The ₹10,000 Crore SME Growth Fund: Unlocking Scalable Growth for India’s MSMEs

In the Union Budget 2026-27, presented on February 1, 2026, Finance Minister Nirmala Sitharaman announced the creation of a ₹10,000 crore SME Growth Fund, marking a significant shift in how the government supports Micro, Small, and Medium Enterprises (MSMEs). Often described as the backbone of the Indian economy for their participation in the growth of the GDP and foreign trade, many promising SMEs remain trapped in a “missing middle”, too large for microfinance schemes yet too small or risky for conventional private equity or large bank loans.

The SME Growth Fund addresses this structural gap by providing equity and equity-like capital rather than traditional debt. Unlike loans that burden cash flows with fixed repayments, equity or quasi-equity investments align incentives with business success. The fund will offer risk capital to high-potential SMEs based on clearly defined performance and growth criteria, such as improvements in productivity, formalisation of operations, technology adoption, job creation, and export readiness. The objective is to identify and nurture “future champions”, scalable businesses capable of competing globally, innovating consistently, and generating sustainable employment.

This equity-focused approach is a deliberate departure from earlier credit-heavy interventions. Debt financing, while useful for working capital, often becomes unsustainable for fast-growing SMEs facing rising input costs, supply chain volatility, and delayed customer payments. By injecting growth capital without immediate repayment pressure, the fund enables entrepreneurs to invest in modern machinery, research and development, brand building, skilled hiring, and international market expansion.

The initiative is complemented by several supportive measures. A ₹2,000 crore top-up to the Self-Reliant India (SRI) Fund, originally launched in 2021, will extend similar risk capital to micro-enterprises, ensuring broader coverage across the MSME spectrum. Additionally, the budget introduced reforms to strengthen the Trade Receivables Discounting System (TReDS). Key changes include mandatory onboarding of Central Public Sector Enterprises, integration with the Government e-Marketplace (GeM) platform, and the introduction of credit guarantee support through CGTMSE for invoice discounting. These steps are expected to reduce payment delays, improve liquidity, and lower the cost of working capital for suppliers.

How SMEs Can Access the SME Growth Fund:

Detailed operational guidelines, eligibility criteria, application processes, and disbursement mechanisms are yet to be fully notified by the Ministry of Finance and the Ministry of MSME. Implementation is likely to be handled through institutions such as the Small Industries Development Bank of India (SIDBI) or similar agencies, possibly via a fund-of-funds or direct investment model. In the interim, SMEs should prepare by ensuring key prerequisites:

• Obtain or update Udyam registration (mandatory for most MSME schemes) via the Udyam portal. https://udyamregistration.gov.in/Government-India/Ministry-MSME-registration.htm 
• Maintain valid GST registration and up-to-date statutory compliance.
• Prepare robust documentation, including audited financials, business plans demonstrating growth potential, and evidence of performance metrics (e.g., revenue growth, export orientation).
• Strengthen governance and formal structures to appeal to equity investors.

Once guidelines are released (expected soon via official portals like SIDBI, MSME Ministry, or PIB), eligible SMEs can apply through designated online portals, SIDBI channels, or partner funds. Performance-based selection will prioritise scalable, compliant businesses. 

Industry observers view the SME Growth Fund as a strategic move toward building a new generation of globally competitive Indian enterprises. If implemented efficiently, through transparent selection processes, robust monitoring, and active involvement of institutions such as SIDBI, the fund has the potential to significantly enhance MSME contribution to exports, manufacturing, and employment generation.