Small Businesses, Big Shifts: The Growth Story of India’s Nano Enterprises

In India’s bustling economy, there exists a quiet engine of growth: tiny, often home-based and informal businesses—like a tea stall on the highway, a tuition center in a backyard, or a small bangle store in a bylane. These nano enterprises are part of the vast micro, small and medium enterprise (MSME) sector, powering local economies and livelihoods for millions. Yet, for many of these businesses, one thing stands between stagnation and scale: access to credit, with an estimated $25 billion untapped credit market.

Moreover, how does access to credit shape the trajectories of these businesses and their households? What helps them accelerate growth and transition from subsistence to scale? LEAD at Krea University, in partnership with the Michael & Susan Dell Foundation, recently concluded a three-year study that followed the journeys of 1,800 such entrepreneurs across seven Indian states. We tracked these businesses from the time they received loans (ticket sizes ₹40,000 to ₹4 lakhs) from Non-Banking Financial Companies (NBFCs), to the end of their loan tenure.

The results tell a powerful story: credit isn’t just about money—it’s a catalyst for growth, resilience, and a stepping stone for formalization.

Spillover to Households: More Than Just Business

The impact of credit went beyond the shop floor. Across the board, household incomes rose by 11%, translating into more stability, and higher spending on children’s education and insurance.

For women entrepreneurs, especially, credit was transformative. Despite getting smaller loans and facing gendered barriers, they achieved meaningful improvements in household income and savings.

Shabana, a bangle seller in Prayagraj, expanded her home business into a proper store and more than doubled her household income, becoming the family’s sole breadwinner after her husband’s accident.

The Invisible Boost: Formalization and Digitization

Formalization was another powerful by-product of credit. Businesses that started informally began registering themselves, adopting digital payments, and keeping better records. Between baseline and endline, the proportion of enterprises with some form of official registration rose sharply from 37.6% to 52.8%, with Udyam registration being a common entry point for formalization. Digital payment adoption grew from 50% to 67%—especially among businesses dealing directly with customers.

Bharat, a tea seller, had his roadside stall demolished once. With his loan, he rebuilt a more permanent space and got a food license, securing his business against future disruptions.

What Makes Growth Stick?

The study found that growth wasn’t random. Entrepreneurs who scaled successfully often had:

• Access to larger loans (₹1–4 lakhs)
  
  
• Higher education levels
  
  
• Greater control over financial decisions
  
  
• Better bookkeeping and registration practices
  
  
• Digital readiness
  
  
• Support from family or community
  
  

These entrepreneurs also showed a willingness to take risks—investing in storefronts, hiring employees, or upgrading infrastructure.

But growth also came with tradeoffs. As businesses expanded, so did expenses. Not every investment yielded immediate returns. Some saw profits flatten temporarily, even as turnover rose—underscoring the need for patient capital and targeted support.

Making Credit Work Better

The study offers clear lessons for policymakers, lenders, and ecosystem actors:

1. Design smarter credit products
   Offer larger, structured loans (₹2–4 lakh) with flexible terms, grace periods, and repayment linked to business cycles.
   
   
2. Target underserved segments
   Women, low-income households, and new-to-credit borrowers need tailored support, including financial literacy, business mentoring, and sector-specific loan structures.
   
   
3. Rethink credit scoring
   Move beyond past income to assess potential—look at business models, innovation, digital adoption, and efficiency.
   
   
4. Link formalization incentives to credit
   Offer perks—like faster disbursement or lower interest—for businesses that register and adopt digital tools.
   
   
5. Track impact over time
   Establish systems to monitor how loans affect not just businesses, but entire households.

Findings from the study make one thing clear: when growth-oriented entrepreneurs can access the right kind of credit products, even the smallest enterprises can leap forward—taking their families and communities along with them.  But the impact of access to credit is also multifaceted— shaped by enterprise size, sector, loan utilization, owner profiles, and household dynamics. It must be matched with thoughtful design, trust in underserved borrowers, and a deep understanding of how real businesses innovate and operate on the ground.