MSMEs Can Strengthen Finances Through Registration, Digital Payments: RBI

Micro, Small, and Medium Enterprises (MSMEs) can improve their financial stability and credibility by registering formally, keeping precise financial records, and adopting digital payment systems to establish a transparent financial profile, stated Swaminathan J, Deputy Governor of the Reserve Bank of India (RBI).

Speaking at the CEO Forum hosted by the Federation of Telangana Chambers of Commerce and Industry in Hyderabad, he highlighted the importance of MSMEs adopting credit discipline. This begins with selecting credit products tailored to their specific needs and cash flow patterns, such as term loans, working capital loans, overdrafts, and invoice discounting. He advised businesses to align their borrowing with business cycles while avoiding excessive debt.

Swaminathan J also stressed that MSMEs should maintain a good credit score and focus on choosing suitable credit options while steering clear of over-leveraging. Enhancing operational efficiency through skill development, fintech integration, and mentorship from industry organizations is equally crucial. Furthermore, leveraging tools like the Trade Receivables Discounting System (TReDS) can help unlock liquidity, optimize cash flows, and strengthen trust with financial institutions.

Despite their critical role in the economy, MSMEs often face challenges in accessing timely and adequate credit due to issues like information gaps, limited formalization, and lack of collateral. According to the RBI’s Expert Committee on MSMEs, the sector faces a credit gap estimated at ₹20–25 trillion, emphasizing the urgent need for targeted measures to address these financial barriers.

“Many MSMEs lack adequate financial records or credit scores and often do not have sufficient collateral to secure the financing they need. This results in a significant mismatch between their credit requirements and the available supply. Five years ago, the RBI’s Expert Committee on MSMEs, chaired by U K Sinha, identified this credit gap, highlighting the critical need to remove financial constraints hampering this vital sector,” he concluded.