How Banks Can Enable MSME Growth

Micro, Small, and Medium Enterprises (MSMEs) are vital to economic growth, job creation, and innovation. However, they often struggle with competitiveness, especially when they lack access to formal credit or operate without digital tools. Banks are uniquely positioned to enable MSME success by evolving to meet their specific needs.

Here are five ways banks can play a critical role in enhancing MSME competitiveness:

1. Facilitate MSME Digital Transformation: Many MSMEs still rely on manual processes, limiting their ability to scale, access financial services, or compete in larger markets. Banks can be the driving force behind MSME digitalization by offering digital solutions. These may include store management platforms, digital ledgers, e-invoicing systems, digital marketing, payroll and expense management tools, tax return filing services, and more. By providing these tools, banks can help MSMEs transition into the digital economy, boosting their operational efficiency, market reach, and resilience.

2. Connect MSMEs to India’s Open Digital Commerce Network (ONDC): ONDC is a transformative initiative that democratizes digital commerce by bringing small businesses online. Banks can help MSMEs access ONDC, enabling them to reach wider markets and unlock new revenue streams. By facilitating ONDC connectivity, banks support MSME growth and become key partners in their digital journey. ONDC empowers MSMEs to compete nationally, leveling the playing field.

3. Unlock the Power of Advanced Analytics: Banks possess vast amounts of MSME financial data, but much of it remains siloed. By first integrating this data—such as transaction histories, supplier payments, and usage of digital banking tools—banks can then apply advanced analytics to gain deeper insights into the financial health of each MSME. This comprehensive view enables banks to better understand individual business needs.

4. Leverage Data for Personalized Financial and Value-added Services: With a deeper understanding of their MSME clients, banks can provide more personalized banking and value-added services. For example, tailored lending options, business advisory services, or specialized savings and investment accounts can be offered based on each MSME’s unique profile. This data-driven personalization helps banks not only meet the specific needs of MSMEs but also strengthen long-term relationships with their clients, enhancing loyalty and trust.

5. Offer Cash-Flow-Based Credit: Traditional lending models that rely on collateral often leave MSMEs underserved. Many lack the fixed assets or formal credit history required to secure loans. To address this, banks should adopt cash-flow-based lending that assesses real-time transaction histories, supplier payments, and overall business performance to determine creditworthiness. By moving away from collateral-based lending, banks can extend credit to MSMEs more easily, providing them with working capital to fuel growth. This approach is especially beneficial for MSMEs without formal financial histories, enabling them to scale and compete effectively.

What’s in It for Banks? Evolving to serve MSMEs better offers significant benefits for banks. By enhancing MSME competitiveness through digital solutions, data analytics, and innovative lending models, banks can unlock new revenue streams and foster lasting customer relationships. Successful MSMEs drive economic growth, providing banks with a more diversified and stable customer base. In an innovation-driven world, banks that adapt to MSME needs will strengthen their relevance and ensure long-term profitability.

The EPS MSME Digital Platform is designed to empower banks in their mission to support and grow MSMEs. To learn more, write to us at sales@electronicpay.in.

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