What are Micro and Small Enterprises? Schemes, Registration, and Funding

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18 December 2025

Micro and Small Enterprises (MSEs) are a key part of India’s economy, generating jobs, driving exports, and encouraging innovation. Defined under the MSMED Act, these businesses work with relatively low investment but create a big impact. They range from small local shops to tech-based service providers. This page explains what MSEs are, their economic importance, the challenges they face in finance, technology, and market access, and how government schemes and tailored business loans can help with growth, working capital, and long-term sustainability.

What are Micro and Small Enterprises?

MSEs are the dynamic backbone of the Indian economy, defined by their investment in plant, machinery, or equipment and their annual turnover. According to the Micro, Small and Medium Enterprises Development (MSMED) Act of 2006, updated in 2020, they are classified as:

  • Micro Enterprise: Investment under Rs. 1 crore and turnover under Rs. 5 crore
  • Small Enterprise: Investment under Rs. 10 crore and turnover under Rs. 50 crore

These businesses are usually owner-managed, flexible, and operate across all sectors—from manufacturing khadi and handicrafts to providing IT services and running local shops and restaurants.

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Why MSEs are the Engine of the Indian Economy

Micro and Small Enterprises play a vital role in India’s socio-economic landscape. They contribute:

  • More than 30% of India’s GDP
  • Nearly 50% of the country’s total exports
  • Employment for over 11 crore people, second only to agriculture
  • Industrial output from more than 6.3 crore units nationwide

Their impact on innovation, regional development, and fair wealth distribution makes them an essential part of the economy.

Key Challenges Faced by Micro and Small Enterprises

Although MSEs play a vital role in the economy, they face several hurdles that can slow growth and limit potential:

Challenge Category

Specific Challenges

Financial Constraints

Limited access to formal credit, high collateral requirements, lack of credit history, and poor cash flow management.

Technological Obsolescence

Difficulty adopting new technologies due to high costs, limited skilled personnel, and low digital literacy.

Market Access and Competition

Challenges in marketing, reaching new customers, competing with large corporations and inexpensive imports, and limited export knowledge.

Infrastructure and Regulatory Hurdles

Inadequate physical infrastructure (power, logistics), complex compliance requirements (GST, labour laws), and lengthy approval procedures.

Skill Gaps and Management

Shortage of trained workforce, reliance on traditional management methods, and issues with succession planning.

 

Government Schemes and Support for MSEs

The Indian government, along with state authorities, has introduced multiple initiatives to strengthen and empower micro and small enterprises.

  1. Financial Support Schemes
    • Pradhan Mantri MUDRA Yojana: PMMY offers loans up to Rs. 10 lakh to non-corporate, non-farm small or micro businesses. It includes Shishu MUDRA Yojana (up to Rs. 50,000), Kishore MUDRA Yojana (Rs. 50,001 to Rs. 5 lakh), and Tarun MUDRA Yojana (Rs. 5,00,001 to Rs. 10 lakh).
    • Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE): Provides collateral-free loans up to Rs. 2 crore, with a government guarantee for part of the amount to encourage bank lending.
    • Stand-Up India: Under the Stand-Up India scheme, Banks provide loans between Rs. 10 lakh and Rs. 1 crore to at least one Scheduled Caste (SC) or Scheduled Tribe (ST) borrower and one woman borrower per branch to set up a new enterprise.
    • Interest Subvention Scheme: Offers a 2% interest reduction on fresh or incremental loans to GST-registered MSMEs.
  2. Technology and Skill Upgradation
    • Technology Upgradation (CLCS-TU Scheme): Subsidy support for adopting modern technology.
    • Entrepreneurship Skill Development Programme (ESDP): Free training programmes to develop entrepreneurial and managerial skills.
  3. Marketing and Export Promotion
    • Public Procurement Policy: Requires central government ministries and PSUs to source at least 25% of their annual purchases from MSMEs.
    • International Cooperation Scheme: Provides financial aid to participate in global fairs and exhibitions.

Step-by-Step Guide to Starting an MSE

  1. Idea and Business Plan: Identify a feasible product or service and prepare a detailed business plan including market research, operations, and financial projections.
  2. Choose Business Structure: Select the appropriate legal form, such as Proprietorship, Partnership, LLP, or Private Limited.
  3. Register Your Enterprise:
    • Complete Udyam Registration (free, online), which is essential to access government benefits.
    • Register for GST if turnover exceeds the threshold.
    • Open a dedicated business bank account.
  4. Arrange Finance: Explore funding options like personal savings, government schemes, MUDRA loans, or a business loan designed for MSEs, offering quick approval, flexible repayment, and minimal documentation.
  5. Set Up Operations: Arrange location, procure equipment and materials, and recruit staff.
  6. Launch and Market: Begin operations, establish your brand (both online and offline), and focus on attracting customers.

How Bajaj Finserv Empowers Your MSE Journey

Bajaj Finserv supports the unique goals and challenges of micro and small business owners, acting as more than just a lender.

  • Tailored Business Loans: Collateral-free business loans up to Rs. 80 lakh with flexible repayment and minimal documentation for expansion, machinery, or working capital.
  • Digital Convenience: Complete applications and track progress easily through digital platforms.
  • Beyond Loans: Access additional services, including business insurance and payment solutions to protect assets and optimise cash flow.

Success Story of MSE: From Local Shop to Regional Supplier

A small packaging supplier expanded his operations with a business loan, invested in advanced machinery, diversified his offerings, and secured larger contracts. Within two years, his turnover increased by 200%, transforming the micro-enterprise into a thriving small business.

Future of MSEs

The path forward is digital and global. Leveraging e-commerce, digital marketing, and fintech is essential. Supported by government initiatives and financial partners, MSEs have enormous growth potential.

Conclusion

Whether starting a new venture or scaling an existing one, the right financial support is crucial. A tailored business loan can provide the resources needed to achieve growth and turn your entrepreneurial vision into reality.

Helpful resources and tips for business loan borrowers

Types of Business Loan

Business Loan Interest Rates

Business Loan Eligibility

Business Loan EMI Calculator

Unsecured Business Loan

How to Apply for Business Loan

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MSME Loan

Mudra Loan

Machinery Loan

Personal Loan for Self Employed

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Frequently asked questions

What is the new definition of a Micro and Small Enterprise in India?

Under the updated MSMED Act, enterprises are categorised as:

  • Micro: Investment below Rs. 1 crore and annual turnover under Rs. 5 crore.
  • Small: Investment below Rs. 10 crore and annual turnover under Rs. 50 crore.

This dual criterion of investment and turnover makes the classification more inclusive and reflective of business size.

What are the best government loan schemes for a new micro-enterprise?

The Pradhan Mantri MUDRA Yojana (PMMY) is a flagship initiative that provides loans of up to Rs. 10 lakh via banks and NBFCs, divided into Shishu, Kishore, and Tarun categories. In addition, the CGTMSE scheme enables collateral-free loans of up to Rs. 2 crore without requiring third-party guarantees.

Can I get a business loan for my MSE without collateral?

Yes. Programs such as CGTMSE provide collateral-free loans. Additionally, several financial institutions offer unsecured business loans for MSMEs, assessed on factors like business age, turnover, and financial performance, removing the need for physical asset collateral.

Are there special schemes for women entrepreneurs in the MSE sector?

Yes. Under the Stand-Up India Scheme, banks provide loans ranging from Rs. 10 lakh to Rs. 1 crore to at least one woman borrower per branch to establish a new enterprise. Additionally, several states offer targeted subsidies and entrepreneurship development programmes to support women-led MSMEs.

How can my MSE start exporting goods or services?

Start by securing an Import Export Code (IEC) from the DGFT. Take advantage of MSME support schemes that offer funding for export promotion, participation in international trade fairs, and quality certifications. Your Udyam Registration serves as an important document to build credibility with international trade partners.

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