Micro, Small, and medium enterprises (MSMEs) are critical to economic development, exports, and employment. Considering their role in the economy, the Government focuses on creating an enabling environment through channelizing investments, setting a culture of entrepreneurship, and addressing regulatory and legal issues.
Government programs focus on enhancing access to resources, providing financial support, promoting digitalization, and simplifying tax structures to empower MSMEs. The Indian government provides policy support and initiatives to foster the growth of MSMEs, aiming to increase their competitiveness. The vision of the MSME Ministry is “Sustainable development of globally competitive Micro, Small and Medium Enterprises (MSME) as an engine of growth for the Indian economy .In India, there are about 68 million registered MSMEs.The major schemes from the Ministry are the Prime Minister’s Employment Generation Program (PMEGP), Mudra Yojana, Aatma Nirbhar Bharat Abhiyan for supporting import substitution, PM Vishwakarma Scheme, and credit support schemes.
In terms of digital transactions, there is good news that 50 percent of MSMEs prefer Unified Payment Interface (UPI). Women-led businesses have shown a preference for Aadhar-based digital transactions with the involvement of fingerprint and facial recognition. These developments place India in a special place, which is measured through the MSME digital index. There is relevance of the cluster approach in MSMEs, which are geographically concentrated groups with a common objective, infrastructure, and resources.
The objective is to upgrade the technology, facilitate market linkage, address common issues, facilitate shared infrastructure, and collaborate for innovation. Supply of timely finance contributes to the growth and development of MSMEs. The location of MSMEs in rural areas to the tune of 51 % highlights an inclusive and developmental approach towards MSMEs. Despite their significance, MSMEs face challenges such as a lack of capital, operationalissues, and competition from global counterparts.
Banks as Nurturing Partners
There are specialized banks, which play a development role. In addition, banks, through their network and segment focus, and equity financing, are sources of external funds for MSMEs. Banks have a scope to generate revenue from core banking and non-core banking products and services. Leading banks report that more than 60 % of revenue in MSMEs emanates from non-credit products. Research worldwide has shown that Relationship Marketing Strategies have a positive impact on customer retention and satisfaction.
Banks need to move from a transaction orientation to a relationship orientation in the emerging competitive context and the rising importance of MSME as a strategic segment of banks’ portfolio. Banks would definitely benefit by adopting relationship marketing strategies of nurturing learning relationships with MSME clients, with a proactive approach. This will lead to mutual benefits in terms of revenue and profitability for both banks and MSMEs. The focus on MSME could also strengthen corporate and mid-corporate banking by adopting supply value chain practices. In Indian Banking, the proposed approach can help banks to compete on a global scale, as the development of the MSME sector and transition of MSMEs to mid-corporate and corporate banking could benefit the bank. While some of the banks have the capacity for following relationship marketing strategies, the consideration of small transactions can be a limiting factor.
Based on the interaction with MSME customers, the following factors can be the key drivers of fruitful bank-MSME relationships. A customer-centric orientationis essential to ensure speed in credit decisions and service requests, as well as support for the timely provision of account-related updates, so that customers can better manage their finances. MSMEs have unique customer characteristics as a banking segment requiring individualized attention, diverse service requirements along the account operating cycle, and heterogeneity in terms of numerous businesses,trading, manufacturing, service, etc. Thus, serving them effectively requires dedicated MSME branches or an MSME cell within branches with trained officials in MSME business and service orientation.
MSME customers look forward to banks for guidance in many issues, which can smooth their entrepreneurial avenues.The need for financial advisory services has emerged as a major concern for these entrepreneurs, for which they look to banks as the most trusted source. Such sensitized and trained officials will fulfill the expectationsof customers for suitable product advice and required support in addressing contingent situations that are a part and parcel of the MSME customer journey.
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Several government schemes, seed capital, subsidies, and policies favouring MSMEs develop a healthy ecosystem for MSMEs to thrive and contribute to aspirational development objectives like “AtmaNirbhar Bharat” and “Make in India”. However, many of these schemes and initiatives may not reach the supposed beneficiaries; in this situation,banks prove to be the most important liaison point. Banks can advise on the availability of these and encourage the uptake of these benefits. Aknowledge partner approach by banks will help nurture them by sharing business updates,research reports on emerging and sunrise sectors, guidance on credit rating, facilitating export financing and linkage with EXIM bank, andadvisory on future growth. Inefficiencies in Marketing have emerged as a major bottleneck for enterprises, particularly micro and small ones.
Here, the bank’s hand-holding can be instrumental to their survival by providing marketing linkages, trade shows, melas, etc.,and also linking to government schemes like ‘One District One Product’, Geographic Information tag, or informing about Public Procurement Policy from MSMEs. A trainingonthe adoption of digital banking and convergence of digital channels will help banks manage the service costs and help provide customized services as required by MSME customers, while at the same time making their banking work more efficient.
The Indian MSME eco-system has a number of training facilities dedicated to MSME development, like several programs by the Ministry of MSME, India SME forum, National Institute for MSME, Technology Centers, and training by banks and NGOs.Sharing appropriate training referrals can be helpful, in addition to providing networking opportunities for developing business synergies.
At a time when some MSMEs have digitized their operations, it is expected that banks need to keep pace with digital transformations. There is anecdotal evidence that banks that excel in digital can translate it into better financial performance and expand their market share. AI-powered tools can be integrated with relationship-oriented banking with improvementsin areas such as automation in documentation and proposal processing, personalization, customer service, and credit risk assessment, loan origination, advisory in core banking and allied areas.
Banks need to rethink sales and service models and also benefit by integrating digital and human interactions. The model can have common resources and dedicated resources. To excel in MSME banking, improvements are expected in digital engagement, tailored value proposition, personalization, use of artificial intelligence, including generative AI and agentic AI. By integrating a digital-led model with relationship marketing touches,the bank can improveits competitive advantage and contribute to MSME success.
The MSMEs, as catalysts for the nation’s growth and inclusive development, can be strengthened by Banks taking on the role of nurturing partners in addition to being fund providers. As the trusted pivot of the MSME ecosystem, banks adopting a relationship marketing approach integrated with effective AI-based digital engagement can provide a boost to the nation's robust MSME-led growth.
About the Author
Dr. Sarita Bhatnagar is an Associate Professor at the National Institute of Bank Management, Pune. She has over 20 years of experience in teaching, training, and research. Her academic interestareas are Financial Services Marketing, Bank - MSME Relationships, Customer Relationship Management, and Digital Marketing. She has conducted bank executive training programs in CRM, Digital Marketing, and MSME marketing strategies for Banks, as well as other areas.
Dr. Dhananjay is an Associate Professor and is the author of the book “Marketing of Financial Services. He has about 2 decades of experience in teaching, research, and training. He has published papers in reputed journals and published papers in national and international conferences. He has offered consultancies to various banks and development finance institutions.
