Why Embedded Finance Will Quietly Reshape India’s MSME Sector

“The future of finance isn’t at the bank. It’s right where the transaction begins.”

Act I: The Past - MSMEs and the Persistent Financial Gap

India’s 63 million+ Micro, Small, and Medium Enterprises (MSMEs) are the backbone of the economy, contributing around 30% to GDP and employing over 110 million people. Yet, these businesses face a staggering credit gap-estimated at $540 billion-with only about 14% able to access formal credit. Traditional banks and NBFCs, hampered by rigid processes and legacy systems, have not been able to meet MSMEs’ dynamic needs, leaving most businesses under-served and reliant on informal sources.

Act II: The Present - Embedded Finance Moves from Hype to Habit

Embedded finance-the integration of financial services like payments, credit, or insurance directly into non-financial platforms-has quietly transformed how MSMEs access capital and manage operations. Instead of seeking out banks, MSMEs now find finance seamlessly woven into the digital tools they already use: e-commerce platforms, ERP systems, payroll software, and even ride-hailing apps.

India’s Embedded Finance Market: 2025 Outlook

The market for embedded finance in India is experiencing explosive growth, especially across three core segments:

Segment Market Size (2025) CAGR

Embedded Lending $25B 38–40%

Embedded Payments $20B 36%

Embedded Insurance $15B 35%

This rapid expansion is being driven by the digitization of supply chains, e-commerce adoption, and the integration of financial products directly into business workflows. MSMEs can now access instant inventory credit on B2B marketplaces, offer Buy Now, Pay Later (BNPL) at the point of sale, or enable real-time salary disbursement through HRMS platforms-all within their existing digital workflows.

What’s crucial is that MSMEs are not just signing up for “loans” or “insurance”-they’re adopting growth enablers embedded in their daily operations, often without even realizing they’ve entered the formal financial system.

Act III: The Future - Contextual, Data-Driven Empowerment

Embedded finance is set to unlock the next phase of MSME empowerment, making financial access hyper-personalized, contextual, and invisible:

• Tailored Products: AI-driven platforms are leveraging real-time business data to offer credit, insurance, and liquidity solutions designed for each MSME’s unique needs.

• Just-in-Time Capital: Working capital for inventory, logistics, or vendor payments will be embedded into supply chain platforms, reducing cash flow stress and delays.

• Employee Well-being: Earned wage access and embedded insurance within payroll systems can help MSMEs reduce employee attrition and financial stress.

• Wider Inclusion: By integrating with digital marketplaces and payment gateways, MSMEs can expand their reach and access new sales channels, further fuelling growth.

Government initiatives like India Stack, UPI, and OCEN have laid the digital foundation, ensuring that embedded finance is not just a trend but a foundational shift for MSMEs.

Act IV: The Quiet Revolution

This transformation is happening quietly, dissolving barriers and making finance accessible at the point of need for millions of MSMEs. The next “bank” for an Indian MSME won’t be a branch-it will be the app they already use to manage inventory, pay employees, or sell online.

As embedded finance matures, MSMEs will spend less time navigating bureaucracy and more time building their businesses. The winners will be those platforms and fintechs that prioritize seamless integration, agility, and customer-centricity.

Closing Thought

India’s MSME sector is entering a new era-one where finance is no longer a separate destination but an invisible layer, always present at the point of need. Embedded finance isn’t just a technological leap; it’s a commitment to making growth, resilience, and opportunity accessible to every enterprise, big or small. The quiet revolution is already underway-let’s build on it.

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