Expanding rural MSME credit: The SIDBI–RRB co-lending initiative

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Expanding rural MSME credit: The SIDBI–RRB co-lending initiative

Aug 19, 2026
2 min

Access to timely and affordable formal credit remains a challenge for many micro, small, and medium enterprises (MSMEs) in rural and semi-urban India, particularly for small and first-time borrowers. To address this gap, the Small Industries Development Bank of India (SIDBI) and participating regional rural banks (RRBs) are piloting a co-lending initiative. The initiative combines SIDBI’s expertise in MSME finance and digital infrastructure with the extensive rural and semi-urban reach of RRBs. It seeks to create a more efficient, transparent, and scalable mechanism to expand productive credit for underserved rural MSMEs.

The initiative is being piloted as a co-lending arrangement between SIDBI and participating RRBs. Both institutions jointly fund and service loans while sharing risk, returns, and responsibilities under an agreed framework. SIDBI provides access to low-cost funding and specialized MSME lending expertise. At the same time, RRBs contribute their extensive branch networks, local customer relationships, and deep understanding of MSME clusters and rural markets. Together, these strengths can help broaden access to formal credit for enterprises that conventional lending channels often underserve.

The scale and potential of the initiative lie in its ability to combine institutional risk sharing, tailored MSME lending products, and an end-to-end digital lending journey. RRBs’ last-mile presence can enable faster and more transparent loan processing. The model can help reduce barriers to formal finance and improve the overall credit delivery experience for rural enterprises. As the model scales, it has the potential to support enterprise growth, strengthen local economic resilience, and generate employment across rural and emerging business markets.

MSC (MicroSave Consulting) has been providing focused technical and implementation support to SIDBI for the launch and operation of the co-lending initiative. MSC works alongside SIDBI, participating RRBs, borrowers, and the digital lending platform provider. We have been supporting operational readiness through policy documents and product notes, user acceptance and scenario-based testing of the lending platform, and training and handholding for RRB staff throughout the loan onboarding journey. We also developed marketing and communication collateral in video and print formats to support awareness and adoption of the initiative.

Through these interventions, we helped translate the co-lending framework into a practical, implementation-ready model that can be strengthened and scaled over time. The initiative brings together institutional expertise, digital infrastructure, and last-mile banking networks to address persistent gaps in rural MSME finance. The program has the potential to deepen access to formal financial services across more than 700 districts in India, with the participation of 28 RRBs and a combined network of more than 22,000 branches. It can also create a scalable pathway to expand MSME credit in rural economies.

The project is funded by the Gates Foundation.