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The MSME sector is a cornerstone of India's economy, contributing approximately 30% to the nation's Gross Domestic Product (GDP) and employing about 62% of the workforce. Despite its significant role, the sector faces a substantial credit gap with only 14% of MSMEs having access to formal credit. This financing shortfall persists despite advancements in digital lending and policy reforms. As the Union Budget 2025 approaches, it is imperative to consider implementing measures that stimulate MSME growth and foster a more inclusive financial ecosystem.

Making Credit More Accessible: Small businesses often lack collateral, making it difficult for them to secure loans. To address this, the government could simplify eligibility criteria for NBFCs under schemes like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). By increasing the guaranteed coverage, lenders would be more willing to provide unsecured loans, reducing the risk on their end and empowering MSMEs to access credit without hurdles.

Strengthening the Digital Infrastructure: Digital lending has transformed how MSMEs access financing. Initiatives like digitizing UDYAM registration data and integrating it into financial systems can make credit assessments quicker and more accurate. Additionally, creating a dedicated fund for developing advanced fintech tools for MSME credit evaluations would further improve loan processes and make them more reliable.

Reducing Borrowing Costs: NBFCs like FlexiLoans.com currently borrow at rates ranging from 11-13%, even for Priority Sector Lending (PSL) loans extended to MSMEs. Lowering these costs can make credit more affordable for small businesses, as NBFCs can pass on the savings to their customers. This move could significantly ease financial pressure on MSMEs and encourage growth.

Revisiting PMMY (Pradhan Mantri Mudra Yogana) scheme: The Mudra scheme has been a lifeline for many small businesses, but there’s room for improvement. Increasing the refinance limit for NBFCs lending to MSMEs and offering interest rate subventions can make this scheme even more impactful, especially for underserved segments.

Fostering Financial Literacy: Access to credit is just one part of the equation. Many MSMEs lack awareness about responsible borrowing and repayment practices. A national push to improve financial literacy, through both online and offline campaigns - in collaboration with NBFCs and banks can empower MSMEs to manage their finances better and ensure sustainable growth.

The Union Budget 2025 has the potential to be a game-changer for MSMEs. By addressing these critical areas, the government can unlock the sector's true potential, ensuring that credit and opportunities reach every corner of the country.

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