How technology is slowly reshaping India's entrepreneurial backbone

Open any recent piece on India's small businesses, and the same sentence shows up: MSMEs are the backbone of the Indian economy. It's not an understatement. By June 2026, more than 8.7 crore (87 million) enterprises had registered on the Udyam Registration Portal and Udyam Assist Platform, employing over 32.8 crore people, making it the second-largest source of employment.

But a backbone on its own doesn't do very much. It needs a nervous system. It needs something that senses change and carries a response through the body fast enough to matter. That's the part of the MSME story we don't talk about enough, and it's the part I think is about to change faster than most people expect.

There's a piece of advice doing the rounds in industry conversations right now: MSMEs need to adopt AI. What's actually happening is quieter. AI isn't arriving at the MSME's front door.

It's arriving through the infrastructure the MSME already uses i.e. the payment terminal, the lending app, the risk engine that decides in seconds whether a loan gets approved. A shopkeeper who accepts a digital payment today is already interacting with a system that uses artificial intelligence somewhere in that chain, whether or not anyone tells her so.

That's the one honest version of "AI adoption" for most of India's small businesses: not a tool they pick up, but a layer working on their behalf, invisibly. Having said that, MSMEs will latch onto AI products that genuinely help them manage and scale their business seamlessly. Whether that happens in the background via tools they already use or a new app is immaterial to them.

From digital footprint to financial identity

The most interesting shift I've watched over the last two years isn't in how MSMEs use technology; it's in how technology has started to see them. For decades, the country's smallest enterprises were largely invisible to formal finance. No credit history, no collateral, no paperwork trail a bank could underwrite against. What's changed is that the digital exhaust of running a small business, transaction volume, payment consistency, seasonal patterns, and repayment behaviour has become a legitimate substitute for the paperwork that used to gatekeep credit.

This is where AI is doing its most important work in the MSME ecosystem, and it's not glamorous. It's pattern recognition applied to transaction data, turning an entrepreneur who was previously "unbankable" into someone whose risk profile can actually be modelled.

Data backs this up: per RBI figures, outstanding bank credit to the MSME sector grew 23.5% during FY26, significantly outpacing overall credit growth and making MSMEs one of the fastest-growing lending segments in the country. That's not a story about entrepreneurs becoming tech-savvy.

It's a story about infrastructure becoming perceptive enough to recognise entrepreneurship that was always there.

The risk of the wrong AI story

I'd be cautious about the narrative forming around "AI-ready MSMEs" because it puts the burden of transformation on the wrong party. Talk to enough entrepreneurs and MSMEs, and a pattern emerges: revenue growth and operational efficiency rank higher than AI adoption on their list of priorities.

That ordering is a sign of where the pressure is actually coming from. It's a demand for the systems around them, like banking, payments, credit, and insurance, to get smarter without asking the entrepreneur to change how they run their business.

Human-centred AI, in the MSME context, means the entrepreneur shouldn't have to notice it's there. The tailor doesn't need a dashboard. She needs a working capital offer to show up right before wedding season demand spikes, based on last year's pattern, without her having to apply for it.

When entrepreneurs discuss and explain their requirements and needs to agents, it significantly broadens the profile of the entrepreneur, helping improve the understanding of “who they are and what they need” and, in turn, the relevance of the offerings extended to them.

India is where this matters most

The MSMEs with the least digital literacy, mostly outside India's metros, in semi-urban and rural clusters, stand to gain the most from this kind of infrastructure-led intelligence. An intelligence layer that works quietly behind a payment rail or a lending app reaches them regardless. That's a very different, and more realistic, path to inclusion across a country this size.

What the next chapter actually looks like

India's MSME story over the last decade was about getting online - UPI, GST,

e-commerce and the JAM Trinity (Jan Dhan-Aadhaar-Mobile).

The next decade will be about the invisible intelligence layer underneath them getting good enough that a shopkeeper, a small manufacturer, or a first-generation entrepreneur in a Tier 3 town gets treated, financially, like an enterprise twice her size without ever needing to know why.

The backbone was never the problem. It's always been strong, often against considerable odds. What India's entrepreneurial engine has lacked is the nervous system to match it. That's the layer worth building, and the one I think will quietly define this decade of the MSME story more than any tool anyone adopts.

By Kabeer Jain, CTO & Co-founder, Mintoak