Micro, Small, and Medium Enterprises (MSMEs) form the backbone of India’s economy.
With over 63 million enterprises, they contribute:
Nearly 30% to the national GDP
Around 40% of exports
Significant employment generation across sectors
Recognizing their importance, the Government of India has launched several schemes like MUDRA Loans, PSB Loans in 59 Minutes, CGTMSE, ONDC, and GeM. Institutions such as SIDBI also offer specialized credit and advisory support.
However, despite increased awareness, a concerning gap remains—MSMEs often know about these schemes but don’t use them. This awareness–utilization disconnect raises important questions.
Understanding The Awareness – Utilization Gap
Over the past few years, numerous surveys and field studies have shown that many MSMEs know about government schemes but fail to make use of them. This disconnect between awareness and actual adoption is both surprising and concerning.
Key Insights
Several recent studies underline this problem. According to a June 2025 report by Cushman & Wakefield, 71% of small manufacturers felt that government support schemes had not benefitted their business. A SIDBI survey published in May 2025 found that, while 90% of MSME respondents accepted digital payments, only 18% had availed themselves of digital lending platforms. Another study from Tuticorin district highlighted that, though 29% of MSMEs had accessed government schemes like PMEGP, most reported little to no long-term benefit.
The Disconnect Explained
A. Awareness ≠ Adoption
Simply being aware of a scheme does not motivate MSMEs to apply for it. Many entrepreneurs feel overwhelmed by paperwork, eligibility checks, and the follow-up required to avail yourself of these schemes. The process can be daunting and discouraging.
B. Incomplete Or Abandoned Engagement
In many cases, MSME owners begin the application process but do not complete it. This is due to factors such as complicated documentation requirements, confusing instructions, or issues with digital platforms.
C. Low Trust And Perceived Value
Many MSMEs, particularly in rural and semi-urban areas, have limited trust in government schemes. If previous schemes have not delivered tangible results, confidence in new initiatives is low. Delays, red tape, and negative peer stories further dampen enthusiasm.
Overview Of Key Schemes For Msmes
A. ONDC (Open Network For Digital Commerce)
The ONDC platform is designed to enable MSMEs to participate in digital commerce without relying on large e-commerce players. Benefits include an open, neutral marketplace, increased visibility, healthier margins, and fairer competition.
However, ONDC faces challenges like limited awareness, digital literacy gaps, and logistical difficulties which hinder MSME participation.
B. GeM (Government E-Marketplace)
GeM helps MSMEs sell directly to government departments and agencies. The platform promises access to institutional buyers, transparent pricing, and fewer intermediaries.
But MSMEs often encounter hurdles in the form of complex registration processes, documentation requirements, payment delays, and lack of assistance during the bidding process.
C. PSB Loans In 59 Minutes
This digital initiative aims to provide MSMEs with loan approvals of up to ₹5 crore in under an hour, using online data integration and reduced paperwork.
Nonetheless, many MSMEs believe these offers are too good to be true. Unclear eligibility criteria, post-approval delays at branch level, and a general mistrust of formal credit still hold some entrepreneurs back.
D. SIDBI Support Programs
SIDBI offers sector-focused loans, advisory support, and cluster development programs. These aim to modernize MSMEs and expand formal lending outreach.
Still, SIDBI faces low awareness among entrepreneurs, especially outside metro cities. Many prefer local informal lenders due to quicker processes and fewer requirements.
E. MUDRA Loans (PMMY – Shishu, Kishor, Tarun)
MUDRA offers three products for micro and small businesses: Shishu (up to ₹50,000), Kishor (₹50,000–₹5 lakh), and Tarun (₹5–₹10 lakh). These collateral-free loans are intended to promote entrepreneurship.
Yet, many MSMEs either fear rejection or don’t understand the application process. Informal borrowing remains a popular fallback.
F. CGTMSE (Credit Guarantee Scheme)
CGTMSE provides government-backed guarantees for collateral-free loans, lowering the risk for lenders and supporting new enterprises.
However, confusion remains among both bankers and entrepreneurs about its proper use, and some banks still demand collateral due to a lack of clarity.
Why MSMEs Don’t Use These Schemes
Despite their availability, several common obstacles prevent MSMEs from making the most of government programs.
A. Lack Of Clarity And Local Support
Many MSMEs do not have clear guidance on scheme requirements, eligible documentation, and step-by-step procedures. The absence of support at the district or community level makes it harder for small businesses to navigate the process.
B. Digital And Financial Literacy Gaps
Online registration is often confusing, especially in rural areas where internet access and digital skills are limited. This discourages participation in digitally-enabled schemes.
C. Perception Of Ineffectiveness
A prevalent belief that “these schemes don’t really work” persists. In the Cushman & Wakefield study, 71% of MSMEs said they had not benefitted from government programs, further eroding trust.
D. Bureaucratic Hurdles
Many MSMEs operate informally and do not maintain up-to-date tax records, bank statements, or audited accounts. Applications often get rejected or delayed for non-compliance, and feedback is rarely provided.
E. Peer Influence And Misinformation
Word-of-mouth stories about red tape, rejections, or high costs add to the skepticism. Myths about hidden conditions, eligibility, or interest rates spread easily among MSME networks.
The Cost Of Inaction
A. Underutilization Of Resources
When schemes are not widely adopted, public funds set aside for MSME support remain underused.
B. Missed Opportunities
MSMEs miss out on formal credit, growth, modernization, and new market access, affecting their long-term competitiveness and sustainability.
C. Slow Formalization
Without engagement with formal systems and credit, many MSMEs remain outside the regulatory net, limiting their ability to scale or attract investment.
D. Loss Of Competitiveness
A lack of digital adoption, innovation, and formal lending makes MSMEs less resilient, hurting the sector and the economy in the long run.
Bridging The Gap: What Needs To Change
A. Simplified Communication
Government agencies should use regional languages, clear visuals, and explainer videos to make schemes easy to understand and dispel doubts.
B. Facilitation Centers And Helplines
Establishing local help desks, mobile vans, and toll-free numbers will assist MSMEs with onboarding, documentation, and troubleshooting.
C. Staff Training
Better training of bankers and government staff on scheme details can reduce miscommunication and speed up application processing.
D. Post-Onboarding Support
Continuous digital and operational support can help MSMEs succeed after registration, especially on platforms like ONDC and GeM.
E. Peer Learning And Success Stories
Sharing real-life MSME success stories and organizing peer-learning sessions can build credibility, trust, and confidence in government programs.
Conclusion
Government schemes for MSMEs are thoughtfully designed, yet their potential is not fully realized due to an awareness–utilization disconnect. Without simplification, local support, increased digital literacy, and strong peer networks, these initiatives will continue to be underused. By addressing these gaps, both government and industry stakeholders can help millions of MSMEs unlock new opportunities, drive formalization, and enhance India’s economic future.
-Harshada & Kritika
