India's micro, small, and medium enterprises (MSMEs) play a crucial role in the economy, contributing over 30% of the GDP and 44% of exports. However, the credit penetration for MSMEs in India is alarmingly low at only 14%, compared to 50% in the United States and 37% in China. This gap has resulted in an existing credit shortfall exceeding $170 billion, with projections indicating that working capital needs could surpass $570 billion by 2027. To address this issue, the U.S. Small Business Administration (SBA) and India's Ministry of MSMEs signed a memorandum of understanding (MoU) on August 13, 2024, aimed at enhancing MSME participation in the global marketplace, which is expected to indirectly support credit access as well.
In a significant development, South Korea and the U.S. launched the Capacity Strengthening for Women Social Entrepreneurs programme on September 6, 2024. This initiative focuses on women's economic empowerment, disaster and climate resilience, digital literacy, and trilateral cooperation, building on a MoU signed in February 2024. The program aims to create a sustainable ecosystem for women entrepreneurs in India, which is vital given that women-led businesses often face additional barriers to accessing credit and resources. Key attendees included Lim Sang Woo (Korean Deputy Chief of Mission), Woo Chan Chang (KOICA Country Director), Jorgan Andrews (US Deputy Chief of Mission), Alexandria Huerta (USAID Acting Mission Director), and Mercy Epao (Joint Secretary of MSME). Participants will visit Seoul, Suwon, and Busan to learn about social enterprises, further enhancing their skills and networks.
In Bangladesh, women entrepreneurs face significant challenges in accessing finance for online businesses due to a lack of physical setups and property for collateral. Currently, only 7.2% of businesses in Bangladesh are owned by women, with just 95,000 out of 1.3 million retail micro-merchants being female. Siddikur Rahman from UN Women highlights the negative perceptions and gender-specific challenges that hinder women entrepreneurs. The WING project, running from November 2020 to December 2024, aims to enhance women's economic participation, but social barriers and market unfriendliness further complicate their efforts. Although initiatives exist to support women entrepreneurs, they are often poorly promoted and lack sufficient outreach.
The MoU between the SBA and India's Ministry of MSMEs emphasizes investment, commercialization, supply chains, and trade opportunities, and highlights the importance of integrating small businesses into the green energy transition while promoting women's entrepreneurship. This initiative is expected to create a more inclusive economic environment, which may further encourage lending institutions to invest in MSMEs. Additionally, the Priority Sector Lending (PSL) guidelines mandate banks to allocate at least 40% of their Adjusted Net Bank Credit to priority sectors, including MSMEs, which is a significant step towards bridging the credit gap.
Recent trends indicate that nearly three-quarters of small businesses utilizing embedded lending are accessing larger credit lines. Embedded lending integrates credit options directly into purchase platforms, allowing small and medium-sized businesses (SMBs) to secure credit more efficiently. A report from PYMNTS highlights that 100% of lenders in the U.S., U.K., and Australia find real-time data crucial for lending decisions, with 93% of U.S. lenders having access to this data. Satisfaction rates among businesses using embedded lending are high, with 72% expressing strong satisfaction. However, microbusinesses tend to be more reluctant to share data, which can limit their access to tailored credit options. MoneyLion, a financial services marketplace, connects nearly 19 million customers to over 31 million financial products and has seen a 17% growth in its enterprise business in Q3 2024, indicating a rising demand for embedded lending solutions as interest rates decline.
In response to the challenges faced by MSMEs, several strategies have been proposed to enhance credit access. The MSME Emergency Credit Line Guarantee Scheme, which disbursed over ₹3 lakh crore during the COVID-19 pandemic, has been a vital lifeline for many businesses. Furthermore, the Open Credit Enablement Network (OCEN) is being developed to streamline and improve credit access for MSMEs. A dedicated bank for MSMEs is also under consideration, which could provide tailored financial products to meet their unique needs.
Collaboration among banks, non-banking financial companies (NBFCs), and fintech firms is essential to effectively bridge the credit gap. By working together, these institutions can create innovative lending solutions that cater specifically to the requirements of MSMEs, thereby fostering economic growth and stability in the sector. As the U.S., South Korea, and India strengthen their economic ties through initiatives like the recent MoUs, the focus on empowering MSMEs and women entrepreneurs will be crucial for both nations' economic futures.