This study aims to provide an assessmentof the Micro, Small and Medium Enterprise sector (MSME)finance in India. The chapters in the study highlight thekey characteristics of the MSME sector, and assess thedemand for, and the flow of finance into the sector. Thestudy also evaluates the consequent gap in the financingneeds of MSMEs. Finally, it explores potential interventionsto address the lack of access to formal finance for MSMEs.The Micro, Small and Medium Enterprise sector is crucial toIndia’s economy. There are 29.8 million enterprises invarious industries, employing 69 million people. The sectorincludes 2.2 million women-led enterprises (~7.4 percent)and ~15.4 million rural enterprises (51.8 percent). In all,the MSME sector accounts for 45 percent of Indian industrialoutput and 40 percent of exports. Although 94 percent ofMSMEs are unregistered, the contribution of the sector toIndia’s GDP has been growing consistently at 11.5 percent ayear, which is higher than the overall GDP growth of 8percent. Poor infrastructure and inadequate market linkagesare key factors that have constrained growth of the sector.The lack of adequate and timely access to finance has beenthe biggest challenge. The financing needs of the sectordepend on the size of operation, industry, customer segment,and stage of development. Financial institutions havelimited their exposure to the sector due to a higher riskperception and limited access of MSMEs to immovable collateral.
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