How Expanding Digital Access Can Fuel Credit and Commerce for MSMEs in India

India's digital economy is on a fast track, projected to reach $7 trillion by 2030, driven by the rapid adoption of online services like e-commerce. However, for this transformation to be truly inclusive, MSMEs (Micro, Small, and Medium Enterprises) must be integrated into the digital framework. Despite being the backbone of the country's GDP, MSMEs face limited market reach and a persistent credit gap, restricting their growth potential. Hence, expanding digital access—particularly in finance and commerce—can help bridge these gaps, creating a more resilient and competitive MSME sector.

To accelerate this transition, India has undertaken key initiatives like the India Stack Initiative 2.0, a robust digital infrastructure that revolutionizes how MSMEs access credit, markets, and business networks. Moreover, digital payment systems, especially UPI, have already demonstrated their impact—today, they account for over 80% of retail digital payments in India, making transactions seamless and reducing reliance on cash. This shift directly influences MSME creditworthiness by creating digital financial footprints that improve access to formal lending.

ONDC shaping e-commerce for MSMEs

Adding to the list of initiatives, Open Network for Digital Commerce (ONDC) is reshaping commerce for MSMEs. By creating an open and inclusive digital marketplace, ONDC eliminates the constraints of closed ecosystems, allowing small businesses to engage with a nationwide customer base without being dependent on monopolistic platforms. This shift fosters innovation, cost efficiency, and fair competition, ensuring that MSMEs can compete equally with larger players.

For example, a local handicraft artisan selling handmade pottery can now be found across various platforms integrated with ONDC. A consumer searching for handcrafted home decor can see listings from artisans in different regions and choose to buy directly from a nearby seller, ensuring faster delivery while supporting local businesses. This decentralized approach enhances market accessibility, allowing small-scale producers to compete with larger brands and benefit from direct-to-consumer commerce, ultimately strengthening MSME participation in the digital economy.

The growing adoption of ONDC reflects its impact. As of 2024, 535,000 sellers across 1,200 cities are part of the ONDC ecosystem, with MSMEs making up 84% of the sellers and contributing to 56% of total orders. This highlights how digital access enhances visibility for small businesses and provides new opportunities in a competitive market. To further improve this shift, the Ministry of MSME has launched the MSME Trade Enablement and Marketing (MSME-TEAM) Initiative, which aims to support 500,000 MSMEs onboarding the ONDC platform. This initiative seeks to equip small businesses with the knowledge and tools to navigate digital commerce effectively.

Solving the financial gap equation

Bridging the credit gap for MSMEs requires active participation from service providers, especially in an increasingly digital-first economy. Financial service providers offer diverse solutions, such as an integrated omnichannel financial services platform, to minimize this gap. By unifying banking, payments, credit, and financial management tools, it addresses challenges like fragmented financial data, limited credit history, and complex loan applications.

By aggregating data from UPI transactions, GST filings, e-commerce sales, and supply chain payments, these platforms offer financial institutions a comprehensive risk assessment framework, enabling them to extend personalized credit solutions based on real-time business performance. Additionally, alternative lending models such as Buy Now, Pay Later (BNPL), invoice discounting, and embedded finance provide businesses with timely access to funds, ensuring smoother cash flow and growth opportunities.

Encouragingly, MSMEs are recognizing the value of digital transformation beyond payments. Their priorities indicate a structured approach, including workspace digitalization, business process optimization, and customer-centric digital adoption. This suggests that MSMEs focus first on enhancing productivity, then streamlining operations, and finally, leveraging digital tools to lead the overall business objective.

Thinking brim

The MSME sector, with its vast reach and significant contribution to India's economy, is positioned at the heart of the country's growth ambitions. As India strives toward becoming a $7 trillion economy by 2030, the digital transformation of these businesses will be key to unlocking their full potential. The question remains: how do the benefits of digital access, from credit to commerce, reach every MSME across the nation to drive sustainable growth and innovation? Therefore, the future of India's economy depends on how effectively industry and government empower this critical sector in the digital age.