A suburban perspective on MSME loans in India: bridging the gap in lending with private sector banks

Abstract

Despite plethora of schemes and policies adopted by various financial institutions, banks and non-banking financial institutions are unable to penetrate suburban cities of India optimally (RBI, 2008; Demirgüç-Kunt, 2018; Kamath, 2007; Bhandari and Tripathi, 2015). In rural areas or semi-urban areas, there is a propensity to rely on public sector banks for individual as well as micro, small and medium enterprises (MSME) banking services. Private sector banks are not able to tap this market which is plagued by unorganized lenders (Sharma, 2011; RBI, 2008; NABARD, 2021). Through a pilot study, we explore the landscape of MSME loans through the lens of borrowers, weighing the offerings of private sector banks as the lenders. We explain the landscape of business loans for small and young enterprises, highlighting its growth potential in tier-II and tier-III cities of India.