It is time for micro, small and medium enterprises (MSMEs) to ride the festive wave, a period when demand peaks, consumer spending surges and businesses from Moradabad to Madurai hustle to meet the season’s appetite. Credit demand from smaller towns tends to rise during the festive season, showing both entrepreneurial confidence and the widening reach of digital finance.
Indian MSMEs are set to witness a sharp rise in festive season credit demand. Fintech lender FlexiLoans has projected a 40 per cent increase in disbursements as businesses ramp up inventory and working capital needs. Data from the lender showed festive disbursements climbing from Rs 68 crore in FY21 to Rs 651 crore in FY24, before moderating to Rs 596 crore in FY25.
High-growth hubs such as Surat, Coimbatore, Jaipur and Hyderabad are also driving momentum, supported by export demand, industrial clusters and the formalisation of traditional businesses. Surat and Coimbatore are estimated to see lending growth of 20–22 per cent, while Hyderabad is projected at 17–19 per cent.
Yet, like every year, beneath the celebratory churn lies a deeper concern — the persistent structural gaps in formal financing that keep countless micro and small businesses dependent on informal lenders. As India’s economic engine revs up for its busiest quarter, the question lingers: Is this surge in festive credit demand a sign of lasting financial inclusion or merely another seasonal spike in an uneven lending landscape?
As BW Businessworld reported last year, access to timely credit remains a major hurdle for MSMEs, especially those lacking established relationships with banks or financial institutions. Many continue to depend on informal sources or delay expansion due to working capital shortages, a challenge that resurfaces every festive season despite the rise of fintech-led credit platforms.
Financing Gaps And Fintech Challenges
According to Prashant Thacker, Founder of Thacker and Associates, the surge in MSME credit demand from smaller towns during the festive season reflects a mix of cyclical and structural factors. “Cyclically, festivals like Diwali and Dussehra spur significant demand for MSMEs, especially in retail, distribution, and small-scale manufacturing. On the other hand, structural changes such as digital adoption, GST-driven formalisation, and collaborations with fintechs, NBFCs, and local banks have made credit access much easier,” he said.
However, Thacker pointed out that deep-rooted financing challenges continue to limit the reach of formal credit. Many MSMEs still struggle to establish credit histories, lack adequate collateral, and rely on informal cash flows. This, he said, renders them ineligible for traditional loans. “Sustained MSME financial inclusion hinges on addressing these structural barriers. Ensuring formal financing aligns with the ambitions of these businesses will be critical to unlocking their full potential,” he added.
A 2025 report by the TransUnion Cibil MSME Pulse showed that micro and small enterprises in tier 2 and 3 cities continue to account for nearly 60 per cent of total new loan inquiries during the festive period. However, a significant portion of these inquiries fail to convert into disbursals due to documentation gaps and credit history deficiencies, underscoring the scale of India’s financial inclusion challenge.
As lending volumes rise, fintechs are under pressure to strike a balance between speed and credit quality. Prashant Muddu, Managing Director and CEO of Jocata, said underwriting models have evolved rapidly with India’s Digital Public Infrastructure (DPI), enabling consent-led, digitally sourced data sets that power faster and more reliable credit decisions.
“During festive demand spikes, fintechs empower lending institutions to disburse faster while maintaining credit quality,” Muddu explained. He pointed to the company’s AI-driven model, Jocata Swara, which analyses bank statements and GST data to help lenders assess MSME health within minutes. The tool considers seasonality, allowing lenders to make quick, risk-calibrated lending decisions without breaching asset quality norms.
Despite such innovations, Thacker noted that fintechs face challenges during peak demand. “Customers and MSMEs expect instant approvals to capitalise on time-sensitive opportunities. On the other hand, credit quality cannot be compromised. Data reliability remains a key concern, especially for smaller-town businesses with inconsistent financial histories,” he said.
A Reserve Bank of India (RBI) financial stability report (2025) cautioned that while digital lending has improved access to small-ticket credit, rising unsecured exposures and uneven due diligence could pose long-term risks if not monitored.
The GST 2.0 Transition And Working Capital Strain
Early analysis of the implementation of GST 2.0, which simplified rates into a two-slab structure, is expected to lower administrative costs, reduce input tax credit mismatches, and improve cash flow management. Preliminary data suggests that streamlined GST filings and faster credit flow are helping businesses formalise operations and better align working capital with seasonal demand.
Both experts highlighted that the transition to the proposed GST 2.0 framework could momentarily disrupt working capital cycles during the festive rush. Muddu observed that firms with significant pre-GST inventories may face input tax credit (ITC) mismatches or delays, which could squeeze liquidity at a crucial time. “These complications are expected to taper down within a few months as businesses adjust to the new regime,” he said.
Thacker agreed that GST 2.0 could reshape working capital management for MSMEs that rely heavily on festive borrowing. “Delays in input tax credit reconciliation and cash being locked up in the system have long been pain points,” he said. “The new system’s real-time credit flow and faster refunds are expected to improve liquidity once implemented smoothly.”
Data from the Finance Ministry’s 2024 MSME Credit Health Review revealed that nearly 38 per cent of MSMEs reported facing liquidity constraints linked to GST reconciliation issues during festive months, a bottleneck that GST 2.0 aims to resolve.
The festive season often tempts small enterprises to borrow aggressively in anticipation of a sales surge. Thacker warned that this can expose weaker businesses to financial stress if demand falls short. “MSMEs front-load their inventory purchases and borrow working capital in anticipation of a sales surge. If expected revenue targets are not achieved — due to inflationary pressures or shifting consumer preferences — they could face difficulties meeting debt repayments,” he said.
Muddu, however, offered a measured view. He argued that MSMEs generally operate within constrained working capital limits, and the current credit environment, shaped by regulatory oversight, leaves little room for reckless borrowing. “The risk of over-leveraging is lower today as both lenders and borrowers are exercising greater caution,” he said.
The SIidbi-CRIF High Mark MSME Pulse 2025 notes that while overall MSME credit grew by 16 per cent year-on-year in 2024–25, delinquency rates remained largely stable, suggesting that lenders have maintained discipline even during seasonal spikes.
Cushioning Repayment Stress
When festive euphoria fades, repayment pressure often looms. Thacker said several mechanisms now help cushion both lenders and borrowers. “Flexible repayment structures such as moratorium-linked working capital loans, invoice discounting, and cash-flow–based repayment schedules are helping MSMEs align obligations with actual receivables rather than rigid timelines,” he explained.
Fintech-led tools using GST and UPI data allow lenders to detect stress early and restructure repayment terms proactively. Muddu added that MSMEs are also improving inventory management and aligning production cycles with seasonal demand, reducing the risk of overstocking.
Experts agree that true resilience will come not from festive windfalls but from sustained financial discipline. Thacker said MSMEs in smaller towns can strengthen their creditworthiness by formalising financial records through GST compliance and digital payments, which help build reliable credit histories.
“Diversifying funding sources through supply-chain financing, invoice discounting, and dynamic credit lines can reduce dependence on short-term festive loans,” he added. Muddu echoed that long-term resilience depends on consistent domestic demand, particularly in smaller towns where non-farm activity is increasing. However, he noted that weather-related shocks in parts of Punjab, Maharashtra, Himachal Pradesh, and Uttarakhand may still dampen spending in select regions this year.
Experts underlined the critical role of regulators in ensuring sustainable credit expansion. Muddu said the Reserve Bank of India (RBI) has been “extremely mindful” of customer protection and has taken a conservative approach to prevent systemic risk. “The lending guidelines, tweaking of risk weights, and other regulatory measures have contributed to a more stable ecosystem,” he said.
Thacker added that policymakers must ensure prudential safeguards through transparent norms for loan origination and co-lending, while promoting borrower education and grievance redressal to prevent unsustainable debt. “Integration of GST and UPI data for credit assessment should be encouraged, but with strong privacy safeguards,” he said.
As India’s MSME sector once again powers through the festive season, the surge in credit activity from smaller towns offers both hope and caution. Digital platforms are transforming access, yet fundamental issues, from weak financial records to policy bottlenecks, continue to hold many small businesses back.
Whether this festive credit boom becomes a bridge to lasting inclusion or fades as another seasonal high will depend on how effectively India can marry innovation with inclusion, ensuring that every small enterprise, from a weaver in Varanasi to a trader in Coimbatore, has the financial footing to thrive beyond the lights of the season. |
