Unlocking Idle Wealth to Power MSMEs

India’s economy runs on the energy of its entrepreneurs. With nearly 63 million MSMEs generating about 30 % of India’s GDP and employing over 25 crore people, this sector is the nation’s growth engine.
Yet, its single biggest roadblock is credit. The total debt demand from MSMEs is estimated at over ₹106 lakh crore, while formal financial institutions meet barely half that amount. That’s a gap worth tens of lakh crore rupees — an enormous reservoir of potential left untapped.

Meanwhile, across India, countless individuals and families own properties and assets that yield little or nothing. The third-party collateral concept — formalised through a professionally managed Collateral Consortium — seeks to bridge these two realities. It enables asset-owners to pledge their idle assets to back responsible businesses in return for a steady income, while providing enterprises the collateral strength they desperately need.

The Credit Conundrum: Why MSMEs Struggle for Loans

Banks prefer security, and for good reason. But most small enterprises can’t offer enough collateral or have patchy financial statements.
Despite RBI and government initiatives — the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Mudra Yojana, and Emergency Credit Line Guarantee Scheme (ECLGS) — the problem persists.

• As of March 2024, outstanding bank credit to MSMEs stood at ₹27–28 lakh crore, still far below total demand.
• The average loan rejection rate for small enterprises remains around 30 %, often due to collateral shortfall or documentation gaps.
• Unsecured loans are growing fast, prompting RBI warnings about rising risk exposure.

Clearly, a sustainable alternative is needed — one that combines the security lenders seek with the liquidity entrepreneurs crave.

How Third-Party Collateral Bridges the Gap

A Collateral Consortium allows an independent, professionally governed entity to accept property pledges from individuals (the “asset-owners”) and offer them as collateral guarantees to vetted businesses.

Everyone gains:

• Asset-owners earn periodic returns without selling their property.
• MSMEs gain access to loans at competitive rates.
• Banks receive credible, diversified security that lowers default risk.
• The economy benefits from improved asset productivity and job creation.

Such a structure transforms under-utilised wealth into productive capital — aligning perfectly with India’s push for financial inclusion, Make in India, and Atmanirbhar Bharat.

Why Now Is the Right Time

1. MSME lending is accelerating: Credit to MSMEs grew 14 % year-on-year in FY 2024–25, outpacing retail loans.
2. Banking reforms encourage innovation: RBI’s regulatory sandboxes and digital lending norms support new risk-mitigation models.
3. Idle assets abound: India’s household savings in real estate exceed ₹600 lakh crore, much of it illiquid. Even a small fraction leveraged safely could release vast liquidity.
4. Low-yield environment: Property rental yields average 2–3 %, while a collateral-backed model can offer 4–6 % returns with proper safeguards.

The Roadblocks: Why Some May Hesitate

For Banks & Lenders

• Valuation and enforcement risk: How easily can a third-party pledge be realised in default?
• Legal complexity: Multiple ownerships and unclear rights may slow enforcement.
• Operational oversight: Maintaining a diversified asset pool requires robust governance.
• Regulatory uncertainty: Without explicit RBI norms, banks may hesitate to recognise such collateral fully.

For Collateral Providers

• Fear of losing control over pledged property.
• Trust deficit in intermediaries managing pooled assets.
• Liquidity concerns — difficulty retrieving property mid-tenure.
• Lack of awareness about legal safeguards and insurance protections.

How These Concerns Can Be Addressed

1. Transparent Governance:
   Establish an independent board of trustees with retired bankers, CAs, valuers, and legal experts to oversee asset use and risk management.
2. Robust Valuation & Monitoring:
   Engage certified valuers; update appraisals annually; maintain insurance on pledged assets.
3. Legal Clarity:
   Standardise contracts ensuring clear title, enforceable rights, and exit options for owners.
4. Risk Mitigation Fund (RMF):
   Dedicate a small fee (e.g., 1 %) from each transaction to a corpus that cushions both owners and banks in case of borrower failure.
5. Diversified Collateral Pool:
   Spread exposure across industries, geographies, and borrowers to reduce concentration risk.
6. Alignment with CSR & ESG Goals:
   Allow banks to treat a portion of guarantee fees as CSR expenditure — aligning profit with purpose.
7. Public Awareness & Education:
   Simplify communication so ordinary asset-holders understand the benefits, risks, and safeguards.

A Pragmatic Vision: Shared Prosperity through Trust

The idea isn’t about replacing traditional banking — it’s about supplementing it with imagination. In a country where bank assets form barely 1 % of total national assets, the remaining 99 % represents a vast ocean of dormant wealth waiting to be channelled productively.

A Collateral Consortium can make this happen — responsibly, transparently, and sustainably. It transforms the economy’s greatest paradox — liquidity amid scarcity — into opportunity through collaboration.

Conclusion

Third-party collateral, managed through a professional consortium, is more than a financial innovation; it’s an instrument of inclusive growth.
It gives banks security, MSMEs credit, and citizens a chance to turn property into productivity — all while reinforcing the principles of Safety • Liquidity • Profitability.

If implemented with diligence, equity, and altruism, it could well become one of the most meaningful financial reforms of the decade — proving that trust itself can be the nation’s most powerful form of capital.