Picture a woman-led food-processing business with a healthy order book but almost nothing a bank will accept as security. Her loan gets turned down. Or a climate enterprise wanting energy-efficient equipment that pays for itself over years, yet offered only a short loan repaid in flat instalments from month one. Both are creditworthy, and neither fits the usual product on the shelf.

This is the quieter problem behind India’s MSME credit gap. That gap runs into hundreds of billions of dollars, and closing it will take more capital from banks, NBFCs, DFIs, fintechs and impact investors. But as we mobilise that finance, we risk missing a question that matters as much: is it designed for the businesses it is meant to serve?

Often, this is not the case. MSMEs in different sectors get pushed through similar credit processes even when their business models have little in common. The enterprise short on collateral, the seasonal tourism business, the slow-payback climate enterprise and the manufacturer chasing working capital all meet the same ticket sizes, repayment schedules, collateral demands and underwriting logic. The result is not just rejection but unused loans, mispriced risk and idle capital.

The answer is not a bespoke product for every enterprise, which is hard to scale and unnecessary. It is to rethink the credit lifecycle around a few financing archetypes that reflect how businesses earn, spend and grow. The food processor could be reached through the platforms she already sells on and judged on her cash flows rather than collateral. The climate enterprise could borrow over a tenor that matches its equipment’s payback, repaying as the savings arrive.

Financial innovation, then, is less about new products than about redesigning how credit flows so it bends to the business rather than the reverse. And it is not for lenders alone. Regulators can strengthen cash-flow and ecosystem-based underwriting, and the platforms these enterprises already use can become the channels that reach them.

As India’s MSME landscape grows more diverse, the next frontier is not simply widening access to finance but making sure that finance is fit for purpose. Closing the credit gap will take more capital; however, closing the product suitability gap will make that capital work harder, for lenders and enterprises alike.