The Union Cabinet on 6 October approved a ₹10,000 crore SME Growth Fund (SGF) to support India’s small business sector through equity investments. The fund aims to help firms expand, strengthen domestic manufacturing and increase their participation in global value chains.
Mint explains how the initiative seeks to address a funding gap for India’s micro, small and medium enterprises (MSMEs), which rely heavily on bank loans for capital.
What is the SME Growth Fund?
The Union Cabinet on 6 October approved the ₹10,000 crore SME Growth Fund to support small and medium enterprises (SMEs) through equity investments. The broader objectives are to help these businesses scale up, participate in global value chains and strengthen India’s domestic manufacturing sector.
The Union ministries of finance and MSMEs will administer the fund, which will be used to invest in SMEs.
The SGF is designed as a direct equity investment fund and will operate as an (AIF) established under the SGF framework, according to an MSME ministry statement dated 6 October.
Manufacturing SMEs, particularly those in tier II and tier III cities, are expected to be major beneficiaries. The fund is intended to support firms looking to expand manufacturing capacity, adopt advanced technologies, improve productivity and strengthen export competitiveness, the statement added.
However, while the Cabinet has approved the fund, its final guidelines are still awaited.
Why is the fund needed?
The fund is expected to address a funding gap for India’s MSMEs, which rely heavily on bank loans for capital.
“There are still very few options available for non-collateral loans. Indian SMEs also do not have the option of crowdfunding their ventures. That is a major funding gap, which is being filled with equity funding from the government,” said Vinod Kumar, president of the , an industry lobby group representing around 100,000 businesses.
Kumar said access to timely capital remains constrained for many businesses, even as they need funds for capacity-building projects, research and development, and strategic acquisitions.
“The idea is to support businesses, largely manufacturing businesses, plug themselves into global value chains,” said Kumar, who was involved in the SGF consultations.
Equity investment funds, meanwhile, have traditionally paid limited attention to SMEs.
“Despite the wide presence of MSMEs across the economy, existing equity funds largely focus on early-stage enterprises covering micro enterprises. This creates scope to further expand access to growth equity capital for small and medium enterprises. Such capital becomes important as SMEs seek to scale further. It can also help enterprises navigate critical inflection points in their growth journey and move towards greater scale and competitiveness. These investments can support promising SMEs in developing into industry leaders,” a government factsheet dated 6 October on the SME Growth Fund said.
Will the fund cover all MSMEs?
No. The SGF will target small and medium enterprises, where funding options are limited. will not be eligible under the fund.
As of 9 October, India had 97.4 million registered MSMEs, of which 97.3 million were micro enterprises, 544,542 were small enterprises and 41,994 were medium enterprises.
Under the 2025 amendments to the MSME Development Act, a micro enterprise can have an annual turnover of up to ₹10 crore, a small enterprise up to ₹100 crore and a medium enterprise up to ₹500 crore.
The fund’s focus on small and medium enterprises reflects the need to help businesses move beyond the micro-enterprise stage and build the capacity to compete at a larger scale.
How do delayed payments affect MSMEs?
Delayed payments from customers add to the cash-flow pressures faced by Indian MSMEs. Businesses can wait more than 45 days to receive payments for their orders, forcing them to manage day-to-day expenses while money remains tied up in receivables.
The Economic Survey for FY26 noted that ₹8 trillion remained locked in delayed payments to MSMEs.
When businesses do not receive payments on time, they may have to seek credit even to fund routine operations. could help eligible firms finance expansion and other long-term needs without relying entirely on borrowing, although it would not by itself resolve the problem of delayed customer payments.
Has the government used equity funding for MSMEs before?
Yes. As part of the Atmanirbhar Bharat policy push in 2020, the Union government established the Self-Reliant India (SRI) Fund, with ₹12,000 crore in central government support. The fund aimed to catalyse investments of around ₹50,000 crore in the sector, with participation from private investors.
By May 2026, the government had invested ₹2,851 crore as equity in 761 MSMEs through the SRI Fund, according to an MSME ministry statement issued in June 2026.
The approval of the new SME Growth Fund marks a further push towards equity infusion as a policy tool for supporting smaller businesses.
MSMEs contribute 31% of India’s gross domestic product and 48.58% of its exports, and are the country’s second-largest source of employment after agriculture. The government’s latest initiative seeks to help more firms in the sector expand, become more competitive and participate in global value chains.