Micro Loan Stress, Dip in NTC Borrowers, Sectoral Shifts: TransUnion CIBIL CEO Unpacks India’s MSME Credit Landscape

India’s MSME credit story over the years has been one of steady progress. Loan demand remains strong, asset quality has improved, and nearly half of all new credit continues to go to first-time borrowers. Yet beneath the strong topline numbers lie important shifts -- smaller ticket loans, particularly those under Rs 10 lakh, are showing a mild uptick in early delinquencies; the share of new-to-credit borrowers, though still robust, has slipped a bit; sectoral trends are shifting too, with professional services and trade gradually gaining ground over manufacturing in credit originations; and despite a surge in Udyam registrations, a large number of enterprises remain outside the formal credit net.

In a wide-ranging conversation with FE Aspire, Bhavesh Jain, Managing Director and CEO of TransUnion CIBIL, delves into what these trends really mean. From the rising role of data in underwriting to the promise of new risk models like CV CMR and the evolving impact of credit guarantees, Jain offers a grounded view of how India’s MSME credit market is deepening and where it still needs careful attention. Edited excerpts below:

The latest MSME Pulse report by CIBIL shows delinquency rates at a five-year low, yet vintage delinquency in sub-Rs 10 lakh loans is rising. Does this suggest hidden stress in micro-lending beneath overall optimism?

MSME delinquency rates for 90–720 days past due stand at 1.8 per cent as of March 2025—the lowest in five years—reflecting a consistent post-Covid improvement. At an aggregate level, the MSME credit portfolio remains healthy. However, delinquency trends vary across ticket sizes and borrower profiles. Lenders tailor their underwriting strategies accordingly, drawing on diverse data sources such as credit reports, business profiles, collateral, and borrower history.

Micro borrowers, particularly those availing loans below Rs 10 lakh, often lack formal credit histories. While lenders are actively working to onboard such new-to-credit (NTC) borrowers, it’s crucial to balance access to credit with education on good credit history. 

These borrowers are typically transitioning from informal to formal credit channels and must understand the importance of maintaining good credit behaviour. This is vital as they will likely need recurring credit over time. So, while we have to ensure that NTC borrowers are onboarded, portfolio-level data indicates strong overall asset quality.

Nearly 47% of MSME loans went to new-to-credit borrowers as of March 2025, but that share has dipped from last year. Is this a temporary slowdown or a sign of saturation in first-time borrower inclusion?

There is still significant headroom to bring more MSMEs into the formal credit fold. While there is a drop in the share of NTC borrowers in total MSME originations compared to last year at 51 per cent, the change isn’t significant in percentage terms. What’s encouraging is that MSMEs still show a healthy 47 per cent share of NTC originations - much higher than retail. This number, which may vary quarter to quarter, is a combination based on borrower profiles and credit policies of credit policies. Over the last one to two years, the NTC share has remained good overall.

Manufacturing’s share in credit origination value is falling despite policy support, while trade and services’ share is rising. Does this signal an evolving borrower base or a retreat from asset-heavy sectors due to risk concerns?

When we look at the sector-wise, there is a good mix between manufacturing, trading, and professional services. Particularly looking at the trends over the past three years across different ticket sizes, especially loans below Rs 1 crore, the manufacturing sector’s share remains consistent. This segment, largely comprising micro and small enterprises, continues to have a consistent proportion in credit origination.

Around 42% of Udyam-registered MSMEs have never accessed formal credit. What is the biggest blind spot in reaching this credit-dark segment?

I think many of these MSMEs may be accessing credit in their individual capacity, relying on trade credit, borrowing from friends and family, or simply not needing formal credit yet. We know that MSMEs relying on trade credit may not need credit. However, the encouraging sign is that 47% of MSME loan originations are still from new-to-credit borrowers. That shows the ecosystem stakeholders are actively enabling first-time borrowers to enter the formal credit fold. However, there is still significant headroom to bring many of these informal businesses into the formal system over a period of time based on their business needs.

The report urges a "comprehensive view" of borrowers by linking individual and entity credit histories. How does CIBIL’s CV CMR model enable this for better underwriting?

The CreditVision Commercial MSME Rank (CV CMR) assigns a rank from 1 to 10 based on a borrower’s credit behaviour and credit history. Based on the behaviour of the past 36 months, CV CMR helps understand the probability of a borrower delaying repayment by over 90 days in the next 15 months on a scale of 1 to 10 -- 1 indicates the least probability of default while 10 indicates high probability of default. The model has increased the base of borrowers eligible for ranking by 12 per cent.

The “comprehensive view” refers to integrating both individual and entity-level credit data. For example, if a person owns a house and also runs an enterprise, lenders can examine both his personal obligations and those of his business. This holistic perspective helps credit institutions better assess total exposure and make more informed underwriting decisions based on their risk appetite.

Looking ahead, how do you see the CV CMR model transforming the credit supply chain for MSMEs in tier 2 and tier 3 regions?

I would say that this approach creates a win-win for both credit institutions and MSMEs, irrespective of the geography the borrower comes from, since it is based on the credit performance of the borrower. For lenders, objective assessment through the CV CMR enables them to evaluate a larger pool of borrowers. For MSMEs, being assessed based on credit history and performance, they can seek better terms and conditions for the credit from lenders.

With expanded CGTMSE guarantees and reforms, are lenders improving underwriting practices, or are guarantees just cushioning old credit behaviour without strengthening last-mile credit discipline?

We’ve seen encouraging signs in recent years, especially post-COVID, with a significant improvement in the overall quality of the MSME loan portfolio. One of the key interventions has been the credit guarantee programme. These guarantees encourage lenders to support MSME borrowers. The handholding provided under these schemes has helped more MSMEs enter the formal credit ecosystem.