As India’s lending landscape for micro, small and medium enterprises tightens, industry experts believe that strengthened regulations and digital innovations could pave the way for more inclusive and efficient credit access for small firms.
The regulatory outlook for lending to micro, small and medium enterprises is tightening, but that may ultimately help the sector. In an interview with Business Standard, FlexiLoans co-founder said the industry’s credit shortfall remains vast, and argued that only formal, well-capitalised lenders can close it at scale. The point is reinforced by a recent Moneycontrol report citing a finance committee that urged a bigger role for bank-NBFC co-lending and a wider rollout of the Trade Receivables Discounting System, or TReDS, to ease access to finance.
That broader policy direction comes as lenders, regulators and borrowers all show more interest in flexible working capital rather than conventional term loans. The case for that model is straightforward: small firms do not manage cash in a neat monthly rhythm, and seasonal businesses often need short bursts of funding rather than long repayment schedules. Industry material from working-capital providers such as Silvr, GSCF and Kyriba describes the same shift, with products designed around overdrafts, credit lines, supplier payments and liquidity management rather than fixed amortising debt.
For that approach to work better in India, the co-founder said lenders need cleaner cash flow-based underwriting, lower funding costs and greater transparency. That means drawing on digital data rails such as account aggregators, GST records and UPI trails to assess business performance more accurately, while using bank partnerships to bring down the cost of capital. The underlying idea is that credit should be easier to use, not more complex.
The Reserve Bank of India’s scrutiny of revolving credit could shape how far that market expands. The lender welcomed the effort to stop evergreening and strengthen borrower protection, but warned that regulators should distinguish between poorly controlled perpetual lines and properly underwritten facilities linked to actual business cash flows. The final rules, still under consultation, will need to balance tighter supervision with continued access to day-to-day funding for MSMEs.
Delayed payments remain another major strain on smaller firms. The interview highlighted the role of the 45-day payment norm, penal interest and the tax consequences under Section 43B(h), along with the growing use of TReDS and a 2026 amendment that would route more public-sector payments through the platform. Yet the larger problem, the company argued, is not the law on paper but weak enforcement and limited awareness. Against that backdrop, FlexiLoans says its own growth is being driven by co-lending, embedded partnerships, broader reach into Tier II to Tier IV markets and AI-led underwriting, while maintaining a focus on asset quality and profitability.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
