Delayed Payments Stall MSME Growth Amid Rising Credit Flow: Report
- Webx Marketing
- May 9
- 3 min read
Updated: Jun 9
A persistent credit gap, estimated at Rs 80 lakh crore by FY21, forces MSMEs to rely on informal financing with exorbitant interest rates
Delayed payments to micro, small, and medium enterprises (MSMEs) have emerged as a significant barrier to their competitiveness, according to a report by Niti Aayog. While the report acknowledged a growing credit flow and numerous policy interventions in support of MSMEs, it revealed delayed receivables as a structural hurdle that continues to impede the sector’s financial stability and long-term sustainability.
The report found that although bank credit to MSMEs has increased substantially, growing from 14 per cent to 20 per cent of total sectoral deployment between September 2020 and 2024, the sector still suffers from a credit gap, primarily exacerbated by delayed payments from large buyers and government entities. As of FY2021, only 19 per cent of the Rs 99 lakh crore credit demand was met through formal channels, leaving a staggering Rs 80 lakh crore gap, much of which is attributed to liquidity pressures caused by late settlements.
According to official data, micro and small enterprises (MSEs) have filed over 2.31 lakh complaints since October 2017 to recover a total of Rs 50,359 crore in unpaid dues from buyers. This marks a 20 per cent increase from Rs 41,900 crore recorded in March last year, highlighting the persistent issue of delayed payments despite government interventions.
The Niti Aayog report pointed out that these receivable delays force MSMEs to rely on informal finance sources, often at exorbitant interest rates ranging from 30 to 60 per cent. Such dependence not only raises operational costs but also curtails investments in innovation, skill development, and technological upgrades—essential elements for enhancing competitiveness.
“Delayed payments severely undermine the financial planning and growth capacity of MSMEs,” the report noted, adding that this issue persists despite the formalisation drive initiated by the Udyam Registration Portal. While the portal has facilitated the registration of nearly 95 lakh enterprises, allowing them access to formal credit mechanisms, the continued prevalence of delayed payments erodes these benefits.
To address the issue, the report recommended stronger enforcement of the MSMED Act provisions, which mandate payment within 45 days. It also suggests incentivising early payments by large enterprises and introducing digital solutions that offer transparency in invoice clearance timelines. Integrating MSME receivables into the Trade Receivables Discounting System (TReDS) and encouraging its broader adoption across sectors could also improve cash flows significantly.
“India must take a zero-tolerance approach towards delayed payments,” the report argued, advocating for a multi-stakeholder push involving financial institutions, large corporations and the government.
The report also examined broader competitiveness factors such as access to finance, technology adoption, skill development, and market linkages. It reveals that despite MSMEs contributing 29.2 per cent to GDP, 36.2 per cent to manufacturing output, and 45 per cent to exports, they remain hindered by structural inefficiencies—chief among them being payment delays.
The report added that around 81 per cent of MSMEs operate as proprietorships and about 80 per cent fall under the micro-enterprise category, which makes them particularly vulnerable to cash flow disruptions. Formal financial institutions continue to perceive MSMEs as high-risk due to their informal practices, thin credit history, and lack of documentation.
It stated that the credit shortfall forces reliance on unregulated moneylenders, which, in turn, perpetuates informality and limits formal sector integration. The report proposed reforms, including bringing the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) under tighter regulatory oversight and expanding SIDBI’s role to support Non-Banking Financial Companies (NBFCs) for better last-mile credit delivery.
It also noted leveraging digital tools to improve receivables tracking, real-time monitoring, and predictive risk assessment. Coupled with targeted policy interventions, these tools can potentially mitigate the adverse effects of delayed payments.
*publicly available data and source is :
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