India's MSMEs Are Financing Their Own Customers

₹7.34 lakh crore of India's MSME money is sitting in someone else's bank account.

That's the value locked in delayed payments owed to small businesses — work delivered, invoices raised, cash not received.

We talk endlessly about the MSME credit gap. We talk far less about this — and they're the same wound.

Here's the mechanism nobody likes to name: when a large buyer pays a small supplier 90, 120, 180 days late, the supplier isn't just waiting. The supplier is financing the buyer — interest-free. A profitable business on paper quietly turns into a cash-starved one in reality. Then it goes to a bank for a working-capital loan to cover a hole that should never have existed.

So we have MSMEs borrowing money to bridge a gap created by their own customers not paying on time. We've built an entire lending market on top of a payments problem.

After two decades in credit and trade-receivables work, a few things I'm convinced of:

1. The receivable is the asset — most MSMEs just can't use it. A confirmed invoice from a creditworthy buyer is collateral. The problem is it's illiquid. The opportunity in Indian fintech isn't only scoring borrowers — it's making receivables financeable and visible.

2. Regulation moved; behaviour is catching up slowly. The 45-day payment rule under Section 43B(h) finally puts a tax cost on paying MSMEs late. It's real progress — but rules change incentives, not habits. Suppliers still hesitate to invoke their rights against a buyer they can't afford to lose.

3. Cash flow, not profit, is the number that kills small businesses. Most MSME failures aren't unprofitable businesses. They're profitable businesses that ran out of cash waiting to be paid. We measure the wrong thing.

The real unlock for India's MSME sector may not be more credit at all. It might be faster, more reliable payment — and the data infrastructure to turn an unpaid invoice into working capital the day it's raised.

Fix the payment, and a large part of the “credit gap” simply disappears.

If you run or finance an MSME — what's actually moved the needle on getting paid faster: the regulation, the relationship, or the technology?