Demand for MSME Loans Surges to Pre-Pandemic Levels in FY21-FY22

April 2, 2023
Updated on

MSMEs are essential to the growth of the Indian economy, contributing more than 29% of GDP through domestic and international commerce. India has around 6.3 crore MSME businesses and their contribution has increased significantly between 2019 and 2020 at a compound annual growth rate (CAGR) of 19%.

How Did the COVID-19 Pandemic Impact MSME?

The MSMEs sector has shown faster growth recently than the industrial sector. This industry not only creates a significant amount of employment but also helps to maintain regional harmony by bringing industrialisation to remote rural and underdeveloped areas.

Following the COVID-19 pandemic, the MSME sector went through numerous stages of survival and recovery. The nationwide lockdown implemented in April 2020 had a detrimental effect on the majority of small business organisations; 70% of operations were disrupted till August 2020. According to statistics, about 40% of firms experienced service interruptions up till the end of February 2021, even after progressive unlocking. 

MSMEs in India experienced a drop in business volume of 11% on average in 2021 as compared to a 46% drop in 2020 during the nationwide lockdown. The three biggest challenges MSMEs have faced so far are getting access to more capital, increasing overall productivity, and accessing new markets. 

Despite the various challenges the industry still faces, there are positive signs of a rebound in both business and economic activity as well. According to several studies, the demand for MSME loans has increased 1.6 times since the pre-pandemic levels (by Q4 FY22), which is measured by the number of enquiries.

How has the Demand for MSME Loans Increased by the Emergency Credit Line Guarantee Scheme (ECLGS Scheme)?

During the initial COVID-19 outbreak, the Indian government initiated the ECLGS scheme. This initiative gave MSME entrepreneurs support of Rs. 3 lakh crore. It was a part of the government’s larger Rs. 20 lakh crores stimulus plan. The program has been extended several times; the most recent extension runs until March 2023. According to an MSME Pulse study by credit bureau Transunion Cibil and SIDBI, these measures have increased growth in MSME loan demand and disbursements, though lenders are giving existing borrowers priority over new ones.

Private Sector Lenders are More Proactive than Public Sector Banks

When it comes to lending to MSME businesses, private sector lenders—including banks and financial institutions are a little more proactive than public sector banks. The research states that while loans from public sector banks have increased 60%, credit from NBFCs has climbed 69%.

The Consistent Increase in MSME Loan Disbursements

Credit disbursements have been steadily increasing since the second wave of COVID-19, with the September 2021 quarter witnessing the largest recovery. It’s interesting to note that small businesses have benefited from the most disbursements, followed by medium and micro businesses.

Medium-sized Businesses Shows the Highest Growth in Loan Size

In medium-sized businesses, the average loan size has grown quickly, from 95 lakhs in the first wave of COVID-19 to 1.4 crores, an increase of almost 50%. At the same time, the micro enterprises have stayed the same at Rs. 9 lakhs.

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The Rise of NPA in the Micro Sector

In the MSME sector, the medium-sized enterprises sector has the largest percentage of non-performing assets (NPAs), followed by the micro and small segments. 

Compared to the second wave of COVID-19 to the present scenario, it is interesting to see that the micro sector has experienced a greater increase in NPAs than the small and medium sectors, which have experienced a relatively moderate increase. NPAs peaked with the second wave of COVID-19 last year, but over the past year, they have been decreasing throughout all three sectors.


MSMEs are the backbone to the Indian economy. There are many NBFCs in India that are ready to support MSME business owners by offering unsecured business loans. As a result, compared to pre-pandemic levels, the amount of loans given to MSME entrepreneurs has increased. It shows the encouragement they receive from the lending industry for the resiliency and expansion of the sector.

Unsecured business loans make it possible for MSME entrepreneurs to secure quick and flexible loans without any property collateral. A top RBI-registered Systemically Important NBFC, Kinara Capital, provides MSMEs business loans within 24 hours. Small business owners can apply for it with less documentation and an affordable interest rate.

Download the myKinara app, which is available for download from the Google Play Store, and check the eligibility of your business to get an MSME loan in just 1 minute, and other relevant information regarding small business loans.

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