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Funding MSMEs During Economic Flux
Articles- May 05,25
Micro, Small, and Medium-sized Enterprises (MSMEs) are the backbone of India’s economy, contributing 30 per cent to the nation's GDP and 45 per cent to its exports.
Micro, Small, and Medium-sized Enterprises (MSMEs) are the backbone of India’s economy, contributing 30 per cent to the nation's GDP and 45 per cent to its exports. Despite their economic importance, MSMEs struggle to access formal finance. The credit situation for MSMEs has seen some improvements because of the government’s efforts. A recent report from the State Bank of India (SBI) shows that lending to MSMEs has tripled from ?8.5 trillion in FY14 to ?27.25 trillion in FY24, with projections reaching ?30 trillion by FY25.
In recent years, SME platforms on stock exchanges have become crucial sources of funding for MSMEs. While a total of ?165.87 billion has been raised by 605 SMEs listed on the NSE Emerge platform as of February 2025, 571 firms have raised ?91.73 billion on the BSE SME platform. However, last year, the Securities and Exchange Board of India (SEBI) - the market regulator - tightened its scrutiny over SMEs due to instances of fund diversion, financial manipulation, and fictitious transactions.
In spite of the government’s efforts, only 14 per cent of the credit needs of MSMEs are met through formal financial channels.
A significant shift in the financial landscape for MSMEs is the new classification rule of the Government of India (GoI), effective from April 1, 2025. By raising investment limits by 2.5 times and doubling turnover thresholds, the new rule aims to eliminate the ceilings that hinder the growth of MSMEs, especially for manufacturing units that previously risked losing policy-linked benefits as they scaled. The reclassification offers benefits, allowing more businesses to qualify for MSME schemes and improving their ability to access structured finance. However, it also raises concerns. Smaller businesses, particularly micro-enterprises, may get overshadowed and still struggle to gain access to finance.
Today, Indian MSME exporters are more engaged in global trade than ever before with their numbers surging from 52,849 in 2020–21 to over 173,000 in 2024–25. This was also evident at the recently held Hannover Messe 2025 trade fair in Germany, where more than 70 MSMEs showcased their innovative solutions to global buyers. However, less enthusiastic participation of government agencies and large firms was a real dampener, especially when GoI wants to make India a global manufacturing powerhouse.
Meanwhile, the US President Donald Trump’s announcement to impose a minimum 10 per cent tariff on all imports (including goods from India), effective April 5, 2025, has sent a shock wave across the globe. For Indian MSMEs, many of whom rely heavily on the US market (one of India’s largest export destinations absorbing $87 billion worth of goods annually), this tariff is a significant financial setback. These businesses now face challenges such as delayed shipments, extended payment terms, and inventory backlogs, all of which strain their cash flows and profitability.
In this period of economic flux, MSMEs need quick access to working capital, dynamic risk assessment models, and greater financial flexibility to navigate prolonged sales cycles, renegotiated contracts, and increased logistics costs. Simplified documentation processes, faster payment realisation, and more affordable and accessible schemes by the government and financial institutions will be crucial for their growth.
Funding MSMEs
Economic Flux
Micro
Small
and Medium-sized Enterprises
State Bank of India
NSE Emerge platform
SEBI
Government of India
Hannover Messe 2025 trade fair
Donald Trump
dynamic risk assessment models
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