Cabinet approves ₹5,000 crore equity infusion into SIDBI to boost MSME credit — experts flag need for deeper reforms

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Synopsis

The Union Cabinet has approved a ₹5,000 crore equity infusion into SIDBI to expand MSME credit over three years, even as experts underline the need for broader structural reforms to address long-standing financing challenges faced by small businesses.

Summary

The Union Cabinet has cleared a ₹5,000 crore equity infusion into the Small Industries Development Bank of India (SIDBI) to strengthen its capital base and enhance credit availability for micro, small, and medium enterprises (MSMEs). The decision, taken on January 21, 2026, is aimed at enabling SIDBI to scale up refinancing support and expand lending through partner financial institutions.

The infusion will be staggered over three financial years, with ₹3,000 crore proposed for FY26, followed by ₹1,000 crore each in FY27 and FY28. Officials say this phased approach will help SIDBI maintain capital adequacy norms while mobilising additional resources at competitive rates, particularly for underserved segments of the MSME ecosystem.

With enhanced capital support, SIDBI is expected to expand refinancing operations, encourage collateral-free credit products, and support newer financing instruments such as venture debt and digital lending platforms. The move is also seen as an effort to accelerate formalisation among micro enterprises and improve credit flow to first-time borrowers.

However, policy experts and industry representatives note that while capital infusion is a positive step, access to credit for MSMEs remains constrained by deeper structural issues — including high compliance burdens, risk-averse lending practices, and limited last-mile delivery, especially for micro and small firms.

Commenting on the announcement, Kamal Krishna, District Head, Bengaluru, All India Professionals’ Congress, said the decision should be viewed as an opportunity to push for more comprehensive reforms.

“Strengthening SIDBI’s capital base is a welcome step, but credit challenges faced by MSMEs cannot be solved through capital support alone. What small businesses need is a sustained, structural approach – simpler access to finance, better risk-sharing mechanisms, and stronger on-ground delivery. Without these, increased funds may not translate into meaningful relief for enterprises at the grassroots,” he said.

Analysts point out that the effectiveness of the infusion will ultimately depend on how efficiently additional capital reaches micro and small units, particularly those outside established banking networks. As MSMEs continue to be a major source of employment and local economic activity, stakeholders argue that financing reforms must move beyond periodic infusions toward long-term systemic solutions.