Union Budget 2026 Unveils Structural Reforms for MSME Financing
MUMBAI: The Union Budget 2026 has marked a significant shift towards structurally strengthening the financing ecosystem for micro, small, and medium enterprises (MSMEs) in India. This comprehensive approach moves beyond temporary relief measures to address core challenges in credit accessibility, cash flow management, and formalization.
Deepening TReDS and Enhancing Credit Guarantees
A cornerstone of the Budget is the deepening of the Trade Receivables Discounting System (TReDS). Key measures include mandatory routing of payments by central public sector enterprises to MSMEs through this platform. This initiative is complemented by enhanced credit guarantee support for invoice discounting, aimed at reducing the reliance on collateral-heavy lending models.
Bankers have welcomed these steps, noting that they improve cash-flow visibility for MSMEs, shorten working-capital cycles, and encourage receivable-backed lending. This shift is expected to make financing more accessible and efficient for small businesses.
SME Growth Fund and Equity Support
The Budget proposes a Rs 10,000 crore SME Growth Fund designed to complement traditional bank credit by addressing the equity gap faced by scalable MSMEs. Better-capitalized enterprises typically demonstrate stronger repayment capacity and lower credit risk, creating opportunities for long-term lending and cross-selling.
Additionally, expanded credit guarantee coverage is anticipated to boost lender confidence, particularly for micro and small enterprises, while supporting priority sector lending goals. This holistic support system aims to foster a more resilient MSME sector.
Formalization through Corporate Mitra Framework
In a push towards formalization, the government will partner with professional bodies, including the Institute of Chartered Accountants of India, the Institute of Company Secretaries of India, and the Institute of Cost Accountants of India, to develop a "Corporate Mitra" framework. These institutes will roll out specialized courses and tools to help MSMEs meet regulatory requirements, easing compliance burdens.
Data-Led Credit Delivery and Digital Integration
The Budget reinforces data-led credit delivery through the integration of platforms such as GeM, GST, and TReDS. This interconnected system enables sharper underwriting, risk-based pricing, and early-warning mechanisms. Officials highlight that this will accelerate the transition towards cash-flow-based, digitally enabled, and risk-calibrated lending, with a focus on enhancing formalization and resilience in the MSME sector.
Industry Reactions and Expert Insights
Commenting on the proposals, Sai Pramodh, vice-president (investments) at BlackSoil, emphasized that the Budget moves beyond short-term relief. He stated, "The Rs 10,000 crore SME Growth Fund, the Rs 2,000 crore top-up to the Self-Reliant India Fund, and enhanced credit and equity support through reforms such as TReDS and CGTMSE linkages directly strengthen MSME working capital."
Arvind Kapil, managing director and CEO of Poonawalla Fincorp, noted that the Budget reflects a pragmatic understanding of India's growth priorities. He added that the focus on creating "champion MSMEs", along with mandatory TReDS adoption, credit guarantee support, and GeM integration, will improve liquidity, transparency, and the speed of credit flows.
BL Bajaj, founder and managing director of Dynamic Orbits, highlighted that the emphasis on growth capital and predictable cash flows addresses structural challenges faced by enterprises. He further pointed out that the continued focus on infrastructure, with capital expenditure pegged at Rs 12.2 lakh crore and initiatives like the Infrastructure Risk Guarantee Fund, will strengthen investor confidence and support long-term industrial growth.
Overall, Union Budget 2026 sets a robust foundation for transforming MSME financing through structural reforms, digital integration, and targeted support mechanisms, aiming to drive sustainable economic growth and resilience in the sector.
