The transformation of MSME financing in India can be measured in minutes, literally. What once took banks months to process now happens in 15-20 minutes for smaller loans, thanks to machine learning algorithms that assess cash flows rather than balance sheets.
For Nagaraj Garla, Executive Director of IDBI Bank, this digital revolution is the key to unlocking a ₹30 lakh crore credit gap that stands between India's 6.6 million-plus MSMEs and their growth ambitions.
In a fireside chat at the ET Make in India SME Regional Summit - Nagpur, Garla painted a picture of an ecosystem in rapid transition, where collateral requirements have virtually disappeared and export financing has tripled in just four years. IDBI was the banking and lending partner, and Canon was the tech enabler for the summit.
The collateral-free revolution
Perhaps the most striking change in MSME financing is the waning importance of collateral requirements. Under the enhanced Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE), coverage has expanded from ₹1 crore to ₹20 crore for exporters, while the new Mutual Guarantee Scheme allows heavy engineering MSMEs to access loans up to ₹100 crore by paying just a 5% premium without any collateral.
"If your business fundamentals are strong, funding is available," Garla emphasised, citing Nagpur's heavy engineering sector as particularly well-positioned to benefit from these expanded limits.
This shift reflects a fundamental change in risk assessment. Banks now prioritise cash flow analysis over balance sheet strength, enabled by GST data that provides real-time visibility into business transactions across multiple banking relationships.
Digital speed meets market reality
The digitisation of lending processes has created what Garla describes as "time-sensitive funding" capabilities. When export opportunities emerge, such as Bangladesh opening its rice market, Indian mills can now access urgent working capital within hours rather than weeks.
IDBI's digital lending team processes applications for ₹1-5 crore loans within 20 minutes, while larger amounts are approved within a day. Even complex project reports that previously required two months can now be generated within five hours using digital tools.
This speed is crucial for capturing market opportunities, particularly in sectors like textiles where global buyers often work with tight delivery schedules.
The export explosion
The numbers behind India's MSME export surge tell a remarkable story. From ₹4 lakh crore in FY21, MSME exports tripled to ₹12 lakh crore by FY25, with the number of exporting MSMEs rising proportionately.
That said, Garla identified significant barriers preventing even faster growth. Market access remains challenging despite improved financing, requiring more platforms such as Amazon and industry-specific solutions to connect buyers and sellers globally .
For the Vidarbha region in particular, textiles represent the primary export sector, but success requires investment in digital looms, CAD technology, and sustainable fabrics to align with global standards.
The innovation finance model
IDBI's approach extends beyond traditional lending into equity participation through sector-specific funds. Its Maharashtra Defence and Aerospace Venture Fund, for one, takes equity stakes in companies focused on import substitution, which is relevant given India's push for self-reliance in strategic sectors.
This dual approach of debt and equity financing addresses the complete capital structure needs of growing MSMEs, particularly those in capital-intensive sectors like heavy engineering.
Cash flow management
Despite improved access to finance, Garla identified cash flow management as the single biggest challenge facing Indian MSMEs. "Many businesses fail because they misuse short-term funds for long-term investments," he stated at the ET SME Summit, describing it as a "huge red flag" for bankers.
His prescription was straightforward: match funding duration with investment needs, invest in employee retention, and maintain personal financial diversification beyond business reinvestment.
Vidarbha's sectoral advantages
Nagpur's position as a logistics hub with excellent connectivity creates natural advantages for MSME growth. The presence of large textile manufacturers such as Raymond and the Trident Group has created an ecosystem supporting engineering, food processing, and related industries.
For seasonal businesses like food processing, IDBI offers customised repayment schedules aligned with cash flow patterns, allowing rice and dal mills to repay after harvest seasons rather than through fixed monthly installments.
The listing opportunity
A key growth avenue Garla highlighted is public market access through BSE SME IPOs. Many MSMEs have delivered 100% returns over five years, outperforming large-cap stocks, yet remain privately held.
"Just diluting 5% equity can unlock substantial value," he noted, describing listing as both a funding mechanism and a wealth creation tool for entrepreneurs and the broader economy.
To conclude
Garla's assessments at the ET Make in India SME Regional Summit- Nagpur suggests that financing constraints, long the primary barrier to MSME growth, are rapidly dissolving. The remaining challenges — market access, skilled workforce, and management sophistication — require different solutions.
His advice to entrepreneurs reflected this shift: embrace transparency with bankers, invest in global networking, and build shared infrastructure through industry associations to reduce individual costs while improving competitiveness.
As India positions itself in the ‘China Plus One’ manufacturing strategy, the transformation of MSME financing from collateral-based lending to cash flow-driven digital processes may prove to be the foundation for the next phase of industrial growth. The infrastructure is in place. The question now is whether Nagpur’s entrepreneurs can execute on the opportunities this new financial ecosystem provides.
The ET Make in India SME Regional Summits, ET MSME Day, and ET MSME Awards are flagship initiatives to celebrate the versatility and success of India’s MSME sector. If you lead or are part of a micro, small, or medium enterprise, register for the ET MSME Awards 2025 before August 31, 2025.
Source Name : Economic Times