TReDS Sparks MSME Optimism, But India’s ₹25 Lakh Crore Credit Gap Remains a Tough Hurdle

India’s micro, small, and medium enterprises (MSMEs) are facing a daunting ₹25–30 lakh crore credit gap, with only 14–20% of the sector having access to formal finance despite their outsized role in GDP and exports. The Trade Receivables Discounting System (TReDS) has emerged as a beacon of hope, enabling MSMEs to unlock working capital by discounting invoices digitally. Yet, systemic barriers continue to hold back its full potential.

 

TReDS Gains Traction:

Platforms like M1xchange have seen explosive growth, processing over ₹78,000 crore in FY25 and onboarding 20,000+ MSMEs and 1,000 corporates. Mandatory registration for large firms (turnover above ₹250 crore) is driving adoption, and invoice discounting volumes soared 150% in H2 FY25.

 

Persistent Credit Gap:

Despite TReDS’ success, India’s MSME sector still faces a ₹25–30 lakh crore shortfall, with only a fraction of the 6.19 crore MSMEs able to access formal loans. Micro-enterprises, which comprise 99% of the sector, are especially excluded due to lack of collateral, formal documentation, and digital literacy.

 

Structural Challenges:

Traditional lenders view MSMEs as high-risk due to informal operations and weak credit histories. Only 18% of MSMEs have used digital lending, and 35% remain unregistered, limiting their eligibility for digital finance.

 

Sectoral Disparities:

The credit gap is sharpest in trading (33%), services (27%), and manufacturing (20%), with women-owned and service MSMEs most affected.

 

What’s Needed:

Experts urge a digital-first approach, sector-specific policies, and greater fintech-bank collaboration to truly bridge the gap. Scaling digital lending, improving MSME formalization, and expanding TReDS’ reach are critical for India’s growth story.

 

Sources: Policy Circle, M1xchange, The Hindu Business Line, Economic Times, Business World