India’s micro, small, and medium enterprises (MSMEs) have always been the backbone of the nation’s economy, contributing nearly 30% to GDP and employing over 110 million people as of 2025. Yet, despite their economic weight, MSMEs have historically been the most underserved segment in India’s financial landscape. Lack of access to formal credit, outdated business practices, and minimal digitalization have kept these businesses vulnerable. Now, fintech startups claim they have the solutions—but can they genuinely empower MSMEs, or are they simply selling false hope?
The Reality Check: MSMEs Still Starved for Credit
According to a 2025 SIDBI report, the credit gap faced by Indian MSMEs stands at nearly ₹25 trillion ($320 billion). Traditional banks remain hesitant, viewing small businesses as inherently risky, leaving MSMEs to rely on informal, high-interest lenders that stunt their growth.
Enter fintech companies like Lendingkart, Indifi, and NeoGrowth, which leverage technology-driven alternative data—such as transaction histories, GST filings, and digital payments—to assess creditworthiness. These platforms disbursed over ₹80,000 crores ($10 billion) in loans in 2024-2025 alone, a tenfold increase compared to just five years prior. This rapid growth shows promise, but the crucial question remains: Are fintech loans genuinely sustainable, or could they trigger an MSME debt crisis if improperly managed?
Digital Payments: Real Empowerment or Temporary Fix?
The Unified Payments Interface (UPI) has already transformed India’s payment landscape, clocking transactions worth ₹170 trillion in 2024 alone. For MSMEs, fintech companies like BharatPe, PhonePe, and Paytm are game-changers, enabling even street vendors and kirana stores to easily accept digital payments.
Yet, payments alone don’t guarantee sustained growth. Fintech must move beyond payments to integrate MSMEs into broader digital ecosystems—combining payments with inventory management, tax compliance, and digital marketing. Platforms like KhataBook and OKCredit are making strides here, digitizing millions of small businesses and enabling more organized operations. However, unless MSMEs truly adopt these tools for long-term planning rather than mere transactions, digital payments alone won’t solve deeper structural issues.
Embedded Finance and Digital Marketplaces: A Lifeline for Small Businesses?
The rise of embedded finance is creating powerful opportunities for MSMEs. E-commerce platforms such as Flipkart, Amazon India, and Meesho now offer integrated fintech solutions—credit lines, supply-chain financing, and even insurance directly at checkout. This seamless approach unlocks vital working capital for businesses previously excluded by formal banks.
In fact, embedded financing solutions reached nearly ₹35,000 crores in disbursements through Indian e-commerce platforms in 2024 alone. But embedded finance can also create hidden risks, pushing businesses toward over-leveraging if not regulated carefully. Are MSMEs equipped to manage these easy-to-access financial products responsibly, or will embedded finance ultimately trap them in deeper debt cycles?
Fintech for Financial Literacy: The Missing Piece?
For fintech solutions to truly empower MSMEs, financial literacy and digital education are non-negotiable. Studies in 2025 show nearly 65% of Indian MSMEs still struggle with basic digital skills, limiting their ability to leverage fintech fully. Companies like Instamojo, Zoho, and Tally are now investing heavily in educational initiatives to bridge this gap, offering online training, webinars, and workshops tailored specifically for small businesses.
But is this enough? Without coordinated industry-wide efforts backed by government policy, financial literacy initiatives risk being fragmented, inconsistent, and ineffective. True digital transformation demands far more than occasional webinars—it requires structured, continuous training and genuine commitment to long-term capacity building.
Regulatory Roadblocks: Is India’s Policy Framework Ready?
Even the best fintech innovations face serious challenges without a supportive regulatory framework. India’s regulators, including RBI and SEBI, have made promising strides—such as introducing digital lending guidelines and easing compliance burdens—but significant barriers remain. Complex GST rules, inconsistent state-level policies, and slow dispute resolutions continue to frustrate MSMEs and fintech startups alike.
Without streamlined, MSME-friendly regulatory frameworks, fintech risks hitting a glass ceiling—limiting how effectively it can support genuine MSME growth.
The Final Verdict: Fintech as a Catalyst—Not a Cure-All
Fintech unquestionably offers powerful tools to unlock India’s MSME potential. Innovative lending platforms, integrated digital payment solutions, embedded finance models, and targeted digital education initiatives have already begun transforming the landscape. Yet, the journey toward genuine MSME empowerment is far from complete.
Ultimately, fintech can indeed catalyze real change—but it’s no silver bullet. For MSMEs to truly thrive, fintech innovations must be accompanied by comprehensive financial literacy programs, prudent risk management practices, and a supportive regulatory environment.
India’s MSMEs now stand at a pivotal crossroads: Will fintech deliver on its promises, driving sustained, inclusive economic growth—or will it become another flashy innovation that misses the mark?
The answer depends on how responsibly fintech startups, regulators, and MSMEs themselves approach the next critical steps. The tools are available. The stakes are high. Now it’s up to all stakeholders to ensure fintech truly unlocks growth, empowering India’s MSMEs—not just temporarily, but sustainably for decades to come.
Article by The Financial
