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What are The Main Reasons Behind MSME Credit Gap?

· MSME loans,business loan

The MSME sector is the driving force behind India’s economic growth. It is responsible for employing a considerable portion of the country’s populace, while also being a major contributor to the nation’s GDP. Nevertheless, a significant credit gap in this sector has stalled its progress.

A credit gap is nothing but the difference that exists between the credit necessary for NBFCs to function properly and the actual amount of credit on offer. A sizable gap is indicative of an underlying issue where MSMEs are unable to avail the required funding. The following factors are responsible for this credit gap. To avail an MSME loan, companies need to maintain a clear record of tax returns, profit and loss statements and much more. However, most small enterprises in India fail to meet this need.

These companies do not have valuable assets to pledge against a business loan. Therefore, they cannot offset a lender’s risk, which can disqualify them from availing these credits. Businesses often fail to submit the long list of documents that financial institutions ask of them. This is another reason for the credit gap.

Lastly, these loans may take up to three months to reach the organisation’s account. This delayed approval and disbursement often result in MSMEs seeking financial aid from other, informal sectors.

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