Role of NBFCs on MSME Financing: A Special Reference of Credit Accessibility and Economic Growth

The role of Non-Banking Financial Companies (NBFCs) in financing Micro, Small, and Medium Enterprises (MSMEs) has become increasingly pivotal in the context of India’s economic growth. However, despite their potential, access to formal credit remains a significant challenge for many MSMEs due to stringent lending norms and collateral requirements imposed by traditional banks. This study explores the impact of NBFCs in addressing these challenges and facilitating better credit accessibility for MSMEs. Through a comprehensive analysis of existing literature, case studies, and secondary data from MSME annual reports and NBFCs data, the study examines the role of NBFCs in bridging the credit gap, their lending practices, and their influence on MSME growth. It evaluates how NBFCs, with their more flexible and innovative financial products, have contributed to enhancing financial inclusion for MSMEs, especially in underserved sectors and regions. Additionally, the study investigates the economic implications of this financing, including the potential for job creation, increased productivity, and overall contribution to national economic growth. The findings suggest that NBFCs have significantly improved credit access for MSMEs, particularly in rural and semi-urban areas, where traditional banking institutions are often underrepresented. By providing customised financial products and services that cater to the unique needs of MSMEs, NBFCs not only support their growth but also promote economic dynamism. However, challenges such as high interest rates, regulatory constraints, and limited risk appetite among some NBFCs are identified as areas requiring attention for sustainable growth.