Lending Growth in 2026: MSMEs and Cross-Border Trade Dynamics

Lending growth in 2026 is pivotal as India continues to navigate the aftermath of the challenges faced in 2025. The lending and trade finance sectors are adapting to the repercussions stemming from a turbulent year.

Volatility in Cross-Border Trade

2025 saw significant disruption in cross-border trade, driven by shifts in global policies and evolving demand patterns. Tariffs have intensified fluctuations in export volumes, particularly affecting price-sensitive industries.

When examining India’s exports, the US emerges as a crucial market, accounting for approximately 20-25% of total exports. In specific sectors, this reliance is even more pronounced. For example, in the seafood industry, the US remains a primary destination for Indian exports, while the garments and textiles sector also heavily relies on this market.

Consequently, export-focused businesses are facing challenges related to demand, pricing, and working capital cycles. Meanwhile, domestic MSMEs enjoy broader access to credit, as banks are beginning to re-enter territories they previously overlooked.

Platforms dedicated to trade finance, invoice discounting, and supply chain credit are adjusting to expectations of increased stability in the coming year, coinciding with rising competition.

Banks’ Renewed Interest in MSME and Retail Lending

The banking industry is witnessing a notable change, first observed in 2024, which gained momentum through 2025. Banks have now returned to MSME and retail lending with a much stronger commitment, following the cleanup of their corporate balance sheets and resolution of legacy non-performing assets (NPAs).

This revitalised engagement has intensified competition for alternative lenders that had benefitted from broader margins earlier. The banks’ push into these segments operates in two notable ways.

Firstly, the influx of capital towards Non-Banking Financial Companies (NBFCs) has increased. Banks are seeking indirect exposure to these segments, showing a greater willingness to finance NBFCs operating within them. Secondly, banks are establishing themselves as formidable competitors in categories like secured lending.

As banks refine their operational models and actively engage with these segments, NBFCs are confronted with the challenge of heightened competition, necessitating clear differentiation in their offerings.

Growth of Invoice Discounting and TReDS Involvement

A significant development has been the rapid expansion of invoice discounting platforms, particularly TReDS. MSMEs that form part of larger companies’ supply chains are experiencing improved access to bank financing as a direct consequence.

Platforms like TReDS facilitate small-business suppliers in sourcing lower-cost credit by connecting them with large buyers within a structured financing framework. Major corporations such as Reliance have become active participants in TReDS, enabling their suppliers to obtain financing more affordably.

When an MSME’s invoice to a large corporation is accepted on this platform, the prospects for affordable financing increase considerably. This shift is most prominent in domestic supply chains, whereas export-oriented MSMEs remain less advantaged.

While the export segment hasn’t realised the same benefits, MSMEs integrated into major domestic supply chains are enjoying significantly enhanced credit access.

Systemic Challenges in MSME Lending in India

Persistent structural issues in MSME lending mainly stem from banks being cautious about unsecured loans. They often require collateral or a verified track record of profitability, criteria many smaller enterprises struggle to meet.

Government-led digitisation initiatives, such as the Unified Lending Interface, are pushing forward improvements in data availability and enhancing underwriting efficiency. Despite this, banks still prefer to engage conservatively and often seek indirect exposure through partnerships with NBFCs and fintech firms.

At the policy level, incentive programs aimed at boosting MSME lending are primarily available only to banks, excluding regulated non-bank lenders that also serve this segment. Broadening eligibility could significantly enhance credit access and contribute to the development of a more varied and resilient lending ecosystem as the market progresses into 2026 and beyond.

AI’s Role in Digital Lending

The application of AI in digital lending can be identified across three main areas. Firstly, customer engagement encompasses support, collections, and pre-sales lead qualification.

AI-driven solutions are increasingly deployed to automate customer interactions and enhance response efficiency. The second area involves core risk functions such as underwriting, fraud detection, and credit assessment, where AI adoption remains limited.

This is partly due to regulatory caution, with authorities assessing the appropriate use of AI in critical risk functions. As regulatory guidelines become clearer, digital lenders are expected to adopt AI-based approaches more widely within their risk management frameworks.

Although this process has been gradual, enhanced regulatory clarity is anticipated to accelerate the integration of AI technologies. The third area pertains to operational optimisation, with potential for automating various workflows. In the upcoming year, it is predicted that AI utilisation will expand throughout the sector, buoyed by clearer regulations and increasing capabilities.

Emerging Opportunities in Sustainable and Digitised Credit

New themes such as green financing and climate-aligned supply chain credit are emerging as significant growth opportunities. Particularly, carbon credits present a rising avenue, especially in agriculture, where farmers can create new revenue streams by monetising these credits.

As these income sources develop, they can signal lenders, enabling financing models that link credit access to these evolving cash flows. In tandem, the swift digitisation of MSMEs is revolutionising how credit is delivered. Platforms spearheaded by the government, such as the GeM marketplace, are encouraging small businesses to formalise their operations and engage in digital trade.

As more informal MSMEs transition to structured, data-rich environments, lenders gain improved visibility into their transactions and behaviours. This influx of verifiable data supports innovative underwriting methods, allowing risk assessment models to adapt alongside the ongoing digitisation of commerce.

How Digital Lenders Will Evolve in 2026 and Beyond

Banks are increasingly collaborating with digital lenders to deliver specialised products more effectively rather than developing these capabilities in-house. In practice, banks typically operate on a model where, once they secure a customer, they aim to fulfil all their needs — from current and savings accounts to fixed deposits, term loans, and currency exchange services.

They may opt to work with NBFCs or emerging fintech companies solely for products beyond their primary offerings. Historical evidence indicates that when fintechs provide complementary solutions, such as invoice discounting or receivables financing, banks show strong enthusiasm for collaboration.

These partnerships often function on revenue-sharing models, benefiting both parties; fintechs gain access to the bank’s distribution network, while banks can offer specialised products to MSME clients.

However, commercial priorities may diverge if fintechs expand into products traditionally supplied by banks. For example, although banks readily collaborated on invoice discounting, they became wary when fintechs ventured into offerings like forex exchange, a domain already covered by banks for MSMEs.

As many fintechs, initially focused on single products, scale and diversify, overlaps in offerings are inevitable. Partnerships generally function smoothly as long as fintech solutions do not conflict with those provided by banks, but tensions may arise when overlaps occur, influencing how these collaborations develop in the years ahead.

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