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What is MSME? Its Definition, Role and Importance

  • 29-Mar-2022
What is MSME? Its Definition, Role and Importance

What is an MSME loan? 

MSME loan is an unsecured loan that is provided by various banks and financial bodies to assist entrepreneurs to fulfill the expenses of a business. It stands for Micro, Small, Medium, and Enterprise which is established by the Indian government. It includes payment of salaries, buying raw materials, rent, investment in fixed assets, daily expenses, equipment, and machinery, cash flow management, and other financial purposes. It is inaugurated and managed by the Ministry of MSME. It includes manufacturing, production, preservation of goods, commodities, and processing. MSME loans are provided to business owners, women entrepreneurs. And startup owners on a short-term basis. The tenure of MSME differs from bank to bank. It is treated as the pillar of the Indian economy that is provided extensively to the development of the socio-economic of the society. It develops work and opportunities for employment for the rural and backward opportunities.  

Features of MSME loan 

  • MSME provides financing support to banks and offers credit limits. 
  • It provides certification of quality services and modern testing facilities.
  • It efforts for the benefit of artisans and workers.
  • They guide the promotion of infrastructure development, modernization of the sector, and developmental technology.
  • It is also known to offer reasonable service to enhance.

The Interest rate of MSME loan  

Rate of interest  @8.50% onwards 
Loan amount Up to 2 crores 
Loan tenure Up to 60 months 

Comparison of interest rate and processing fee MSME loan offered by Top banks in India 

Bank name  Interest rate  Processing fee 
Bank of India 8.00% 1% 
Canara bank  8.50% 1% 
Indian bank 8.00% 1% 
HDFC bank ltd. 8.50% 1% 
Punjab & Sind bank  8.50% 1% 
Indian overseas bank  8.00% 1% 
Bank of Baroda  8.50% 1% 
Central bank of India 8.00% 1% 
Axis Bank Ltd. 8.00% 1% 
Union bank of India 8.50% 1% 
Punjab national bank  8.50% 1% 
UCO bank 8.50% 1% 
Standard Chartered Bank 13.50% 1% 
United bank of India  8.00% 1% 
State bank of India 8.00% 1% 
Small Industries Development Bank of India (SIDBI) 8.00% 1% 
Bank of Maharashtra 8.50% 1% 

Roles of MSME in an Indian economy 

MSMEs form a significant role in India’s GDP. It shares more than 29% of the GDP and is a pledge for 50% of the total exports of the country. It intends to increase the no. To 15 crores in the upcoming years. MSME produces and manufactures various types of products for international and domestic markets. It aids in the encouragement of growth and development of the coir industries, khadi, and village.  

Contribution of MSME at current price in country’s economy 

Year  MSME GVA Growth (in%) 



Share of MSME in GVA (in%) Total GDP Share of MSME in GDP (in %) 
2011 - 12  2583263         _8106946 31.86 8736329 29.57 
2012 - 13 2977623 15.27 9202692 32.36 9944013 29.94 
2013 - 14 3343009 12.27 10363153 32.26 11233522 29.76 
2014 - 15 3658196 9.43 11481794 31.86 12445128 29.39 
2015 - 16 3936788 7.62 12458642 31.60 13682035 28.77 

New MSME classification 

The difference between services and manufacturing firms has been excluded by producing the annual turnover and the amount of investment is identical for firms involved in both sectors. 

Sector  Manufacturing and service sector 
Investment  Annual turnover  
Micro enterprise Less than Rs. 1 crore Less than Rs. 5 crores 
Small enterprise Less than Rs. 10 crores Up to Rs. 50 crores 
Medium enterprise Less than Rs. 50 crores. Up to Rs. 250 crores 

Old MSME classification 

MSMEs are categorized based on the investment proportion given below. 


Manufacturing sector 


Enterprises category Micro enterprises Medium enterprises 
Investment in plant & machinery Might not exceed Rs. 25 lakhs More than Rs. 5 crores and not exceed Rs. 10 crores 


Service sector  Micro enterprises Small enterprises Medium enterprises 
Investment may not exceed Rs. 10 lakhs More than Rs. 10 lakhs and may not exceed Rs. 2 crores More than Rs. 2 crores may not exceed Rs. 5 crores. 

Eligibility criteria for MSME loan 

Eligibility criteria depending on several factors such as creditworthiness, age of individual, business turnover, total work experience, repayment history, etc. are as follows. 

  • The age criteria of the borrower should be between 22 to 60 years of age.
  • Business continuity of a minimum of 2 years.
  • Audit of a minimum of 1 year by a registered Chartered Accountant.
  • Business turnover of a minimum of Rs. 90,000.
  • Partnership firms, Trusts, Limited Liability Partnerships, Public and Private companies, Proprietary concerns, and individuals.

Hence knowing the facts about the MSME loan. Apply through financeseva for the best deals. 

Also read: -  MSME Loan for New Business - Check Eligibility & Interest Rate

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