MSME Lending in India
This article draws on the expertise of Ayush Challani, Senior Vice President and Head of Lending at Loan Frame, who brings over a decade of experience in business lending and supply chain finance. Ayush is recognized for his leadership in zero-to-one journeys, with a strong background in sales processes, go-to-market (GTM) strategy, and implementing innovative financial solutions that align with organizational goals. The article addresses the ongoing underpenetration of MSME credit in India, with Ayush Challani highlighting significant unmet demand among MSMEs—particularly those with turnovers between 50 lakhs and 5 crores, limited collateral, or shorter business histories. It explores how embedded supply chain finance, invoice financing, and anchor-led lending are providing new working capital solutions for MSMEs, especially in tier 2 cities and sub-dealer ecosystems. The transformative role of AI in MSME credit underwriting is discussed, with Ayush emphasizing the continued importance of human judgment in credit assessment. Key risks in digital lending, such as fund diversion, are analyzed alongside sustainable growth strategies, including prudent sector selection and robust risk management. Readers will gain actionable insights into MSME lending opportunities, digital innovation, and sustainable growth, guided by Ayush Challani’s hands-on experience and strategic vision in shaping India’s lending landscape.
Q1. With MSME credit still significantly underpenetrated in India, where do you see the biggest unmet demand for business lending today, and which borrower segments offer the strongest opportunities for lenders?
Unmet Demand – 50 Lacs to 5 Cr Turnover range MSMEs, No -Collateral to offer customers, Vintage issue when a new GST or new firm has been started
Borrower Segments – Above segments having a history of loans reflected in CIBIL, end-use controlled lending like Invoice finance, in which risk is controlled even for a new Firm.
Eg: A new dealer for TVS Motors taking Inventory finance, in which payment goes to TVS account, and borrower repays on due date.
Q2. How is embedded supply chain finance changing the way MSMEs access working capital, and where do you see the strongest opportunities across invoice financing, TReDS and anchor-led lending?
Due to product structure and controlled risk, MSMEs who won't get unsecured loans are getting working capital through SCF, anchor-led, and even TReDS. TReDS-led platforms are helping these MSMEs unlock their blocked funds without even a loan process.
Strongest Opportunity: Tier 2 locations and the sub-dealer segment below a large distributor, which is under–penetrated. Similarly, unrated borrowers and anchors have …
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