Globally, Micro, Small and Medium enterprises (MSMEs) have been playing a crucial role in promoting economic development. MSMEs contribute to the local economy by creation of employment opportunities for millions and in the process inject much-needed capital and liquidity in the local economy. However, one of the major challenges faced by MSMEs is the lack of access to finance. As per a recent McKinsey1 study, 15-40% of SMEs cite finance as the most important obstacle to growth. On the other hand, financial institutions are wary of financing MSMEs and cite a variety of reasons including lack of reliable financial information, poor financial record keeping and absence of credit history. High transaction costs in servicing MSMEs as well as a perceived high-risk profile further add to the distrust. Through this paper, we suggest a fresh approach to MSME finance by introducing a simple but effective credit scorecard. We base our approach on practical examples from MicroSave’s work in expanding access to finance for MSMEs and hope that this approach will help financial institutions to look at MSMEs as a strategic segment.

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