India’s parliamentary finance committee is advocating for broader deployment of bank-NBFC co-lending and TReDS platforms to address a $530 billion credit shortfall faced by micro, small and medium enterprises, amid concerns over limited formal credit access despite digital infrastructure.
India’s parliamentary finance committee is pressing for a broader rollout of bank-NBFC co-lending and the Trade Receivables Discounting System, better known as TReDS, as policymakers look for ways to narrow an estimated $530 billion credit shortfall facing micro, small and medium enterprises. The push reflects growing concern that, despite India’s digital finance infrastructure, too many smaller firms still struggle to obtain affordable formal credit. According to a Deloitte report cited by The Times of India, only 14% of MSMEs have access to formal loans, leaving the rest dependent on informal and often costly borrowing.
The committee’s recommendation builds on the central role MSMEs play in the economy. The Financial Express reported that the sector employs about 33.34 crore people across 7.55 crore registered enterprises, making it a crucial channel for growth, jobs and local investment. Co-lending, in which banks provide lower-cost funds and NBFCs bring their local reach and borrower knowledge, is seen as one way to extend credit to businesses that are too small or too unevenly documented for conventional bank lending.
TReDS is the other major plank of the proposal. Economic Times has reported that the platform, launched in 2017, lets MSMEs discount unpaid invoices and turn receivables into immediate cash, easing working-capital pressure. The committee wants the system to move beyond its current public-sector base and attract more private buyers, arguing that wider participation is needed if it is to become a meaningful fix for delayed payments.
For lenders, the opportunity is significant but so is the risk. Avendus Capital has estimated the MSME credit gap at $530 billion out of $819 billion of addressable demand, suggesting a large market remains untapped. But Moneycontrol reported that credit growth in the segment is likely to moderate in FY27 after a strong run, while the industry is also watching for signs of stress in unsecured and small-ticket lending. That means investors will be looking closely at quarterly results for any rise in delinquencies, credit costs or pressure on asset quality as banks and NBFCs scale up their exposure.
The broader policy message is clear: India wants MSME finance to become deeper, cheaper and more digital, but the success of that effort will depend on whether risk-sharing models can expand lending without weakening underwriting standards. That balance will determine whether co-lending and TReDS become structural solutions or remain only partial answers to a long-standing credit gap.
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.
