Alternative finance and digital lending are rapidly gaining ground in the Micro, Small, and Medium Enterprise (MSME) sector, according to a survey by the Small Industries Development Bank of India (SIDBI). The report notes a significant shift toward digital financial solutions, with fintech companies, banks, and lending institutions actively promoting digital literacy and building infrastructure. Though traditional lending methods remain prevalent, the digital lending landscape has grown from a negligible 1% in 2017 to a projected 17% by FY2026. SIDBI noted, “Although digital lending is at a nascent stage, it is expected to grow faster with the government and financial institutions taking measures to increase its reach.”
MSMEs Adopt Digital Platforms
According to the report titled Understanding Indian MSME Sector: Progress and Challenges18% of MSMEs now use digital lending platforms while 90% accept digital payments. The report identifies sectors such as defence equipment, IT and IT-enabled services, general-purpose machinery, auto components, plastics, and transport & logistics as high-potential areas for digital credit offtake.
Moderate And Low-Potential Sectors Identified
SIDBI categorises sectors such as hotels, readymade garments, food processing, hospitals, pharmaceuticals, cotton textiles, electronics goods retail, fabricated industrial metal products, and grocery retail as having moderate potential for digital credit uptake. On the lower end, sectors like electrical equipment, paper and paper products, basic metals including iron and steel, and tiles and sanitaryware see the least credit activity via digital means.
Alternative Lending Models Emerging
The SIDBI report highlights emerging models such as Trade Receivables Discounting System (TReDS) and capital markets as alternatives to traditional lending. Globally, alternative finance options provide greater borrower inclusion, a trend gaining momentum in India as funding moves from collateral-based to cash flow-based, supported by Digital Public Infrastructure (DPI).
Credit Gap And Women-Led MSMEs
The report estimates a 24% addressable credit gap in the MSME sector, amounting to ₹30 lakh crore. This gap rises to 27% in the services sector and to 35% among women-owned MSMEs. SIDBI observes, “76 per cent of the women-led MSMEs have access to credit,” but 41% of them still face challenges to credit access and high competition.
Traditional Marketing Persists
Despite digital progress, 70% of Micro, Small, and Medium Enterprises (MSMEs) still use traditional marketing methods, the SIDBI report reveals. This continued reliance on conventional strategies limits their ability to scale and compete in a fast-evolving, digital-first market. SIDBI states that these enterprises miss opportunities to expand their reach, engage customers effectively, and grow their businesses. As more industries shift to digital platforms for visibility and customer acquisition, MSMEs that avoid digital marketing risk falling behind. The report emphasizes that adopting modern marketing tools can help these businesses strengthen their market presence and improve long-term competitiveness.
(With Input From ANI)
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