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Tag: MSMEs

  • Top Government Subsidy and Loan Schemes for Startups & MSMEs in India

    Starting and growing a business in India is highly rewarding, but one challenge every entrepreneur faces is arranging adequate funds to keep things running smoothly. This is where India’s Micro, Small, and Medium Enterprises (MSMEs) step in as true game-changers. 

    With nearly 40 million MSMEs spread across both organized and unorganized sectors, they not only generate millions of jobs but also contribute close to 40% of the country’s GDP.

    The Indian government has introduced various subsidies and loan schemes that make it easier for business owners to secure funds, expand operations, and be competitive. From easing the pressure of high-interest loans to providing financial support for growth, these schemes aim to address real challenges like unemployment and limited access to credit.

    In this article, we will know some of the most government subsidy schemes in India. These initiatives can help entrepreneurs and small business owners turn their ideas into sustainable growth.

    Why Government Schemes Are Crucial for Startups and MSMEs?
    List of Major Government Subsidies to Boost Businesses in India

    Why Government Schemes Are Crucial for Startups and MSMEs?

    In the dynamic world of startups and Micro, Small, and Medium Enterprises (MSMEs), government schemes can often be the difference between survival and exponential growth. These initiatives are designed to empower entrepreneurs with resources that go beyond capital, offering a holistic support system to nurture innovation and competitiveness.

    Key Benefits of Government Schemes:

    Key Benefits of Government Schemes
    Key Benefits of Government Schemes
    • Access to Capital: Many schemes offer direct funding, low-interest loans, and credit guarantees, helping startups and MSMEs launch, expand, or pivot without the constant pressure of private financing.
    • Market Expansion Opportunities: Through initiatives promoting domestic and international trade, startups gain huge market access, helping them reach new customers and scale globally.
    • R&D Support and Patent Assistance: Schemes often include grants for research and development, along with patent filing support, enabling innovators to protect and commercialize their ideas effectively.
    • Mentorship and Regulatory Relief: Government programs often offer guidance from industry experts and simplified regulatory processes, reducing the compliance burden and fostering informed business decisions.
    • Employment Generation Incentives – Startups and MSMEs creating jobs can benefit from subsidies, tax rebates, and other incentives, aligning business growth with national economic development goals.
    • Fact Check: India is currently the 3rd largest startup ecosystem in the world and aims to support over 1 million startups by 2035, reflecting a robust policy framework geared toward entrepreneurship and innovation.

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    List of Major Government Subsidies to Boost Businesses in India

    India offers a range of government subsidies and support programs to help businesses grow, innovate, and compete in both domestic and global markets. These initiatives provide funding, tax benefits, and mentorship, making it easier for startups, MSMEs, and franchise owners to scale their operations efficiently.

    1. Startup India Scheme

    Startup India Scheme
    Startup India Scheme

    Best for: Early-stage startups

    Key Benefits:

    • 3-year income tax exemption to reduce the initial financial burden.
    • Fast-track patent filing to protect innovative ideas quickly.
    • Self-certification under 9 labor and environmental laws.
    • Access to Startup India Seed Fund and Fund of Funds, providing crucial capital for growth.

    Eligibility Criteria:

    • Must be registered as a Private Limited Company, LLP, or Partnership.
    • Turnover less than INR 100 crore.
    • Business operational for less than 10 years.
    • Should have an innovative and scalable business model.

    2. MSME Business Loans in 59 Minutes

    MSME Business Loans in 59 Minutes
    MSME Business Loans in 59 Minutes

    Best for: New and existing MSMEs seeking quick financial support

    Key Benefits:

    • Fast approval within 59 minutes, enabling businesses to access funds quickly.
    • Loan amounts up to INR 1 crore, helping MSMEs expand operations or manage working capital.
    • Interest rates start from 8.5%, depending on the business type.
    • Process completion in 8–12 days, ensuring minimal delay for fund utilization.

    Eligibility Requirements:

    • GST verification to confirm business compliance.
    • Income tax verification for financial transparency.
    • Bank account statements for the last 6 months.
    • Ownership-related documentation to establish legitimacy.
    • KYC details of the business owner(s).

    3. Credit Guarantee Scheme for Startups (CGSS)

    Credit Guarantee Scheme for Startups (CGSS)

    Best for: Startups seeking credit without collateral

    Key Benefits:

    • Loans up to INR 5 crore through participating banks.
    • Flexible financing options, including term loans, working capital loans, and purchase order financing.
    • Up to 80% loan guarantee, reducing risk for both startups and banks.
    • Low interest rates with extended repayment periods to ease cash flow pressures.

    Eligibility Requirements:

    • Must be registered as a Private Limited Company.
    • Turnover up to INR 50 crore in the previous financial year.
    • Operates in an innovative and scalable business domain.

    4. Pradhan Mantri Mudra Yojana (PMMY)

    Best for: Small and medium businesses outside the farm and corporate sectors

    Loan Categories:

    • Shishu: Loans up to INR 50,000 for startups in the initial phase
    • Kishore: Loans ranging from INR 50,000 to INR 5 lakh for growing businesses
    • Tarun: Loans ranging from INR 5 lakh to INR 10 lakh for well-established enterprises

    Key Highlights:

    • Over 29.55 crore loans disbursed worth INR 15.52 lakh crore since its launch in 2015
    • Collateral-free loans designed to support entrepreneurship and promote financial inclusion
    • Encourages small business growth and employment generation across India

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    5. Prime Minister Employment Generation Programme (PMEGP)

    Prime Minister Employment Generation Programme
    Prime Minister Employment Generation Programme
    • Managed by: KVIC & Ministry of MSME
    • Targets: New micro-enterprises in rural and urban areas

    Key Benefits:

    • Subsidy of 15–35% to reduce the initial investment burden
    • Loans up to INR 25 lakh for manufacturing units and INR 10 lakh for service enterprises
    • Strong focus on employment generation, supporting local economies

    Highlights:

    • Encourages entrepreneurship in both rural and urban regions
    • Promotes sustainable growth and job creation for micro enterprises

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    6. Atal Innovation Mission (AIM)

    Atal Innovation Mission
    Atal Innovation Mission

    Best for: Startups in healthcare, education, and agriculture

    Key Benefits:

    • Grants up to INR 10 crore for innovative projects
    • Atal Tinkering Labs (ATL) and Atal Incubation Centers (AIC) support schools and startups
    • Funding for prototype development, market research, and capacity building

    Highlights:

    • Promotes innovation and entrepreneurship across sectors
    • Provides financial and mentorship support to scale ideas

    7. Production Linked Incentive (PLI) Scheme

    Production Linked Incentive (PLI) Scheme
    Production Linked Incentive (PLI) Scheme

    Best for: Manufacturers in electronics, technology, pharmaceuticals, and automotive sectors

    Key Benefits:

    • Financial incentives to boost domestic manufacturing
    • Encourages “Make in India” by providing extra benefits for locally produced goods
    • Government allocation of INR 1.97 lakh crore for promoting industrial growth

    Highlights:

    • Strengthens India’s manufacturing ecosystem
    • Supports innovation, investment, and global competitiveness

    8. Stand-Up India

    Stand-Up India
    Stand-Up India

    Designed for: SC/ST and women entrepreneurs

    Key Benefits:

    • Loans from INR 10 lakh to INR 1 crore for new businesses focus on greenfield projects, encouraging fresh startups
    • Up to 75% of the project cost is covered through financing
    • Available via all commercial banks, making access easier

    Highlights:

    • Promotes inclusive entrepreneurship and supports underrepresented groups
    • Helps startups overcome financial barriers to launch and scale

    9. National Small Industries Corporation (NSIC) Subsidy

    National Small Industries Corporation (NSIC) Subsidy
    National Small Industries Corporation (NSIC) Subsidy

    Best for: Small and medium-sized enterprises (SMEs)

    Key Benefits:

    • Promotion support to help businesses grow and reach new markets
    • Credit assistance for loans at low interest rates
    • Raw material support to ensure smooth production
    • NSIC facilitated loans worth INR 236 crore for MSMEs in 2020–21

    Highlights:

    • Helps small businesses improve credit scores and access financing
    • Supports overall growth and operational efficiency for MSMEs

    10. Market Development Assistance (MDA) Scheme

    Market Development Assistance (MDA) Scheme
    Market Development Assistance (MDA) Scheme

    Best for: MSMEs looking to expand into domestic and international markets

    Key Benefits:

    • Funding support for participation in trade shows, exhibitions, and buyer-seller meets
    • Helps MSMEs showcase products and connect with global buyers
    • Facilitates international shipments, boosting export potential

    Highlights:

    • Strengthens market presence for Indian MSMEs
    • Supports growth and competitiveness in both domestic and global markets

    Conclusion

    In 2025, India’s startup and MSME ecosystem will be stronger and more supportive than ever, thanks to a range of government schemes designed to fuel entrepreneurship and innovation. From tax exemptions, collateral-free loans, and credit guarantees to funding for research, market development, and international expansion, the government is creating an environment where businesses can grow with reduced risk. 

    By strategically implementing these schemes, startups and MSMEs can accelerate growth, enhance competitiveness, and contribute to job creation and economic development, making the journey of entrepreneurship smoother, smarter, and more sustainable in India’s dynamic business landscape.

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    FAQs

    Why are government schemes important for startups and MSMEs in India?

    Government schemes provide financial assistance, mentorship, tax benefits, and easier access to credit.

    What kind of financial help can entrepreneurs get from government schemes?

    They can get low-interest loans, subsidies, tax exemptions, grants, and even collateral-free credit facilities.

    What are the different categories of loans under the Pradhan Mantri Mudra Yojana (PMMY)?

    PMMY offers three categories:

    • Shishu: Up to INR 50,000 for new startups
    • Kishore: INR 50,000–5 lakh for growing businesses
    • Tarun: INR 5–10 lakh for established enterprises

    Do government schemes support women entrepreneurs?

    Yes, several schemes are designed specifically to encourage women entrepreneurs by providing easier access to funding and resources.

  • How to Maximize ROI on Digital Investments for MSMEs

    This article has been contributed by Aleksandra Malhotra, Director of Kladana.

    Small businesses prioritize quick returns over long-term digital investments. They need solutions that cut costs and show immediate results: fast order processing, raw materials always in stock, and invoices paid on time. SMEs want to automate all their processes on one platform and easily manage inventory, sales, and manufacturing. 

    While it’s tempting to jump into new technologies right away, small businesses face a tricky path to achieving maximum ROI. With limited budgets, the need for employee training, and the constant need to adjust processes, MSMEs must be strategic in their approach. The challenge isn’t just picking the right digital solutions, but how to adapt them to a business’s specific needs and growth plans. 

    The best way forward? Identify a problem, implement a solution, measure the impact, and then move on to the next step.

    Choosing the Right Digital Tool

    Not all technologies deliver equal ROI. Hence, small businesses should invest in tools that directly impact revenue, profitability, and cost reduction.

    ERP and Automation

    ERP systems help entrepreneurs reduce mistakes, set up smooth workflows, improve team collaboration, and view real-time data. A company can easily manage inventory, orders, and warehouses from one platform.

    Marketing and Sales

    Investing in tools like CRM, advertising, and analytics can boost conversions, generate leads, and help retain customers. Analytics track item sales, identify best-sellers for reordering and reduce costs on non-profitable products.

    For example, Artisanté, an Indian food manufacturer, cut down the time spent on restocking raw materials. With ERP, the purchasing manager can now see sales estimates, calculate what raw materials are needed, and create purchase orders right away.

    Logistics and Inventory

    Efficient inventory management helps MSMEs avoid stockouts and overstock and reduce transportation costs by maintaining the right stock levels and minimizing waste.

    For instance, Neytt, an Indian carpet manufacturer, used to track inventory manually across ten locations, which took up a lot of time and resources. After they started using an ERP system, they brought all inventory management together, made stocktaking faster, and removed repetitive tasks, giving them more time to grow their business. 

    Online Sales Channels

    Selling through online marketplaces and e-commerce platforms helps businesses expand their reach and boost sales. Integrations with platforms like WooCommerce and Shopify make it simple to set up and manage an online store.

    Automating Core Business Processes

    Cloud-based ERP solutions allow SMEs to avoid high upfront costs while providing real-time data for better decision-making.

    Key Automation Benefits 

    • Boosted Efficiency: Automation speeds up tasks and lets employees focus on more important work. For example, software can automatically track stock levels, freeing up staff to handle more critical tasks.
    • Lower Costs: By reducing errors and repetitive tasks, automation cuts labour and overhead costs.
    • Better Accuracy: Standardized processes mean fewer mistakes and more reliable results.
    • Instant Insights: With real-time data, businesses can make quick, informed decisions.
    • Happier Customers: Faster, mistake-free orders lead to better customer satisfaction and loyalty.
    • Scalability: As your business grows, automation can handle more tasks without extra costs.
    • Faster Order Processing: Automating orders speeds up the entire process, from order placement to delivery.
    • Easier Financial Control: Automated reports and invoices save time, allowing teams to focus on growth strategies instead of paperwork.

    For example, Metako, a steel door manufacturer, implemented ERP to automate warehouse management, cutting down inventory losses and logistics costs. Similarly, Hey Baby, an apparel manufacturer, uses ERP analytics to guide decision-making. By tracking item sales, they identify best-sellers to bring back each season, helping reduce costs on less profitable products.

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    KPI and Analytics: Measuring ROI on Digital Investments

    To measure success, companies should measure the following key metrics:

    1. Customer Acquisition Cost (CAC)

    The cost to acquire a new customer includes all marketing and sales expenses divided by the number of new customers gained in a period. Track CAC to see how your marketing efforts are performing. If your CAC is too high, focus on improving your sales funnel or targeting more qualified leads.

    Example:

    A small e-commerce business spends $10,000 on digital marketing (ads, social media, etc.) in a month and acquires 200 new customers.

    CAC = $10,000 ÷ 200 customers = $50

    This means it costs the business $50 to gain one customer. The goal is to reduce CAC over time as marketing strategies become more efficient.

    2. Lifetime Value (LTV)

    The total revenue generated from a customer over time. A higher LTV means that the business can afford to spend more on acquisition. Focus on increasing LTV by improving customer retention, offering loyalty programs, and providing excellent customer service.

    Example:

    A customer buys products from an online store for $100 every month. Over 2 years, they continue to make purchases.

    LTV = $100 × 12 months × 2 years = $2,400

    Knowing the LTV helps businesses set acquisition budgets because they know how much profit one customer can generate.

    3. Operational Efficiency

    Time saved on order fulfilment, reduced manual work, and cost savings. This directly impacts ROI by freeing up time for more valuable activities. Look for areas where automation can help save time, like inventory management, order processing, or financial reporting.

    Example:

    A company that used to take 10 hours a week to process orders now automates the order process with ERP software, reducing time spent to 2 hours a week. That’s 8 hours saved every week, which can be used for growing the business.

    4. Revenue and Profitability Growth

    The overall financial impact of digital tools. By analyzing data on sales performance and operational costs, you can determine whether the tools are driving growth. Use data to identify profitable trends and focus efforts on areas with the highest return. For instance, using CRM data to target the most profitable customer segments can increase sales efficiency.

    Example:

    A company implements a CRM system to manage customer relationships. As a result, their repeat customer rate increases from 20% to 40%. This boosts sales by 25% in the first quarter after implementation.

    Common Mistakes That Reduce ROI and How to Avoid Them

    While digital tools can transform your business, some mistakes can reduce their value.

    Overcomplicating Implementation

    Trying to do everything at once can overwhelm your team. Start with one process, like handling sales orders and quotations, then gradually add more as your team gets comfortable with the new tools.

    Failure to Train Employees

    Even the best tools won’t work if your team doesn’t know how to use them. Make sure employees are properly trained and offer ongoing support to improve adoption and prevent delays.

    Lack of a Clear Strategy

    A digital transformation needs a clear plan. Set short-term goals, long-term objectives, and measurable results. For example, start by digitizing quality control, then expand to other areas as part of a staged approach to reduce defects.

    To sum it all up, small business owners cannot wait 3–5 years to see the impact of digitalization. They need to make improvements today and see results tomorrow. That’s why the best approach is a step-by-step strategy: identify a problem, implement a solution, evaluate the impact, and move forward.

    Digital technologies are not just a trend — they are a strategic tool for growth. Choosing the right starting point, considering implementation complexity, and taking a phased approach ensures that small businesses maximize ROI and scale without chaos.

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  • FY2024: Neogrowth Provides More Than Inr 650 Crore to MSMEs Owned by Women

    NeoGrowth, an online lender in India that specializes in MSMEs, has gone a long way toward empowering female business owners. More than INR 650 crore in loans were distributed to micro, small, and medium-sized enterprises (MSMEs) managed by women in the fiscal year 2024.

    The result shows a significant 34% rise compared to the previous fiscal year, which underscores the increasing demand for financial inclusion for women entrepreneurs and NeoGrowth’s dedication to meeting that demand. This sum accounts for 23 percent of NeoGrowth’s total loan disbursements for fiscal year 2024, which were INR 2,863 crore.

    Effect on MSMEs Run by Women

    Over 3,600 micro, small, and medium-sized enterprises (MSMEs) that are run by women profited from these business loans, as stated in the NeoGrowth Impact Report 2024.

    The organization asserts that it provided services to a customer base that numbered more than 16,000 throughout the fiscal year. The corporation acknowledges that women-owned enterprises have played an essential part in the company’s broader purpose of promoting an inclusive economy.

    Sustainable Development Goals

    This broader commitment to contributing to societal and environmental progress is shown in the fact that NeoGrowth’s commercial activities are aligned with six of the Sustainable Development Goals (SDGs) put forth by the United Nations.

    Particular attention has been paid by the organization to important Sustainable Development Goals (SDGs), such as Gender Equality, Industry, Innovation, Infrastructure, and Decent Work and Economic Growth.

    In addition to contributing to broader societal and environmental goals, the strategy of NeoGrowth is aimed to ensure that its credit solutions contribute to the growth of India’s micro, small, and medium-sized enterprises (MSMEs).

    This all-encompassing strategy guarantees that every loan that is provided will have a good domino effect, resulting in the development of new jobs, improvements in credit scores, and increased opportunities for female entrepreneurs.

    Growth Strategies

    Additionally, the company achieved considerable progress in assisting micro, small, and medium-sized enterprises (MSMEs) in Tier-II cities by disbursing close to INR 835 crore in these areas. Furthermore, emerging small firms that have been in operation for five years or less were the recipients of 41% of the total loans that NeoGrowth has advanced up to this point.

    NeoGrowth is committed to supporting entrepreneurs who are frequently ignored by established financial institutions, as seen by the fact that the company focuses on newer enterprises and regions that offer inadequate services.

    It was emphasized by Arun Nayyar, the Managing Director and Chief Executive Officer of NeoGrowth, that the company’s objective is to establish a sustainable, inclusive, and purpose-driven ecosystem for micro, small, and medium-sized enterprises (MSMEs) in India. The organization’s consistent dedication to developing financial inclusion, empowering first-generation entrepreneurs, and providing support to firms run by women all contribute to the development of an economy that is both vibrant and inclusive.

    In addition to catering to more than 75 different MSME industry segments, NeoGrowth asserts that it has a presence in more than 25 communities. Over $1.4 billion has been distributed by the company since it was first established.

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  • India Australia Rise Accelerator Invite Startups and MSMEs From India and Australia for Climate Smart Agritech

    Startups and MSMEs from both India and Australia are being invited to apply for the Climate Smart Agritech cohort of the India Australia Rapid Innovation and Startup Expansion (RISE) Accelerator. This programme is designed to assist businesses that are looking to expand internationally and is a joint effort between the Atal Innovation Mission and the CSIRO in Australia. The development of new solutions to the most critical agricultural problems faced by both India and Australia has reached a major turning point.

    The RISE Accelerator’s Climate Smart Agritech cohort will begin its mission in October 2024 with a focus on entrepreneurs and micro, small, and medium-sized enterprises (MSMEs) that leverage technology to improve agricultural output and resilience in the context of increasing climatic volatility, resource constraint, and food insecurity.

    Startups and MSMEs that provide solutions that put farmers’ needs, goals, and on-farm practices first are of particular interest to the programme.

    What is RISE Accelerator?

    Since its inception in 2023, the RISE Accelerator programme has played a pivotal role in assisting startups and MSMEs with the validation, adaptation, and piloting of their products for potential new markets. Climate Smart Agritech is a new cohort that aims to support agritech startups and micro, small, and medium-sized enterprises (MSMEs) developing solutions to increase agricultural production and resilience in the context of increasing environmental concerns.

    “While our farming operations are distinct in size and diversity, India and Australia share common agricultural challenges,” stated Tamara Ogilvie, Programme Director of the CSIRO. Participants in this batch will be able to find their product-market fit in a variety of areas and scale their solutions quickly to meet demand on a global scale.

    Participating startups and MSMEs will have access to a variety of resources throughout the nine-month accelerator programme, including online resources, in-person workshops, and even immersion weeks in India and Australia. During these sessions, they will get the opportunity to gain valuable market insights, receive personalised coaching, and receive mentorship from professionals in the field. In order to increase the likelihood of success in new markets, the programme is created to help participants interact with prospective partners and clients.

    Field Trials and Technology Pilot

    “The RISE Accelerator program not only tackles the pressing issues in the agriculture sector but also guarantees that farmers can access and implement resilient practices that are customised to their unique requirements,” according to Pramit Dash, Programme Lead at AIM (Atal Innovation Mission). This is achieved through encouraging innovation and offering a platform for start-ups to scale their solutions.

    Increased productivity, decreased emissions, and optimal use of natural resources are just a few of the pressing issues facing the agricultural sector that the most recent cycle of the program is attempting to address.

    September 15, 2024 is the deadline for RISE Accelerator applications.

    Participation in the programme is free of charge for startups and SMEs, and it offers several chances for travel between India and Australia. Additionally, non-equity grants of up to INR 45 lakhs may be available to certain startups and SMEs.

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  • Indian Government Backing Women in the MSME Sector

    Since its launch on July 1, 2020, the Udyam Registration Portal (URP) of the Ministry of MSME has recorded that MSMEs owned by women make up 20.5% of all MSMEs registered on the Portal. The employment created by the total Udyam registered units is 18.73%, with 11.15% of the investment going to these women-owned MSMEs. Out of all the registered MSMEs in Udyam, the percentage of women-owned businesses accounts for 10.22% of total turnover. Results show that women-owned IMEs account for 70.49 percent of all IMEs (as of 11.01.2023) and 70.84 percent of all jobs, according to data from the Udyam Assist Platform (UAP), which records IMEs.

    Appreciating and on the same line suggesting some changes to the current government, Shreya Sharma, Lawyer and Founder, Rest The Case stated, “Women’s participation in the MSME workforce has grown over the last couple of years and an increase in the Mudra loan upper limit to 20 lakhs, is surely an encouraging prospect for them. However, there are a few challenges that still hinder the further growth of the sector. There is a high level of compliance required to set up the business, and this is surely impacting the participation of women. Women entrepreneurs often face obstacles in securing credit due to the strict collateral requirements imposed by financial institutions. Additionally, the societal role of women as primary caregivers can restrict their time and mobility, limiting their ability to fully engage in and develop their businesses.”

    “The difficulties are further compounded by a shortage of effective mentorship and networking opportunities, which means many women lack the crucial guidance and support to successfully manage the business environment. Nevertheless, the future holds considerable promise,” she added further.

    Echoing similar sentiments, Bhavik Vasa, Founder, GetVantage opined, “The Indian government and Hon’b Prime Minister Narendra Modi’s initiatives, led by the Ministry of MSME, to empower women entrepreneurs are truly transformative. Programnes like Udyam Sakhi, Mahila Coir Yojana, and MUDRA are paving the way for women-led MSMEs to thrive. At GetVantage, we fully support these efforts, which is why we launched the INR 100 crore Rise-Up fund—India’s first non-dilutive fund dedicated to women entrepreneurs.”

    Steps Taken by the Ministry of MSME to Help MSMEs Owned by Women

    • Initiatives to register micro, small, and medium-sized enterprises (MSMEs) owned by women through the Udyam Registration Portal.
    • In 2018, the Public Procurement Policy was revised to ensure that Central Ministries, Departments, and Undertakings purchase a minimum of 3% of their yearly procurement from micro and small businesses owned by women. This change was made to support female entrepreneurs.
    • Two measures have been added to the Credit Guarantee Scheme for Micro & Small Enterprises to assist female entrepreneurs starting their businesses as of December 1, 2022. These include a 10% reduction in the annual guarantee payments and an extra 10% coverage of up to 85% for the guarantee, compared to 75% for other entrepreneurs.
    • As part of its Coir Vikas Yojana initiative, the Ministry of MSME runs the “Skill Upgradation & Mahila Coir Yojana,” a training program specifically for women craftspeople working in the coir industry, with the goal of encouraging more women to start their businesses.

    Initiatives by the Government to Increase the Participation of Women in MSMEs in the Country

    To assist traditional artisans and young people without jobs in both rural and urban areas, the Ministry of Micro, Small, and Medium Enterprises (MSME) has launched the Prime Minister’s Employment Generation Programme (PMEGP), a large credit-linked subsidy program that encourages the creation of micro-enterprises in non-agricultural sectors. Compared to the non-special category, women beneficiaries receive a greater margin money subsidy from PMEGP (35% vs. 25%). The percentage of women receiving benefits from the PMEGP is 39%. In addition, the Ministry’s Procurement and Marketing Scheme (PMS) offers a 100% subsidy to female entrepreneurs, compared to an 80% subsidy for male entrepreneurs, so that they can participate in domestic trade fairs.

    Providing Financial Support to Female Entrepreneurs

    To promote gender equality in the business world, it is essential to support companies that are owned by women. The MSME Insights Report 2024, compiled by Kinara Capital, examined 44,821 MSMEs in six different industrial states of India. It found that compared to MSMEs owned by men, those owned by women hired 11% more women. Cost optimization, income growth, and repayment of business loans were all areas in which the survey found that MSMEs owned by women fared better than those owned by men. The societal benefits of economic progress can only be fully realized if women business owners are granted equal opportunity to compete and flourish, according to this data-driven argument.

    “I believe that financial support schemes for women entrepreneurs, such as increased money subsidies, are essential to address the workforce divide that has persisted for centuries. However, financial aid alone will not achieve the ultimate goal of empowering women and recognising their contributions to the MSME sector. This must be complemented by robust skilling, training, and guidance to ensure their success and sustainability in the business world,” commented Pallavi Jha, Chairperson and Managing Director of Dale Carnegie Training India and Walchand PeopleFirst Ltd.

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  • India Digital SME Credit Report 2023 Reflects $220 Billion Credit Deficit in MSME Financing, Alternate Funding Gains Ground

    The collaborative report by GetVantage and Redseer Strategy Consultants – The India Digital SME Credit Report 2023 – finds a potential $220 billion credit deficit in MSME funding. Analysts suggest that alternate financing is the way forward for MSMEs to secure funds.

    The India Digital SME Credit Report 2023 indicates a potential $220 billion credit deficit that poses a major roadblock for the Indian MSMEs to secure financing. The collaborative report between GetVantage and Redseer Strategy Consultants states that only $53 billion was infused into the market through various channels, serving only 30% of the overall addressable demand, resulting in an alarming capital gap of more than $150 billion.

    Bhavik Vasa, Founder and CEO, of GetVantage, shared that the credit deficit is larger than the GDP of some developing countries, and it is anticipated to widen further, due to the prevalent economic and regulatory setting.

    “As more businesses enter the market, it is evident that the demand for credit presents a potential to reach nearly $570 billion in the next few years,” he added.

    Digitalization Challenges for Indian MSMEs
    Pandemic-Driven Increase in Working Capital Demand
    Traditional Funding Challenges for MSMEs
    Opportunities for NBFCs and Digitally Oriented SMEs
    Rise of Alternative Financing Solutions
    Importance of Revenue-Based Financing (RBF)

    Digitalization Challenges for Indian MSMEs

    India is home to 64 million MSMEs which contributes about 30% to the country’s GDP, but is highly plagued with limited digitalization and limited access to capital. The report reveals that only 12% of them, or 7.7 million, MSMEs in India have been digitized to the fullest. These are the merchants who have already designed their platform and generate 30% of their revenues digitally. The major boost occurred during the pandemic when forced digitalization facilitated exponential growth, leading to lower transformation costs, increased utility, increased revenue, and improved communication and flexibility.

    Pandemic-Driven Increase in Working Capital Demand

    Before the pandemic, the working capital demand was growing at a stable annual rate of $70 billion. However, the forced digitalization during the pandemic hiked the demand by more than $100 billion in just two years. According to the Redseer consultants, over the next few years, the demand for working capital is expected to rise steadily at a CAGR of about 20% and is projected to reach approximately $570 billion.

    Growth in Digitized SMEs FY17-FY27, in Million
    Growth in Digitized SMEs FY17-FY27, in Million

    Traditional Funding Challenges for MSMEs

    The funding challenges ranging from accessibility to red-tapism have been preventing the growth of MSMEs for decades. While the government has made dedicated efforts to tackle liquidity issues faced by SMEs, conventional financial institutions for long made little headway in effectively addressing the accessibility concerns of these businesses. Traditional lending institutions perceived SMEs as risky investments. Their multiple working models and non-conventional payment terms prohibited them from securing funds. Also, financial institutions require 90-120 days to disburse credits, therefore hindering the workflow of the SMEs as they require timely working capital to meet their operational needs.

    The report also noted that the absence of collateral and comprehensive documentation has consistently posed obstacles for traditional lenders like commercial banks in offering sufficient funding to SMEs.

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    Opportunities for NBFCs and Digitally Oriented SMEs

    Public and private banks are currently able to fulfill only 30 percent of the total demands from SMEs, creating opportunities for NBFCs (Non-Banking Financial Companies) and third-party lenders. Consequently, 40 percent of the overall capital investment in the SME market has been directed toward digitally oriented SMEs, which represent just 12 percent of the total MSMEs, as reported by Redseer.

    Kanishka Mohan, Partner at Redseer said, “Small businesses account for 90% of credit demand but continue to struggle to raise capital, owing to poor business metrics, limited assets, and uncertain growth projections. If the current economic and regulatory climate continues, this gap is likely to widen significantly over the next five years.”

    Rise of Alternative Financing Solutions

    Alternative financing has emerged as a vital resource for SMEs, where innovative lending models like revenue-based financing, recurring-revenue advances, and trade receivable financing offer accessibility, flexibility, and transparency. These solutions, which resemble quasi-equity options, are well-suited to support SMEs in scaling their operations.

    Vasa commented that alternate financing has a vital role to play in extending the limited reach of traditional lenders to serve millions of new-economy businesses and emerging sectors. He said, “The $570 billion credit requirement for digital SMEs in the coming five years represents an unprecedented opportunity for alternate financing platforms, NBFCs, and traditional financial lenders like banks to collaborate and catalyze economic growth by prioritizing compliance, governance, inclusion, and innovation.”

    Currently, approximately 5% of the lending market is supplied by alternative finance channels. This segment experienced significant growth during the pandemic and is expected to double over the next five years, reaching approximately 11%. This growth can be attributed to increased market awareness, a focus on serving SMEs, and the flexibility offered in repayment options.

    According to Harsh Somaiya, Co-Founder, of The Bear House, the economic growth in India has been fueled by the SMEs as they play a vital role in generating employment and contributing to the overall GDP of the country. As digitalization is increasing rapidly, having access to this credit opportunity would alleviate fund-raising challenges that small businesses generally face, which would help with their rapid expansion as well. “New-age credit platforms are keeping the business goals at the forefront. This along with the credit opportunity will help build a healthy financial ecosystem for SMEs and MSMs to thrive in,” he added.

    Importance of Revenue-Based Financing (RBF)

    The Redseer analysts stated that RBF is now more relevant than ever before. Being data-driven, revenue-based, and flexible has made RBF one of the most robust and popular forms of alternative funding. With a standard flat fee structure ranging from 6% to 12% and loan amounts tailored to suit the working capital requirements of a variety of businesses, SMEs can benefit from convenient, unbiased access to capital at competitive costs.

    Sameer Seth, Founder and CEO, of Hunger Inc., said, “The growth challenges faced by millions of MSMEs today have in a way helped shape the ecosystem, making it easier for businesses to raise capital and be much aware of what kind of capital to be raised when. This is how India is reshaping credit accessibility within the founder community.”

  • How MSMEs Can Grow by Choosing the Right Lender?

    This article has been contributed by Mr Parry Singh, Founder and CEO, Red Fort Capital.

    The micro, small, and medium-sized enterprises (MSME) sector, which accounts for 30% of India’s GDP and employs a staggering 111 million people, is vibrant and rapidly growing. In India, there are reportedly more than 633 lakh MSMEs, of which 324 lakh are located in rural areas and the remaining 309 lakh in urban ones. The industry has made a substantial contribution to the socioeconomic development of the country and complements several important industries. Therefore, it’s essential to increase MSMEs’ access to financing and investigate cutting-edge alternatives to open funding sources.

    Access to credit is essential for their development and expansion. It enables them to invest in modern technologies, expand production capabilities, and meet working capital requirements. Timely financial support empowers MSMEs to navigate challenges and capitalize on opportunities, contributing significantly to the nation’s progress. For a number of MSMEs, debt is a necessity for running the business, and choosing the right lender becomes critical.

    Informal sources of lending continue to bear a high cost on the bottom line of these businesses with exorbitant interest rates and hidden charges. There are no incentives for the borrowers to make payments timely leading to a lack of credit history.

    Key Factors for MSMEs When Selecting a Lender
    Maximizing MSME Growth Through Strategic Lending Choices

    Key Factors for MSMEs When Selecting a Lender

    An MSME can evaluate the following parameters to choose a lender for its business:

    Credit History of the Business

    An SME should carefully monitor its credit history, as it’s an important parameter for access to credit. A good credit history is a must for cheaper credit from PSBs and Private Banks due to their lower risk appetite. SMEs with poor credit history mostly rely on NBFCs for credit due to their varied risk appetites. Most SMEs in the growth phase of a down phase take credit from NBFCs as there are multiple kinds of products available for various needs of the business.

    Use of Funds

    There are various new products in the market to cater to the various needs of SMEs. For example, an SME need not take a term loan for its working capital needs, but it can discount the invoices of its major buyers for credit with shorter tenures. This improves cash conversion and helps escape the debt trap. Similarly, if an SME needs to purchase raw materials, it can go for purchase financing. In the end, the SME should carefully judge the debt serviceability and the end use of funds to choose the right product for availing credit. These sources of credit often have to be underwritten differently from a traditional term loan, enabling greater access to credit.

    Urgency of Funds

    Sometimes SMEs may find themselves in a time crunch when it comes to getting funding. It might be for a new purchase, for servicing a big order or making any other payments. The traditional sources of credit often have delays due to red tape and bureaucracy. In this scenario, SMEs can look for funding from NBFCs that specialize in disbursing credit faster. There are many NBFCs in the market that do this, however, they might charge a premium for the same. One needs to assess the benefits and downsides before making a decision.

    Maximizing MSME Growth Through Strategic Lending Choices

    Moreover, MSMEs can grow their businesses while keeping the following factors in mind:

    Benefits of getting the right lender: Easy access to credit

    The right lender can help MSMEs by providing them with formal sources of credit and also building a credit history of the business. A business is rewarded for making timely payments and getting funds at more aggressive costs. And due to standardized methods of underwriting, businesses tend to maintain compliance, which is a crucial part of the business.

    Leveraging Government Schemes

    For micro-enterprises, the Indian government has launched various funding schemes under ECLGS, CGTMSE, Stand Up India, MSME MDA, etc., which offer credit lines of ₹1 lakh to ₹1 crore collateral-free credit to marginalized MSMEs in rural and underserved areas. The schemes also provide other benefits like lower interest rates and relaxed tenures for women entrepreneurs in these MSMEs. This scheme-based funding is often useful for MSMEs with longer working cycles and low credit demand. Also, it might be cumbersome to apply for and get funding via these schemes since the demand for these is quite high.

    Mutual synergies and co-existence of NBFCs and MSMEs

    In the past, NBFCs have been particularly active in filling the gap between MSMEs and other financial institutions. Banks have traditionally been reluctant to lend to MSMEs due to their perceived riskiness. However, NBFCs have been more willing to take on this risk and have developed a range of products that are specifically tailored to the needs of MSMEs.

    This has made it easier for MSMEs to access the credit they need to grow their businesses. As a result, MSMEs have been able to create jobs, boost exports, and contribute to the overall economic prosperity of India.

    Of course, this relationship is one of rewards with its own challenges. NBFCs need to be careful to manage the risk of lending to MSMEs. However, if they are able to do so, the rewards can be great. By working together, NBFCs and MSMEs can build a stronger and more resilient economy for all.

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