MSME Credit’s Repricing Moment: What “Bankable” Looks Like in 2026

✍️ Opinions

Sanvi Barjatya

01 Feb 2026 — 4 min read

MSME Credit’s Repricing Moment, Shelly Kwatra, Assistant Vice President - Investments, BlackSoil

This article has been contributed by Shelly Kwatra, Assistant Vice President - Investments, BlackSoil

In recent years, the prospect of MSME lending in India has undergone a fundamental shift. Once driven largely by relationships, branch-level familiarity, or collateral availability, it has evolved into a far more data-driven and disciplined ecosystem.

During the pandemic and immediately afterwards, credit availability was supported by emergency government schemes and historically low interest rates. While credit continues to flow today, it is increasingly priced to reflect underlying risk with greater precision.

From Relationships to Financial Discipline

Being "bankable" is no longer determined by the size of an enterprise or the strength of its relationships. It is now defined by financial transparency and a disciplined operating model. Lenders like BlackSoil put greater emphasis on whether an MSME can sustain itself through its own cash flows, using debt as an accelerator for growth rather than as support for ongoing ineffectiveness. Businesses that rely on debt to bridge structural gaps are often the first to face higher pricing and, eventually, limited access to capital.

Growth Still Matters, But Quality Matters More

Stable revenue growth is still important, but lenders now place greater weight on quality. Priority is given to businesses that showcase better margins, viable unit economics beyond temporary incentives, and sustainable growth that doesn’t depend on external support.

MSMEs that demonstrate improving margins and operating leverage, even with moderate growth, are often viewed more favourably than fast-growing companies with inconsistent economics. There is also increased scrutiny on growth visibility. Credit evaluations today are expected to be based on realistic assumptions rather than projections designed primarily for fundraising.

Cash-Flow Visibility as the Core Credit Indicator

One of the most significant shifts in MSME lending has been the move towards cash-flow-based underwriting (aka assessment). If a business cannot clearly demonstrate its ability to generate sufficient cash to service debt, access to credit becomes limited.

This shift has been enabled by better use of data.

Digital Trails: Now, lenders routinely analyse GST filings, bank statements, and statutory disclosures to assess financial discipline. Timely GST filings, absence of statutory dues, clean banking behaviour, and minimal adverse events have become essential indicators.
Real-Time Monitoring: Data is no longer assessed only at the time of credit approval. With better system integrations, many lenders (including BlackSoil) monitor performance on a continuous basis, allowing early identification of potential stress.

Repeatability and Operational Efficiency

MSMEs that exhibit customer retention, recurring revenues, or predictable order flows strengthen belief. Repeatability reduces volatility, improves working capital stability, and enhances cash-flow predictability, making it easier to underwrite businesses from a credit perspective.

Operational efficiency has also become key to lending decisions. Lenders closely evaluate receivables quality, inventory management, collection practices, and cash conversion cycles, often benchmarking these against industry norms. Timely collections and efficiently working capital management directly impact both credit availability and pricing.

Use of Capital Matters

Lenders are also placing greater emphasis on how previously raised capital (both debt or equity) has been deployed.

Businesses that can clearly link capital utilisation to tangible outcomes such as capacity expansion, productivity improvements, technology upgrades, or distribution growth are considered more favourably than those that used the capital primarily to offset operating losses or sustain unviable models.

Management Quality and Governance

While financial metrics are critical, they are not assessed in isolation.

A clear competitive advantage, whether through product differentiation or operational processes, enhances lender confidence, especially in competitive or commoditised sectors. Equally important is the quality of management. Extensive experience among promoters, the presence of a skilled senior team, and a functioning second line of leadership, all contribute positively to credit assessment. The presence of institutional investors is not a prerequisite, but it often indicates stronger governance, structured decision making, and higher reporting standards. Robust internal controls, reconciled financial data, and transparent practices are not optional anymore, but the expected norm.

Covenants Becoming Increasingly Important

While wholesale lending has traditionally included a standard set of covenants, recent stress in certain segments of SME lending has led lenders to adopt tighter, often tailored protocols. These typically include maintaining defined financial ratios, along with regular monthly and quarterly reporting to enable close monitoring of financial and operational performance.

While covenants may appear restrictive, businesses that comply regularly often benefit from improved credibility over time. This discipline can translate into better pricing, higher limits, and more constructive long-term lender relationships.

The Evolving Definition of “Bankable”

In 2026, being bankable is not about being the fastest growing or the most visible MSME, but about predictability.

Credit continues to be available, but it is directed towards businesses demonstrating consistency, transparency, and operational discipline. MSMEs that align themselves with this reality will find debt to be an effective tool for sustainable growth.