India needs to bring 80% of its micro, small, and medium enterprises (MSMEs) into the formal financial system, up from the current 40%, said M. Nagaraju, Secretary, Department of Financial Services. During his speech at the FIBAC 2024 event in Mumbai, Nagaraju emphasized the vital role of MSMEs in both the domestic and international economy and the importance of increasing their financial inclusion.
The Current State of MSMEs in India
There are over 40 million MSMEs registered in India, but only 40% of them are currently part of the formal financial system. Nagaraju highlighted the potential of increasing this number to 70-80%, which could significantly boost their ability to contribute to the economy. He pointed out that globally, SMEs play a critical role not just in their home countries but also internationally, and India should strive to mirror that success.
Role of Banks and Financial Institutions
Banks and financial institutions are key players in fostering economic growth by providing affordable capital and financial services. According to Nagaraju, these institutions have a responsibility to promote inclusive growth, which is essential for the social and economic development of India. By extending services to underserved and marginalized communities, supporting MSMEs, and backing renewable energy projects, banks can help drive progress.
Government Initiatives for MSMEs
In the Union Budget for FY25, the Finance Minister introduced a special package for MSMEs. This package includes financial assistance, regulatory reforms, and technology support, all aimed at helping MSMEs grow and compete on a global scale.
RBI’s Support for MSMEs
Reserve Bank of India (RBI) Governor Shaktikanta Das also spoke at FIBAC 2024, stressing the importance of the financial sector in supporting MSMEs. He encouraged banks and financial institutions to develop tailored financial products specifically for MSMEs, which could help them expand, improve productivity, and contribute to job creation.
The Role of Digital and Green Financing
Nagaraju also spoke about the importance of digital infrastructure, calling it the “backbone of society.” He urged the Indian banking system to leverage fintech solutions to reach the last member of society, while also being cautious about cybersecurity threats. He further highlighted the need for green financing to support environmentally-friendly projects and the development of infrastructure, as India’s existing infrastructure is aging and the country’s needs are rapidly growing.
Conclusion
The push to bring more MSMEs into the formal financial system is not just about growth—it’s about empowering small businesses, creating jobs, and ensuring inclusive development. With the combined efforts of banks, the government, and financial institutions, India can create a more robust and sustainable economy that benefits everyone.
