What’s Holding Back MSMEs: Regulatory Cholesterol or a Mindset Problem?

One of the big challenges in India is that most small businesses remain stunted - they don’t grow to become mid-sized businesses. And a few mid-sized businesses grow to become large world-class firms. This is a problem because it is the growth of lots of small businesses that creates jobs and livelihoods at scale. This is one of the reasons that we are not generating enough economic opportunities in our country. Now, if you go and talk to MSME associations or MSME owners themselves, you will hear the same thing:

1. It’s so hard to grow!
2. Look at the bureaucracy, the red tape, and the corruption; how can we grow?
3. We have had to deal with demonetisation, GST, COVID economic slowdowns—how do you expect us to grow?
4. Getting a loan is next to impossible—less than 10% of businesses can access credit formally.
5. Large buyers willfully delay payments to 90 or 100 days just because they can get away with it.

And so on.

These are all extremely valid reasons. But the reality is that despite these challenges, some businesses have managed to grow and scale up.

Rawat Misthan Bhandar (Jaipur) – What started as a small sweet shop became one of Rajasthan’s most famous food brands, known for its pyaaz kachori and sweets.

Rameshwaram Café (Bengaluru) – Started just a few years ago as a small South Indian eatery, but has now expanded into multiple outlets across Bengaluru and Hyderabad, becoming a household name.

Kalyan Sarees (Kerala) – Founded in 1992 as a small saree store, Kalyan Sarees expanded into one of South India’s most trusted saree brands, with multiple outlets across Kerala and Tamil Nadu.

I am sure there are success stories from your city or town, too. These businesses faced the same constraints, but they found ways to scale up. This proves that while external challenges exist, the real roadblock isn’t just the system - it’s the mindset.

The Mindset Trap

I would say 90% of MSMEs fall into one of two mindset traps:

1. The Victim Mindset – "The system is broken, the market is tough, so how can I grow?" But the truth is, some businesses are growing in the same environment. So why not them?
2. The Complacency Mindset – "I have what I need. My family is secure. Growth means more problems. Why bother?" This is even more dangerous. Some argue that the world doesn’t need more consumption, which is fair. But what we need is excellence – well run businesses that are efficient, environmentally sustainable, and treat their employees well.

To my mind this “Growth Mindset” is like the invisible 7/8ths of the iceberg that is below the water. If we don’t address this mindset shift, we are never going to solve the MSME challenge in India.

Why we need a new model for MSME Growth

Most MSMEs in India operate on traditional knowledge, passed down over generations. They operate in small circles and learn from the people around them.

As a result, they rarely get exposed to new ways of doing business, market expansion strategies, mentorship from experienced business leaders, etc. This lack of exposure makes them resistant to change because when they don’t see others like them succeeding, they assume growth isn’t possible.

In the last 10-15 years, the startup ecosystem in India has flourished, thanks to structured support systems like accelerators, incubators, funding networks, and mentorship programs. This has contributed to immense success stories both locally and nationally, making starting up aspirational. But for MSMEs, such an ecosystem doesn’t really exist. While government schemes provide financial assistance, there is little focus on capacity building, mentorship, and structured learning.

Most small business owners are left to figure things out on their own.

Could Structured Programs Bridge the Gap for MSMEs?

GAME - Global Alliance for Mass Entrepreneurship , along with its partners, ran an experiment in Ludhiana for over two years called “Growtherator Ludhiana.” We worked with small businesses typically doing ?2 Cr to ?10 Cr in revenue and put them in cohorts of about 20 people. The idea was to find one growth event in each business and help the promoter execute this. A growth event could be tapping into a new customer segment,? launching a new product, getting the first export order, or going online and figuring out an e-commerce channel. Whatever it was, we worked with them to execute the idea. Businesses that hadn’t grown in years suddenly started scaling. On average, they saw 30% growth in six months. Some grew by 100%, even 150%.

And then something changed. Other entrepreneurs saw their peers growing and thought, If they can do it, why can't I?

Then their own business started growing and they said “I never imagined I could do this, but here I am.” This boosted their confidence, and seeing businesses like theirs succeed changed their mindset in a way nothing else could. Here’s what a few cohort members had to say -

Listen to more here:

So this is one model.

TiE Chennai also has a very good approach. They organise small business owners into what they call personal boards—small groups that meet regularly with a facilitator. They sit together, talk about their challenges, share solutions, and learn from each other’s experiences. So you have your own personal board, a support system that helps you navigate business hurdles.

Yet another partner with a powerful model is the Teaching Learning Community out of Nashik.?In this community based model, entrepreneurs who have benefited from TLC pay forward by teaching/helping other entrepreneurs improve, and the chain grows over time. All of this is done out of passion and gratitude and is free of cost.

What we are seeing is different models, but at their core, they all do the same thing—they build a growth mindset and encourage peer learning and sharing. Because that’s how we are wired to grow. When we see someone like us trying something new and succeeding, it makes us stop and think, If they can do it, why can’t I?

So the question we should ask is: How do we make these models accessible to millions of MSMEs across India? What will it take to build such learning networks in every city and district over the next few years?

Can banks like SBI or organizations like SIDBI invest in building the mindset and capacity of India’s SMEs through such programs—helping them become more creditworthy?

Do you know of more such good models to accelerate growth? Do share them.