Plugging the MSME Finance Gap in India: Assessment of investment in Vistaar Finance

This study examines the effects of Dutch Entrepreneurial Bank FMO’s investment in NBFC Vistaar Finance, on its overall portfolio as well as end-users.


A majority of MSMEs in India operate in an informal economy. While MSMEs are recognised as an engine of growth and employment generation, less than 5% of enterprises have access to formal credit and lack of timely financing remains a significant obstacle to their growth. As a result, the MSME sector in India is trapped in a low productivity cycle and has not realised its potential in the domestic market.

In 2013, Dutch Entrepreneurial Bank FMO invested INR 300 million from the Dutch government fund MASSIF, in Vistaar Finance – an NBFC that lends to underserved segments. In 2018 this investment was repaid to FMO. The funding was provided for scaling Vistaar’s on-lending program and two Capacity Development projects: (1) migration to a more robust IT platform and (2) psychometric testing of clients to better understand their risk preferences, intention to repay and the likelihood of default.

This study examines the effects of FMO’s investment and was commissioned by the Dutch bank.


The impact of the investment was evaluated across six metrics: Relevance, Additionality, Catalytic effects, Demonstration effects, Effectiveness and Effects at the end-user level.

Key Findings

The study revealed encouraging results for Vistaar’s clients. They reported an increase in revenue and number of employees, as well as business assets and inventory. They also noted positive changes at the household level in terms of greater disposable income, leading to increased use of insurance and savings plans, as well as a personal investment in health and education.

Additionally, the following recommendations were put forth for improving Vistaar’s impact:

  • Incorporate more flexibility into repayment schedules;
  • Digitize repayment systems for the urban and semi-urban market;
  • Extend business advisory services to encourage efficient adoption of financial management practices;
  • Develop more green products for MSMEs, such as investment in energy efficiency and cleaner production;
  • Design products that target women entrepreneurs wanting to start a new business or expand an existing one.


One of the recommendations from the study was that as a financing institution, FMO can play a more proactive role in encouraging lending to women-owned businesses. Subsequently, FMO is implementing this through its gender finance strategy. FMO is also investing in product development as part of Capacity Development, as per other recommendations from the study.

Thematic Area

Financial Well-being and Social Protection,

Small, Growing Businesses and Employment

Project Leads

Parul Agarwal, Giorgia Barboni


Uttar Pradesh


FMO, Vistaar