Tier 2-4 towns to drive much of festive loan demand, Karnataka among 5 states to contribute 50% of total business

Bengaluru: More than 70% of festive loan demand is expected from Tier 2, 3 and 4 towns, with the top 5 states (Maharashtra 13%, Uttar Pradesh 12%, Gujarat 10%, Karnataka and Tamil Nadu 10%, respectively) contributing more than 50% of total business, said MSME-focused digital lending NBFC FlexiLoans.com.

On Wednesday, it released the festive season outlook report, projecting a significant increase in credit demand from the country's small businesses.

The report projects an ecommerce boom with 20-25% YoY growth, driven by Tier 2 and Tier 3 adoption and festive mega-sales, with ecommerce giants expected to clock Rs 1.2–1.4 lakh crore in gross merchandise value (GMV).

Ritesh Jain, Co-founder of FlexiLoans.com, said this festive period will also create more jobs, as there will be a 15-18% surge in employment opportunities. Industry projections, including a CareEdge Ratings report, highlight accelerated MSME formalisation and credit growth as key drivers of this expansion. The surge, directly linked to the ecommerce boom and anticipated over 50% sales spike in key segments, is prompting SMEs across retail, logistics, and manufacturing to rapidly scale their workforce.

Jain also added that over the past four festive seasons, they have seen MSMEs increasingly rely on digital credit to capture consumer demand. With ecommerce and quick commerce accelerating in Tier 2 and 3 towns, 2025 is shaping up to be one of the strongest festive seasons for MSMEs."This festive season, we expect record participation from MSMEs in these regions," he added.

According to reports, NBFCs’ MSME AUM (Assets Under Management) is projected to cross Rs 5.3 lakh crore by FY26, growing at about 20% annually, outpacing banks. MSME loans rose from 5.9% of NBFC portfolios (FY21) to 9.1% (H1-FY25). Microloans (sub-Rs 10 lakh) remains the fastest-growing category, where NBFCs already command about 45% share.

FlexiLoans disbursed over 170,000 loans amounting to over Rs 10,000 crore, and it has worked with over 25 lending partners. With over Rs 2400 crore in AUM, the company offers term loans ranging from Rs 2 lakh to Rs 25 lakh.

Tier-2 and tier-3 towns account for more than half of festive orders, and the share of festive season orders from Tier 2 & 3 towns (combined) has been 55.33%, 51.91% and 52.97% in 2022, 2023 and 2024, respectively, said an analysis by Unicommerce.

It stated that while beauty & personal care (BPC) and fashion & accessories have been the two top contributors of festive orders over the years, FMCG has consistently led volume growth from 2022 through 2024, with food & beverages leading the numbers. In 2022, electronics & home appliances, and home decor drove festive baskets, whereas 2023 saw a pivot towards eyewear & accessories, as well as beauty & wellness products. By 2024, the momentum expanded further with health & pharma and travel accessories joining the growth charts.

Fashion and accessories have consistently dominated festive purchases, with Karnataka and Maharashtra being the top volume-generating states, driven by cultural preferences for festive apparel, it added.