Nexus between credit conditions, financial literacy, and loan accessibility among Indian MSMES

Abstract

We examine the interplay among commercial bank loan terms, financial literacy, and formal loan accessibility for micro, small and medium enterprises (MSMEs). Despite recent strides in integrating MSMEs into commercial bank portfolios via micro-lending initiatives, persistent challenges hinder their access to formal credit. Drawing from empirical data and existing literature, this study explores the nuanced impacts of loan terms and financial literacy on SMEs’ ability to secure formal loans. Addressing gaps in prior research, we concurrently analyse borrower characteristics and credit regulations’ influence on formal loan accessibility.