Offering insights into opportunities for strengthening access to formal finance, the Survey stated that there is scope for improvement in the provision of formal finance for small-ticket loans.
In an effort to get the informal sector into the mainstream economy, the Economic Survey 2025-26 acknowledged the sustained government efforts to broaden financial inclusion and strengthen the MSME credit ecosystem. “Initiatives such as the Pradhan Mantri Jan Dhan Yojana, credit guarantee frameworks, interest subvention schemes, and the MUDRA Yojana have played a significant role in expanding banking outreach and improving access to formal credit for unincorporated enterprises,” it stated. It added that in recent years, access to finance for unincorporated enterprises has improved considerably. According to the Annual Survey of Unincorporated Sector Enterprises (ASUSE), the average outstanding loan per unincorporated non-agricultural establishment increased from Rs 50,138 in 2022-23 to Rs 53,710 in 2023-24, reflecting a growth of 7.125.
Such expansion in credit availability, it said, has also been accompanied by a gradual shift towards formal financing channels. “The share of unincorporated manufacturing establishments accessing formal sources of credit rose from 48% in 2021-22 to 51% in 2023-24. Further, this shift towards formal sources has also helped reduce the interest burden (measured as interest payable during the reference period as a proportion of outstanding loans) for establishments,” it said. The Survey provided further insights into opportunities for strengthening access to formal finance, noting that there is scope for improvement in the provision of formal finance for small-ticket loans. “On the demand side, micro and small enterprises often seek small working-capital loans but face barriers such as limited documentation, weak or thin credit histories, the absence of formal banking relationships, and low levels of financial literacy. On the supply side, formal lenders face disincentives in serving this segment due to low profit margins, high transaction and monitoring costs, heightened risk perceptions, and credit products that are often not tailored to the operational needs of these enterprises. Consequently, enterprises continue to rely on informal sources despite their relatively higher costs,” it added.
The Survey revealed how the government has initiated several interventions recognising the distinct credit requirements of unincorporated enterprises. “Credit Guarantee Schemes for MSMEs, treatment of bank loans disbursed to MFI under priority sector lending (PSL), creation of special category of NBFC-MFI (non-deposit-taking NBFC which has a minimum of 75% of its total assets deployed towards microfinance loans), and PSL guidelines, which mandate a sub-target of 7.5% of banks’ adjusted net bank credit for micro enterprises,” it said.
