Transforming Small Businesses 2025

2 AI agent application: Credit access for SMEs Access to formal lending sources remains a significant challenge for MSMEs in India, with close to 81% of the credit demand unmet or being fulfilled through informal lending sources. Despite MSMEs being an important growth driver for the Indian economy, only 19% of their credit demand is met through formal channels, which is much lower compared to countries such as China and the United States, where 37% and 50% respectively of the credit demand of MSMEs is met through formal lending channels. Furthermore, MSMEs face a massive credit gap of $530 billion.29 The lack of credit access limits the growth potential for MSMEs in India, undermining their capacity to expand operations, upgrade technology and invest in growth. An important reason for the credit gap in the MSME sector is limited data availability, hindering the ability of financial institutions to perform quick credit assessments. MSMEs that are unable to provide the extensive documentation required by formal lenders either turn to informal lenders or abandon their plan to obtain credit. Other than this, MSMEs face other challenges such as a lengthy loan-approval process and higher credit cost compared to larger organizations. Additionally, it is challenging for these organizations to identify the right government schemes that can help in their credit journey. AI can help unlock formal credit for MSMEs in India. AI agents can integrate data from formal and informal sources for a comprehensive credit assessment. Large language models (LLMs) can be used to analyse government schemes and offerings from financial institutions and provide recommendations to MSMEs on loan type and lending institution. In addition, AI can be used to continuously monitor risk post-loan disbursement and provide early-warning signals. MSMEs face a massive credit gap of $530 billion. Transforming Small Businesses: An AI Playbook for India’s SMEs 35