How India Lends: MSMEs Borrow Boldly, Households Turn Cautious

India’s credit engine is running on two very different gears. The How India Lends – June 2025 report from CRIF High Mark shows that loans to small businesses are climbing at a healthy clip, while household borrowing — especially for consumer durables — has slowed to its weakest pace in years.

The standout number is Rs 12.8 trillion. That’s the outstanding value of secured Micro, Small, and Medium Enterprises (MSME) loans at the end of FY25, up strongly from last year. It underlines how entrepreneurs across manufacturing, services, and trade are using credit to expand, even as families in the cities pull back on discretionary spending.

MSMEs Step Up Borrowing

For lenders, small and medium enterprises are emerging as the most reliable growth story. Credit guarantee schemes, digital underwriting, and a wider reach of Non-Banking Financial Companies (NBFCs) have all helped. In the past, many small firms struggled to raise loans because they lacked collateral. Lenders are now putting more weight on cash flows and business prospects, which has opened doors in tier-2 and tier-3 centres where credit demand is rising.

NBFCs in particular are driving this momentum. Their quicker loan approvals and willingness to customise products have made them popular partners for small entrepreneurs. In many cases, they are stepping into spaces where large banks remain cautious.

Consumers Hold Back

On the household side, the picture is more restrained. Consumer durable loans rose just 7.9 per cent year-on-year (YoY), with fresh originations up only 5.1 per cent to Rs 46,100 crore. This is a sharp contrast to the double-digit growth seen a couple of years ago. Rising borrowing costs and stretched household budgets are forcing younger borrowers, especially, to think twice before adding another equated monthly installment (EMI).

That does not mean retail credit has collapsed. Personal loans are still growing quickly, and demand for vehicle and two-wheeler finance remains steady outside the metros. Gold loans continue to be a dependable source of liquidity, particularly in rural areas, where they are often the first line of credit.

Analysts say the contrast between cautious households and ambitious businesses is not unhealthy. If anything, it signals a more measured credit cycle. With India’s lending penetration still far below global levels, the long-term trajectory is clearly upwards. But the immediate message from the How India Lends report is that borrowers are becoming more selective — families are tightening their purse strings, while small businesses are pressing ahead.