Forecast of MSME Loan Market In India
Published: Mar 20, 2023
Micro, Small and Medium Enterprises, commonly known as (MSMEs) play a vital role in India’s economy, contributing significantly to employment generation, exports, and GDP growth. But access to finance remains a major challenge for MSMEs, hindering their growth potential. In this blog, we’ll go into more detail about the forecast of the MSME loan market in India for 2023, discussing the various factors affecting it and the future outlook.
Factors affecting the MSME loans market in India
Interest rates
Interest rates play a significant role in determining the demand for MSME business loans. A lower interest rate can attract more borrowers and increase loan demand, while a higher interest rate can lead to a decrease in demand. The Reserve Bank of India (RBI) has retained an accommodative stance with the repo rate at 4% as of February 2023. This is expected to continue to result in lower lending rates of banks, which in turn is expected to increase the demand for MSME loans in India.
Economic growth
The growth of the Indian economy has a direct impact on the demand for MSME loans. A higher economic growth rate can lead to increased business activity and higher demand for credit. India’s economy is anticipated to expand at a rate of 6.5% in 2023-24, which is expected to boost the demand for MSME loans in India.
Technological advancements
The use of technology has revolutionised the lending industry, making it easier for borrowers to apply for loans and for lenders to process applications. The emergence of fintech companies has made it easier for MSMEs to access credit. These companies use alternative data sources and innovative credit assessment models to provide loans to MSMEs that would otherwise be considered too risky by traditional lenders. The increased use of technology is expected to further increase the demand for MSME loans in 2023.
Forecast of the MSME loan market in India
The MSME loan market in India is expected to continue to grow in 2023, driven by the factors mentioned above. The market is expected to reach INR 16.3 trillion by 2023, up from INR 14.3 trillion in 2022 (Source). The demand for MSME loans is expected to increase due to the following factors: –
1.Recovery from the pandemic: The Indian economy is expected to continue to recover from the pandemic-induced slowdown in 2023, which is expected to increase business activity and demand for credit.
2.Technological advancements: The increased use of technology by MSMEs and lenders is expected to further increase the demand for MSME financing in India in 2023.
Conclusion
The MSME loan market in India is expected to continue to grow in 2023, driven by government initiatives, interest rates, economic growth, and technological advancements. Access to finance remains a major challenge for MSMEs, hindering their growth potential. Increased access to affordable credit is critical to achieving the growth potential of the MSME sector, which is critical to India’s economic growth and development.
Thus, NBFCs came to the rescue of small business owners. NBFCs in India have helped many SMEs in financing and realising their dream of starting their business. These companies provide credit to MSMEs, which often struggle to obtain financing from traditional banking institutions due to their lack of collateral or a track record of business operations. Small business owners can easily check online eligibility for MSME loans, apply for the loan within a few clicks, get competitive interest rates on the loans and much more.