accounting for 56% of new loan origination in FY23-Q4, with over 61% of micro-segment originations.

The research indicates that high credit demand for commercial loans in the micro segment, coupled with positive lender sentiment, has led to increased financial inclusion among retail merchants.