India's MSMEs Defy Global Headwinds, Fueled by Record Credit Growth

MUMBAI, India – January 22, 2026 – India's vast network of Micro, Small, and Medium Enterprises (MSMEs) is demonstrating remarkable resilience, expanding credit uptake and driving economic growth despite facing significant global trade pressures, according to a major new report. The 4th edition of the MSME Sampark Report, released by DataTech lender UGRO Capital and global data analytics firm Dun & Bradstreet, paints a picture of a sector that, while strained by external factors, is being fortified by a surge in domestic demand, easier access to finance, and a powerful formalization wave.

The comprehensive report, which analyzed over 73,000 firms and surveyed more than 5,000 MSMEs nationwide, highlights a critical divergence: while global challenges like US tariffs and competition from low-cost Chinese imports are squeezing margins in key export-oriented sectors, the domestic story is one of burgeoning confidence and growth.

A Tale of Two Economies: Domestic Strength vs. Global Strain

The Indian MSME sector, often called the backbone of the nation's economy, is navigating a complex dual reality. On one hand, global trade disruptions are casting a long shadow. The report confirms that micro-enterprises in manufacturing, particularly in auto components, chemicals, electrical equipment, and light engineering, experienced a broad revenue decline in Fiscal Year 2024. This slowdown is attributed to a combination of weak global demand, supply chain uncertainties, and intensified competition from an influx of cheaper Chinese goods.

Sectors heavily reliant on exports, such as textiles, gems and jewelry, and agri-marine products, are feeling the direct impact of tariff pressures. This has dampened export sentiment and put pressure on revenue margins for countless small firms with limited capacity for market diversification. According to Dr. Arun Singh, Global Chief Economist at Dun & Bradstreet, this has led to a moderation in overall business optimism. "Dun & Bradstreet's Global Business Optimism Index (GBOI) reflects a moderation in overall business optimism for India's small and medium businesses, as they continue to adjust to a challenging trade environment," he stated.

However, this external gloom is sharply contrasted by a bright domestic outlook. The report underscores a pivotal shift as Indian MSMEs turn their focus inward. "Anticipation for future domestic orders rose amongst Indian MSMEs, signalling strengthened optimism in the domestic economic environment, supported by robust industrial output, and a supportive price environment," Dr. Singh added. This domestic pivot is a cornerstone of the sector's resilience, with its contribution to India's GDP rebounding significantly from a post-pandemic low of 27.3% in FY21 to approximately 30% in FY25, a figure supported by analysis from government bodies like NITI Aayog.

The Credit Lifeline: NBFCs and Formalization Fuel Growth

Perhaps the most compelling evidence of the sector's underlying strength is its thriving credit ecosystem. A staggering 83% of MSMEs surveyed for the report stated they faced no difficulty in accessing credit. This boom in financing is being led not by traditional banks, but by more agile Non-Banking Financial Companies (NBFCs), which are emerging as the preferred partners for small businesses.

Shachindra Nath, Founder & Managing Director of UGRO Capital, commented on this transformation. "Despite global trade challenges and sectoral headwinds, India's MSME ecosystem remains resilient and forward-looking. Encouragingly, 83% of MSMEs surveyed reported no difficulty in accessing credit, with NBFCs emerging as their preferred financing partners, further validating our collective efforts to formalize and simplify small business lending."

This credit expansion is quantifiable and robust. Credit growth to micro and small enterprises surged 12% year-over-year, outpacing the growth for medium enterprises. Data from the Reserve Bank of India further confirms this trend, showing overall MSME credit growing by 14.1% in FY25, with its share of total bank lending hitting an all-time high. This financial infusion is intrinsically linked to a massive government-led push for formalization. Udyam registrations, which bring small businesses into the formal economy, jumped 18% in just nine months of 2025, from 58.46 million to 68.85 million. By the end of 2025, total registrations had crossed 73 million, granting these enterprises access to institutional credit, government schemes, and new market opportunities.

Navigating a Turbulent World with Policy and Strategy

Recognizing both the sector's importance and its vulnerabilities, Indian policymakers have deployed a multi-pronged strategy to shield MSMEs from global shocks and foster domestic growth. The effectiveness of the government's credit guarantee schemes, such as the CGTMSE, was highlighted by Dr. Singh as a key factor in bolstering credit disbursement. The Union Budget for 2023-24 infused ₹9,000 crore into the scheme, aiming to unlock an additional ₹2 lakh crore in collateral-free credit.

Beyond credit, strategic upgrades to the Production-Linked Incentive (PLI) scheme are designed to strengthen domestic manufacturing supply chains, making them less susceptible to external disruptions. This, combined with GST rationalizations aimed at boosting domestic demand and monetary policy that has supported liquidity, forms a crucial buffer. These measures are part of a broader global trend, with countries like Thailand, Brazil, and China also rolling out targeted support—from export guarantees to digital upskilling—to help their own small businesses navigate the choppy waters of international trade.

The Digital Frontier in Small Business Finance

The rapid evolution of India's MSME credit landscape is being supercharged by technology. DataTech NBFCs like UGRO Capital are at the forefront of this revolution, leveraging artificial intelligence, machine learning, and vast data sets to underwrite loans for businesses previously considered too risky or difficult to assess. Proprietary credit scoring models and digital platforms for supply chain financing and co-lending are making finance faster, more transparent, and more accessible than ever before.

This tech-driven approach is not merely a convenience; it is a fundamental enabler of the resilience and formalization documented in the report. By providing on-tap financing, these platforms empower small businesses to seize growth opportunities, manage cash flow more effectively, and integrate into the formal economy. As India pursues its 'Viksit Bharat by 2047' vision, the synergy between policy support, domestic economic strength, and technological innovation in finance will be paramount. Mr. Nath emphasized the path forward, stating, "it is essential for all stakeholders, banks, NBFCs, policymakers, and entrepreneurs to work together in creating a transparent, responsible, and technology-driven credit ecosystem that enables every small business to grow with confidence and purpose."