FM Sitharaman Urges Banks to View 'MSMEs as An Opportunity Not A Risk'

Finance minister Nirmala Sitharaman today has urged the banking community to look at the Micro, Small and Medium Enterprises (MSMEs) as a sector brimming with opportunity not merely as a sector of risk.

"Few days back, I had set the target of an additional MSME lending of Rs 1.54 lakh crores in this financial year for the SCBs & NBFCs, beyond the estimated Rs 4.21 lakh crore to be lent this with a ‘business as usual’ approach," Sitharaman said while speaking at the centenary celebration of the SBI Mumbai main branch building.

"Similarly, banks should target lending Rs 6.12 lakh crore in FY 2025-26 and Rs 7 lakh crore in FY 2026-27," she added.

Sitharaman further reiterated the importance of being sensitive towards the sector as the Indian economy, whether in its traditional or modern ways, depends a lot on MSMEs. The Finance Minister also noted that supporting the MSMEs through innovation in Credit Assessment was a very important step.

"Small ticket loans enable entrepreneurship and employment generation and therefore they must get due attention," she said.

Sitharaman explained how banking sector's traditional dependency on collateral-based lending models have pushed the government to come up with announcements for MSMEs in this year's July budget as those lending models not always align with the unique needs and financial structures of MSMEs.

"If banks were hesitant to give them term loans as they needed substantial collateral, the Govt in the budget has announced collateral free loans to be given for MSMEs. This involves adopting or developing new models of credit evaluation," said Sitharaman in her speech.

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The announcement also included transition towards alternative credit risk assessment models, such as cash flow-based lending. According to the finance minister, cash flow-based lending has the transformative potential to address the working capital requirements of MSME units.

Furthermore, Sitharaman highlighted the government's effort in bringing financial inclusion. She attributed the notable traction in the economy as a result of the same effort.

She said that low levels of financial inclusion and formal identification are not a problem anymore like it used to be in 2008 as between, 2011 and 2021, the number of adults with an account in a formal financial institution doubled from 35 per cent to 77 per cent.

However, Sitharaman noted that financial inclusion is not just about opening bank accounts but also about ensuring access to credit, insurance, and investment opportunities for all.

Prioritising digital financial literacy to build public confidence in digital transactions, she added, "We need to ensure ‘Digital Financial Inclusion' so that cost-effective digital means to reach everybody."