IMF Working Papers

Credit and Product Innovation in Emerging Markets: Evidence from India

By Siddharth George, Divya Kirti, Nils Olle Herman Lange, Maria Soledad Martinez Peria, Rajesh Vijayaraghavan

September 26, 2025

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Format: Chicago

Siddharth George, Divya Kirti, Nils Olle Herman Lange, Maria Soledad Martinez Peria, and Rajesh Vijayaraghavan. "Credit and Product Innovation in Emerging Markets: Evidence from India", IMF Working Papers 2025, 192 (2025), accessed September 27, 2025, https://doi.org/10.5089/9798229026475.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We study how access to bank financing affects product innovation in a developing country context by analyzing a reform that broadened credit eligibility for many small Indian manufacturing firms. Newly eligible firms borrow more but, on average, do not introduce new or more complex products or expand product scope. Many firms appear to operate below efficient scale and use credit to expand existing product lines rather than innovate. Moreover, most firms face several additional barriers that weaken the impact of credit on innovation. Among firms that do not face these additional barriers, credit access boosts innovation, as in advanced economies.

Subject: Credit, Financial inclusion, Financial markets, Money

Keywords: Credit, Financial frictions, Financial inclusion, Innovation, Market barriers, SMEs

Publication Details

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