Hello everyone,
 
Welcome to the 190th edition of The Pattern, a weekly newsletter where we unpack the latest in finance, tech, and the economy.  Let’s dive in. 
 
Building a financial system is a lot like building a product. Early on, the focus is on shipping features and onboarding users. Does it work? Can people sign up? Can they use it at all? Those are the important questions at the initial stages. 

Once adoption takes off, the focus shifts. Now it’s about reliability, edge cases, and what happens when things don’t go as planned. 

That’s where India’s credit system seems to be right now. Access has expanded. Distribution works. But the harder questions now are about how credit behaves when it’s used in real-world contexts -- especially where incomes are uneven, and cash flows are tight. 

Real progress in access for the smallest businesses 
The Economic Survey 2025-26 makes it clear that access to finance for unincorporated and informal enterprises has improved significantly. Programmes like Pradhan Mantri Jan Dhan Yojana, credit guarantee frameworks, interest subvention schemes, and MUDRA Yojana have expanded formal credit reach for micro, small, and medium enterprises (MSMEs). This has helped shift more small firms into the organised credit system, enhancing inclusion and broadening the reach of formal lending.  

On the policy side, Budget 2025-26 measures -- including expanded guarantee schemes and credit cards for micro enterprises -- are pushing this further, creating incentives for small businesses to borrow and invest.  

This is a real achievement. For years, lack of access was the main barrier for India’s smallest enterprises. Today, that barrier is lower: they can get credit, and they are using it. 

But access alone doesn’t guarantee good outcomes 
At the same time, the same Economic Survey raises a cautionary flag around microfinance institutions (MFIs), noting structural gaps in how they assess income and design products. It points out issues like aggressive lending, lack of tailored products, and stress among borrowers in vulnerable segments, suggesting credit practices need tightening to avoid rising defaults and over-indebtedness.  

MFIs play a key role in serving borrowers with irregular incomes or limited financial buffers. If underwriting standards and product designs don’t reflect the realities of these borrowers, the risk of stress across portfolios increases; not because access is lacking, but because the fit between credit and borrower capacity isn’t good enough. In simple terms: inclusion alone isn’t enough. Credit has to be appropriate. 

Delayed payments remain a persistent issue 

Another structural issue highlighted by the Economic Survey is the massive backlog of delayed receivables in the MSME sector -- estimated at around ₹8.1 lakh crore. This is a huge amount of capital that small businesses can’t use because they’re waiting on payments. That directly weakens working capital, limits operational flexibility, and pressures businesses to borrow for needs they shouldn’t have to finance with debt.  Delayed payments distort how and why credit is used, pushing small businesses into borrowing that’s more about plugging holes than supporting growth. 

What this means 

At one level, the story over the past few years has been one of success: more people and small businesses can access formal finance than ever before. But that progress now brings a different set of questions: 

• Can lenders confidently assess repayment capacity when incomes are irregular, and cash flows are strained? 

• Are credit products designed for the real lives of the most vulnerable borrowers? 

• Are regulators and lenders aligned on spotting stress early in the segments where it tends to appear first? 

Formal credit growth is healthy. But credit quality, product fit, and real-time risk management are now where the real tests lie. Because once distribution works, the real grunt work begins. 

Reading list 

• Why India pays higher interests on loans: Economic Survey 2026 points to rising deficits of states 

• SMFG India Credit partners with Google for collateral-free loans via GPay 

• Rupee touches new low of 92/$; RBI intervention prevents further fall 

• UPI a key driver of financial inclusion, credit expansion: Economic Survey 

   

That’s all for this week. See you next time!    
 
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Cheers, 
Mayank