India's fintech sector has emerged as a hub for innovative ideas and ambitious scaling. With radical models and a compelling mission to "reimagine credit access”, fintech companies have reshaped the financial services landscape, often achieving remarkable growth. A large share of this innovation focusses on MSMEs, given their 29% contribution to India’s GDP, their role in regional trade, and their importance in supply chains.

However, the on-ground reality often diverges sharply from fintech storylines. MSMEs are not a uniform market ripe for generic disruptions; rather, they constitute a diverse network of businesses with varied, often hyperlocal financing requirements. Many fintech startups approach the MSME segment under the assumption that traditional credit systems are inherently flawed, presuming their solutions universally address these gaps. The real gap comes from trying to fix what’s assumed, instead of understanding the actual, everyday challenges MSMEs face on the ground.

MSME credit demands a ground-up approach

According to a recent SIDBI report, despite improvements in credit supply, India's MSME sector still faces an estimated addressable credit gap of 24%, translating to about ₹30 lakh crore. But identifying precisely where this gap exists is crucial. Founders, driven by generalised market reports, often frame MSME credit as a single, uniform issue, overlooking how capital needs differ by industry, scale, business cycle, and region.

Some MSMEs require working capital to manage seasonal demand fluctuations, while others seek asset leasing solutions, and many look for accelerated payment cycles through invoice financing. Yet, fintech offerings often lean on term loans or standard credit lines, assuming they’ll fit all segments. Early uptake usually comes from discounts, incentives, or temporary rate subsidies. However, once these artificial incentives fade, customer interest typically diminishes, exposing models built for rapid scale rather than resolving tangible problems.

This represents a critical misstep. Genuine scale isn't created solely through aggressive expansion or marketing-driven growth. Instead, sustainable scale emerges when founders allocate their initial resources towards addressing authentic, often hidden pain points by closely collaborating with their early customers. These early adopters not only validate the product but also significantly shape its effectiveness. Solutions co-created to resolve fundamental problems, often invisible on the surface, naturally facilitate sustainable and lasting scale. The fundamental error lies in scaling first and addressing issues later, a strategy responsible for the short-lived existence of numerous fintech ventures. Extending credit without thoroughly understanding its end-use frequently results in avoidable defaults and increased NPAs.

For MSMEs, credit is not simply about speed and accessibility. It is about finding tailored solutions that align closely with their operational realities. This approach demands patient capital funding committed not to immediate returns but dedicated to supporting real-world experimentation, iterative learning, and essential course corrections.

Solving for today matters most

While a major portion of investment into the MSME segment focussed on long-term visions, enduring value creation depends on effectively addressing the immediate, practical challenges businesses encounter daily. Delayed payments, insufficient transaction-level financing, and rigid loan structures remain prevalent financial obstacles for MSMEs. For example, over 2,44,000 complaints regarding delayed payments have been lodged on the MSME Samadhaan Portal, highlighting persistent disruptions to MSMEs' working capital cycles.

Fintech innovations often prioritize credit volume expansion without adequately addressing fundamental issues such as cash flow predictability, precisely the gap that remains unaddressed. Instead of solely chasing increased lending volumes, fintech startups have considerable opportunities to develop tailored transaction-level financing tools, flexible payment solutions, and localised credit models that reflect the operational realities of MSMEs. Solutions must address today’s business challenges immediately to cultivate trust vital for future growth.

Real opportunities lie in micro-level problem-solving

The genuine opportunity in serving MSMEs doesn't revolve around replacing traditional credit systems or rapidly scaling generic products. Instead, it’s about solving problems at a micro level—taking the time to understand industry-specific needs, geographic differences, and borrower profiles before creating focussed solutions. When fintechs grasp the real operational challenges MSMEs face, they’re better positioned to build practical, impact-driven offerings that hold up even when credit risks come into play.

Foundational success before rapid scale

Every fintech founder today faces immense pressure to achieve rapid growth. However, genuinely reimagining credit access typically starts with slow initial progress. Building foundational knowledge, deeply engaging with initial customers, and addressing structural complexities requires time and patience. Founders may initially feel disheartened by slower growth metrics, but once a solid foundation is laid, rapid scale and sustainable growth naturally follow.

Chasing quick expansion without first addressing the deeper, underlying issues, especially in the complex world of MSME credit, is almost certain to fall short. The future belongs exclusively to those willing to build the solutions that businesses genuinely need today, patiently.

(The author is Managing Partner, Artha Venture Fund. Views are personal.)