• MSMEs hold immense potential in supporting India's ambitious vision of a $40 trillion economy by 2047, says industry body Assocham.
• Banks can fund MSME working capital requirements against GST filings, suggests Assocham.
• Another suggestion is to come up with a similar structure of REITs and InVITs, an investment trust that lends specifically to MSMEs via pooling.

The micro, small and medium enterprises (MSME) sector has played a meaningful role in India's growth.

The sector holds immense potential in supporting India's ambitious vision of a $40 trillion economy by 2047, says a report by industry body Assocham.

However, the real struggle for small businesses lies in fundraising for future growth. The report highlighted challenges faced by MSMEs in terms of fundraising and recommended ways to solve the problem.

"An April 2022 report by the Standing Committee on Finance estimated the credit gap in the MSME sector to the tune of ₹20-25 trillion. Therefore, funding via alternative sources apart from bank credit needs to be augmented for the MSME segment", said the report.

Given that nearly 60% of MSMEs raise funds through informal sources, formalization of the sector is necessary to facilitate growth, the industry body says.

"To this end, banks could fund working capital requirements against GST filings, which are more reliable quantitatively, as compared to collateralized loans. This would not only enable MSMEs easy access to funds but also spur formalization through GST registrations", Assocham said.