MSMEs : India’s Real Growth Engine Needs Real Protection
India’s Most Powerful Yet Unprotected Sector
If there’s one segment that truly powers India’s economy, it’s our micro, small and medium enterprises (MSMEs). According to the latest figures, India has around 6.5 crore registered MSMEs, of which over 98% are micro-units. (The Financial Express) The sector is estimated to employ tens of millions, with recent reports indicating employment of nearly 29.77 crore when combining registered units. (India Brand Equity Foundation) These enterprises are agile, innovative and deeply committed — yet surprisingly vulnerable.
The reason? Most operate without meaningful insurance coverage. The [Insurance Regulatory and Development Authority of India (IRDAI) noted that only about 5% of MSMEs had insurance cover in earlier assessments. (Moneycontrol) In effect, the engines that power India’s progress are operating without proper protection.
Why the Protection Gap Is Broad and Deep
Traditional insurance models often fail to cater to MSMEs because they expect regular cash flows, standard documentation, and organised structures - conditions many micro enterprises can’t meet. As one industry piece puts it, “nearly 85% of MSMEs in India are uninsured”. (The Economic Times)
Often, insurance is seen as a luxury or an afterthought. In my conversations with small business owners, I’ve often heard, “Sir, humare business mein pehle chalna zaroori hai, baad mein bachav.” (“We must first keep the business running; protection can wait.”)
Another recent analysis found that fewer than 10% of MSMEs offer group health insurance to employees. (FinancialContent) This gap isn’t just about risk – it’s about livelihoods, business continuity and resilience.
Post-pandemic, this vulnerability was laid bare. Many MSMEs faced supply chain disruptions, labour shortages, increased costs and export uncertainties. For a sector that contributes nearly 30% to India’s GDP (in some estimates) and around 40–45% of exports, these risks cannot be ignored. (The Economic Times)
What Holistic Protection Must Address:
Insurance for MSMEs needs to evolve beyond simple asset cover. It must safeguard three inter linked pillars:
1. People
The workforce is the lifeblood of any MSME. Health and life insurance, shelters for employees’ families, and social-security benefits bolster morale, talent retention, and stability. Yet data say less than 10% of MSMEs even offer group health cover.
2. Assets & Operations
Equipment, inventory, premises - these are critical. A fire, natural calamity or theft can halt operations overnight. Customised covers (property, liability, business interruption) ensure continuity.
3. Sustainability & Growth
Beyond survival, protection means positioning for sustainability and growth. Insured enterprises are better able to access credit, meet investor criteria, comply with ESG standards, and scale. With digital adoption rising (e.g., 73% of MSMEs report growth via digital tools) the ability to integrate risk-protection into growth strategy becomes vital. (The Economic Times)
When viewed this way, insurance for MSMEs is not an expense - it’s a strategic enabler.
Technology: The Bridge to Affordability and Access
Technology is not just an enabler of growth; it is a gateway to inclusion. Digital platforms simplify onboarding, underwriting and claims for MSMEs with limited formalities. Usage-based pricing, AI-driven risk models, and embedded insurance (into payment, logistics or credit platforms) bring relevance and reduce friction.
Evidence of change is emerging: a report shows digital insurance penetration in MSMEs in Tier 3 cities grew 46% over the past year - greater than in Tier-1 or Tier-2 cities. (ETBFSI.com) This signals that last-mile markets are adopting more rapidly when solutions are simple and integrated.
Standardising products and simplifying journeys are key. The regulator has moved to offer standardised MSME-focused products. (niapune.org.in)
Solution and Impact: A View from the Field
Across the ecosystem, we’re beginning to see how digital integration can change the MSME protection landscape. Platforms that combine employee, retiral, and business insurance into a single interface are helping enterprises move from fragmented to holistic coverage. Instant digital onboarding, automated claims, and customizable policy options are enabling small businesses - even those with just 10 employees - to access affordable protection without complex paperwork. Such tech-driven innovations have already extended coverage to millions of lives and supported thousands of families during critical times, proving that when technology meets empathy, financial protection truly becomes inclusive.
Shifting Culture – From Optional to Essential
For insurance uptake to scale, we must shift perception. Business owners must see protection as part of their growth journey - not just a compliance exercise.
Collaboration among insurers, brokers, InsurTechs and government is essential. Simplified policies, local-language communication, and trust-based digital ecosystems will help ensure inclusion. For example, when firms focus on the value of risk mitigation (rather than just cost), adoption follows.
Conclusion: Protecting India’s Growth Engine
India’s vision of “Viksit Bharat 2047” rests heavily on the strength of its MSME sector. To protect this growth engine, we must make insurance part of every enterprise’s DNA - not a privilege for the few.
When MSMEs have the confidence to operate and scale, even when shocks hit, the ripple effect is massive: livelihoods secured, families protected, innovation maintained, the economy strengthened.
Protecting MSMEs is not just an actuarial exercise - it’s a national imperative.
Author: Kamalakar Sai Palavalasa, Founder & Group CEO, MicroNsure
Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of IIA and IIA does not assume any responsibility or liability for the same.