Revolutionizing MSE Financing in India

MSMEs are nurseries where innovation and entrepreneurship gets nurtured. MSMEs have the potential to gainfully harness the demographic dividend. However, lack of adequate and timely access to credit has remained the biggest challenge for micro and small enterprises to grow, complete and create jobs in India.‘Indians manufacturing has been the story of limited number of large-sized firms and prevalence of small, household enterprises, with a wide gap in the middle – “the missing middle”. The segment at the bottom of the pyeamid comprising of MSEs generally miss the credit and non-financial connect. This brings us to the pertinent questions of how MSME Financing can be revolutionized in India and how SIDBI is paying a pivotal role to solve the perennial problem of providing timely and adequate credit to MSE Sector in India.

Role of SIDBI

SIDBI is the Principal Financial institution for promotion, Financial and Development of the Micro, Small and Medium Enterprises (MSME) Sector and for Co-ordination of the functions of the institutions engaged in similar activities. The areas of action of SIDBI includes direct finance to MSMEs, Indirect finance (vie resource support to the banks, NBFCs, SFCs and other financing Institutions), Promotional and Developmental Initiatives (with thrust on micro enterprise promotion), Institutional solutions for MSME Eco system (Assets Reconstruction Company, Rating Agency, Venture Capital, Credit Guarantee and more) an nodal agency for Indian Government on MSME scheme (like credit Linked Capital Subsidy Scheme or CLCSS, Technology Upgradation Fund Scheme or Technology Upgradation fund scheme- TUFS- and others).

SIDBI is changing

SIDBI, under its revamped strategy SIDBI 2.0, is going all out to alter the landscape of MSME Financing in India with its thrust on MSEs. The vision is not just limited to changing the landscape of MSME lending in India through action aligned policy advocacy, but also involves a concerted set of actions that provides MSEs with support in setting up and stepping up their business. These are aimed at including ACCESS and ease of doing business and creating a broad set of linkage and partnerships to complement SIDBI’s capabilities.

Here are some of the initiatives undertaken by SIDBI in recent times to augment and support MSME Sector in India.

Recent Initiatives

SIDBI has adopted a new logo which signifies the catalytic role of SIDBI in maki9ng the MSME sector vibrant, dynamic, responsive with inclusive growth at its core.

The underlying philosophy of the logo is “dynamism”, which emphasizes SIDBI’s dynamic approach towards MSME ecosystem.

Collaborating with Small Finance Banks (SFBs)

To take forward the ‘Make in India’ mission and to make available timely & adequate credit at affordable rates to MSE units and thus augment credit flow to MSE sector, SIDBI has entered an MoU with two SFBs viz. AU Small Finance Bank and Suryoday Small Finance Bank.

The arrangement involves joint lending by SIDBI and SFB. While SIDBI brings in its expertise spanning two decades on the subject of MSME finance, SFBs network is facilitating credit flow to Micro & Small Enterprises (MSEs) located in undeserved and undeserved areas. The arrangement enables MSEs get affordable finance at competitive rates and also help them avail full financial services in the undeserved areas under single window.

The arrangement covers loans ranging from 25 lakhs to 200 lakhs, which will be shared equally. This shall be scaled up with other SFBs ensuring last mile connect.


CriSidEx, India’s first sentiment index (quarterly basis) for micro and small enterprises (MSEs) developed jointly by CRISIL and SIDBI, is designed to capture the sentiment of MSEs to indicate ground trends in this vital sector for the benefit of all stakeholders and thus, also play an important role in addressing financial and developmental gaps in the MSE eco system.

It’s a composite index based on a diffusion index of 8 parameters and measures MSE business sentiment on a scale of 0 (extreme negative) to 200 (extreme positive). Till now, there was no such barometer available in India, though indices and sentiment surveys to track large and mid-sized corporate are aplenty and have been in existence for decades.

CriSidEX can be a game changer for MSME Sector in India. It was launched by Honorable Finance Minister of India on February 3rd, 2018. The first reading of CriSidEx stood at 107, indicating mildly positive sentiment for survey quarter October-December 2017.


Receivables Exchange of India Ltd. (RXIL), a joint venture between SIDBI and NSE has been a set up to operate a TReDS Platform for factoring of the invoices of MSMEs in compliance with TReDS guidelines issued by RBI.

TReDS is an institutional mechanism for facilitating the financing of trade receivables of MSMEs through multiple financiers. TReDS facilitates by offering an electronic platform / Electronic Bill Factoring Exchanges, whereby MSME bills against large companies can be accepted electronically and auctioned thus ensuring prompt realization of receivables at competitive rates.

11 PSUs have registered themselves on RXIL platform including Shipping Corporation of India, Bharat Electronics, NALCO, BEML, IRCON, Goa Shipyard. 11 banks (including SBI, BoB, BoI, ICICI, SBI & Canbank Factors, Yes Bank Ltd and DENA Bank) are active. Total 4104 invoices amounting Rs. 197.16 crore factored in number have been financed on the platform.

MSME Pulse

Deputy Governor RBI launched “MSME Pulse” – the health tracker (quarter report) on MSME credit activity, for closely tracking and monitoring the MSME segment in the country.

This co-branded initiative of SIDBI & TransUnion CIBIL is based on a study done on over 5 Million active MSMEs who have access to formal credit, with live credit facilities in the Indian banking system. It aims to facilitate both practitioners of credit as also policy makers to draw policy and actionable references.

Udyamimitra – The universal loan portal

The mitra portals [ and], conceived and developed by the SIDBI is positioned to change the way credit is being done both from the demand side (aspirants looking for ease of access to credit) and in supply side (bankable leads, competitive market place and plethora of offers to choose from).

It is designed to help potential entrepreneurs do a self-assessment of their readiness to apply for loan and helps them to choose appropriate schemes, seek online handholding support for setting up businesses, get forms filled by these agencies online on their behalf and submit standardized application forms online, acceptable to lenders.

The portal has started helping in faster loan processing, increased transparency, induced access to MSME loans anytime/anywhere and thus service MSMEs financial and non-financial needs under a single platform.

Some of the highlights include:-

  • The number of registrations on the portal has crossed 1.10 lakh with around 24300+ applications and 3874 online sanctions (Rs. 829 crores +) has been recorded. Applications are being lodged for MUDRA, standup India and MSMEs for loans.
  • One in every six applications submitted on this portal have got a loan through this portal.
  • Handholding agencies through the portal cover more than 95% districts of the country. Till now, 25500+ handholding requests have been responded.
  • Online sanction is spread across 62% districts of the country including remote arears like Tura (Meghalaya), Unakoti (Tripura) and Simdega (Jharkhand).
  • Diverse sectors – As per the portal, percentages of enterprises coming up in manufacturing, services and trading segments respectively are 27%, 40% and 33% respectively.
  • Ease of doing business: Majority of online sanctions have been done in loan bracket of Rs 25 lakh & below, recording average TAT of upto one wee (53% of online cases being done in one week). It can be inferred that MSEs are gaining access.

Contactless loans to MSMEs leveraging data from alternate sources

SIDBI is attempting to move up onto the next step of the SME lending value chain by improving credit access and ease of doing business in India by introducing contactless MSME loans (in loan bracket Rs 10 Lakh to Rs 200 lakh), sometimes referred to as straight through online sanction. This concept needs to be validated with various stakeholders, developed into a detailed plan to be followed by transformational changes in the way lending is done by lenders in India.

An effort to formulate a lending product & risk model, credit evaluation methodology etc. is being attempted to achieve this objective. The objective is to automate application to decision making process of loan sanction i.e. loan origination and loan underwriting.

In Brief

SIDBI is geared up to evolve a robust MSME eco system. Its strategy is to increasingly synergise with national missions of ‘Universal Financial Inclusion’, ‘Start Up India’, MUDRA, Standup India, ‘Digital India’. ‘Make in India’ and so on. SIDBI had pioneered the MFI led financial inclusion model and that has now got mainstreamed with some of them emerging as Small Finance Banks.

SIDBI realized that technology can play a pivotal role in further expediting inclusive agenda of the nation. We firmly believe that by leveraging technology, the objectives of expanding outreach to every nook and corner, cost reduction and above all democratizing credit access shall be realized.

SIDBI remains committed to the emergence and empowerment of Entrepreneurial India. The resolve at SIDBI is to revolutionize MSE financing and do whatever is required to achieve that.

Being udyamimitra (Friends of MSE entrepreneurs) shall be our mainstay.

Author: Mohammad Mustafa IAS

Mohammad Mustafa, a 1995 batch IAS officer, is now Chairman and Managing Director of Small Industries Development Bank of India (SIDBI). Mr. Mustafa was Joint Secretary in the Department of Financial Services (DFS) in the Finance Ministry



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