A recent survey conducted by Paisabazaar, India’s leading loan and credit card marketplace, sheds light on the lending patterns of Micro, Small, and Medium Enterprises (MSMEs). The analysis, based on business loan applications submitted since January 2024, reveals that 70% of MSMEs sought credit for short-term needs, highlighting pressing liquidity concerns. Meanwhile, less than 30% of loan applications were directed toward funding long-term business growth.

Short-Term Loans Dominate MSME Applications

The survey underscores the financial challenges faced by MSMEs in managing day-to-day operations. Approximately 45% of loan applications were intended to meet working capital requirements such as paying salaries, rent, utility bills, and settling dues with vendors and suppliers. This trend underscores the prevalence of short-term cash flow gaps and liquidity issues across the sector.

Additionally, 24% of MSMEs applied for loans to purchase raw materials and maintain inventory levels, emphasizing the critical need for uninterrupted supply chains in industries like manufacturing and retail.

“Uninterrupted operations are the backbone of MSMEs, especially in sectors like seasonal retail and manufacturing,” Paisabazaar noted in its survey. “The demand for working capital loans illustrates the sector’s struggle to bridge immediate financial gaps while fulfilling customer orders efficiently.”

Diverse Loan Applications Reflect Evolving Business Priorities

Beyond working capital needs, MSME loan applications also focused on strategic business objectives. Key trends included:

• Marketing and Advertising: 15% of applications aimed to finance promotional activities to boost sales and visibility.
• Upgrading Machinery and Equipment: 9% sought credit for technological and operational enhancements.
• Office Expansion or Purchases: 3% of applications intended to acquire or expand office spaces.
• Debt Repayment: 2% aimed to settle existing loans, reflecting a cautious approach to financial restructuring.

The remaining 2% of applications fell under miscellaneous categories, indicating niche or specific funding needs.

Geographic Insights: Metro and Non-Metro Contributions

The survey also highlighted geographic trends in loan applications, with a substantial 53% originating from top metro cities. Delhi NCR and Mumbai led the charge, followed by Hyderabad, Bengaluru, Kolkata, Chennai, and Pune. Non-metro regions contributed 47% of applications, with Jaipur and Surat emerging as significant contributors. This data reflects the increasing participation of MSMEs from smaller cities in organized financial markets.

Paisabazaar’s Financial Performance and Regulatory Challenges

PB Fintech, the parent company of Paisabazaar and Policybazaar, reported robust growth in its financial results for the second quarter of the fiscal year. The company’s revenue soared by 44% year-on-year to ₹1,167 crore, and it achieved a net profit of ₹51 crore, a significant turnaround from the ₹21 crore loss in the same period last year.

Despite this success, Paisabazaar faced an 8% drop in revenue, recording ₹143 crore in the quarter. Loan disbursements remained steady at ₹4,237 crore. Regulatory challenges have also surfaced, with the Income Tax Department issuing notices under the Prohibition of Benami Property Transactions Act, 1988, and Section 142(1) of the Income Tax Act, 1961. These notices seek explanations for payments made to certain vendors and associated entities.

Looking Ahead

The Paisabazaar survey paints a clear picture of the financial landscape for MSMEs, highlighting a predominant focus on short-term funding needs. While metro cities continue to dominate the lending space, non-metro regions are emerging as critical players. The data also reflects MSMEs’ evolving priorities, from sustaining operations to strategic investments in marketing and technology.

As Paisabazaar navigates financial challenges and regulatory scrutiny, its role as a key facilitator of credit for India’s MSMEs remains crucial. The insights from this survey could help shape more targeted lending products, catering to the diverse and dynamic needs of this vital sector.