Home >News >India >World Bank approves $750 million to support credit finance for Indian MSMEs
A file photo. REUTERS/Johannes P. Christo/File Photo (REUTERS)
A file photo. REUTERS/Johannes P. Christo/File Photo (REUTERS)

World Bank approves $750 million to support credit finance for Indian MSMEs

  • The package will support the MSME package announced by the government under its self-reliant India programme
  • India’s MSME sector which contributes 30% of India’s GDP and 40% of exports is currently facing severe stress

NEW DELHI: The World Bank has approved $750 million to support increased flow of finance into the hands of micro, small, and medium enterprises (MSMEs) in India, severely impacted by the covid-19 crisis. The package will support the MSME package announced by the government under its self-reliant India programme.

“The World Bank’s MSME Emergency Response program will address the immediate liquidity and credit needs of some 1.5 million viable MSMEs to help them withstand the impact of the current shock and protect millions of jobs," the multilateral lending institution said in a statement.

India’s MSME sector which contributes 30% of India’s GDP and 40% of exports is currently facing severe stress. The sector, which employs about 150-180 million people, is now burdened with cancelled orders, loss of customers and supply chain disruptions – causing a sharp fall in revenues. This cash flow shortage is exacerbated by constraints to accessing finance, potentially leading to solvency problems. The broad-based loss of cash flows has triggered a chain of non-payments throughout the economy, including to the financial sector.

“The MSME sector is central to India’s growth and job creation and will be key to the pace of India’s economic recovery, post COVID-19. The immediate need is to ensure that the liquidity infused into the system by the government is accessed by MSMEs. Equally important is to strengthen the overall financing ecosystem for MSMEs," said Junaid Ahmad, World Bank Country Director in India. “This operation seeks to achieve both these objectives by furthering the role of NBFCs and SCBs as effective financial intermediaries and leveraging fintech to broaden the reach of finance into the MSME sector."

The Bank has lent $5.13 billion to India--highest in a decade--in its last financial year ending 30 June including $2.75 billion to support India’s effort towards meeting the covid-19 challenge. The first $1 billion emergency support was announced in April for immediate support to India’s health sector. Another $1 billion project was approved in May to increase cash transfers and food benefits to the poor and vulnerable, including a more consolidated delivery platform – accessible to both rural and urban populations across state boundaries. The $750 million loan for the MSME sector from the International Bank for Reconstruction and Development (IBRD) has a maturity of 19 years including a 5-year grace period.

The fund will be used to improve the funding capacity of key market-oriented channels of credit, such as the NBFCs and Small Finance Bank (SFBs) to help them respond to the urgent and varied needs of the MSMEs. “This will include supporting government’s refinance facility for NBFCs. In parallel, the IFC is also providing direct support to SFBs through loans and equity," the World Bank said.

As part of 3 trillion support for the MSME sector, finance minister Nirmala Sitharaman in May had announced 30,000 crore liquidity support for non-banking finance companies, and microfinance institutions (MFIs) that would indirectly benefit small businesses. Under the scheme, banks will be allowed to invest, through primary or secondary market transactions, in investment-grade debt papers issued by NBFCs, HFCs and MFIs. These will be fully guaranteed by the government. The World Bank funding is likely to support the government’s effort in this regard.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.

Close
×
My Reads Redeem a Gift Card Logout