India's MSME sector faces a credit gap of ₹25-30 lakh crore according to RBI estimates. Despite contributing 30% to GDP and employing 11 crore people, MSMEs receive only 17-18% of total bank credit. RBI's 2023 report highlights that 51% of MSMEs remain financially excluded. Key interventions include Priority Sector Lending targets (40% for domestic banks), Credit Guarantee Fund Trust for Micro and Small Enterprises, and Emergency Credit Line Guarantee Scheme launched during COVID-19, benefiting over 1.3 crore accounts.

The MSME credit gap represents the fundamental disconnect between India's growth aspirations and financial inclusion reality. While MSMEs form the backbone of Indian manufacturing and services, their access to formal credit remains severely constrained due to lack of collateral, poor credit history, and banks' risk aversion toward small borrowers. RBI data reveals that credit flow to MSMEs grew at only 9.9% CAGR during 2015-20, significantly below the sector's growth potential. This gap forces MSMEs into informal lending markets with exorbitant interest rates, limiting their expansion and technological upgradation. Policy interventions like ECLGS provided temporary relief during pandemic but structural issues persist. The credit gap impacts India's manufacturing competitiveness globally, limits job creation potential, and widens rural-urban economic disparities. Recent initiatives focus on technology-driven solutions like Account Aggregator framework and alternative credit scoring models using GST data and digital footprints to bridge this gap systematically.