Economic Survey flags credit risk as biggest challenge for MSMEs, growth role intact

Entry to formal credit score stays the only greatest danger dealing with India’s Micro, Small, and Medium Enterprises (MSMEs), the Financial Survey 2025–26 has warned, even because the sector cements its place because the spine of producing, exports, and employment within the nation.

Citing the World Financial institution’s Monetary Sector Evaluation Report (2025), the survey famous that 27 per cent of MSMEs determine lack of finance as their greatest impediment, primarily resulting from restricted collateral and weak documentation—constraints that proceed to weigh closely on micro and first-time debtors.

Regardless of these challenges, MSMEs account for 35.4 per cent of India’s manufacturing output, 31.1 per cent of GDP, and almost 48.6 per cent of complete exports, underlining the systemic danger posed to the financial system if credit score gaps persist.

Exports surge regardless of financing constraints

At the same time as credit score entry stays uneven, authorities information exhibits MSME exports have surged to ₹12.39 lakh crore in 2024–25, up from ₹3.95 lakh crore in 2020–21, contributing round 45–46 per cent of India’s complete exports.

The variety of exporting MSMEs has jumped greater than threefold over 4 years, rising from 52,849 in 2020–21 to 173,350 in 2024–25, with key shipments spanning handicrafts, textiles, leather-based, attire, and engineering items. MSMEs contributed 45.73 per cent to exports in 2023–24, growing additional to 45.79 per cent by Might 2024.

MSMEs dominate employment, provide chains

Based on the survey, India has over 7.47 crore MSMEs using greater than 32.8 crore folks, making the sector the second-largest employer after agriculture. The survey mentioned MSMEs play a essential function in supply-chain integration, native worth addition, and inclusive regional improvement, particularly as India positions itself for deeper world manufacturing integration.

Credit score progress improves, however gaps stay

The Financial Survey famous that MSME lending was the first driver of commercial credit score progress within the first half of FY26, considerably outpacing giant trade credit score. This was aided by revised MSME classification norms launched in April 2025, which expanded eligibility for precedence sector lending, together with focused price range schemes and jewellery-backed small enterprise loans.

NBFCs continued to behave as key last-mile lenders, sustaining sturdy double-digit credit score progress to MSMEs, notably for microenterprises.

Survey pushes cash-flow lending, digital finance

To mitigate credit score danger and maintain progress, the survey referred to as for a fast enlargement of cash-flow-based lending fashions, particularly for micro and first-time debtors missing conventional collateral. It additionally harassed the necessity to speed up digital lending partnerships to make sure well timed, reasonably priced, and wider entry to formal finance.
With MSMEs driving exports, employment, and manufacturing, the survey cautioned that closing the credit score hole is now not a sectoral situation however a macroeconomic crucial.