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World Bank's $750-mn emergency response for Indian MSMEs
02 Jul '20
3 min read
Pic: Shutterstock
The World Bank recently approved a $750-million ‘MSME Emergency Response’ programme to support increased flow of finance to micro, small, and medium enterprises (MSMEs) in India severely affected by the COVID-19 crisis. It will address the immediate liquidity and credit needs of around 1.5 million viable MSMEs to help them withstand the shock of the pandemic and protect millions of jobs.
COVID-19 has placed India’s MSME sector, which contributes 30 per cent to the country’s GDP and 40 per cent to its exports, under severe stress. The sector, which employs about 150-180 million people, is today burdened with cancelled orders, loss of customers and supply chain disruptions, causing a sharp fall in revenues.
The World Bank Group, including its private sector arm the International Finance Corporation (IFC), will support the Indian government’s initiatives to protect the MSME sector by unlocking liquidity, strengthening non-banking finance companies (NBFCs) and small finance banks (SFBs) and enabling financial innovations, according to a press release from the bank.
Given the current uncertainties, lenders remain concerned about borrowers’ ability to repay, resulting in limited flow of credit even to the viable enterprises in the sector. This programme will support government’s efforts to channel that liquidity to the MSME sector by de-risking lending from banks and NBFCs to MSMEs through a range of instruments, including credit guarantees.
Improving the funding capacity of key market-oriented channels of credit, such as the NBFCs and SFBs, will 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.
Today, only about 8 per cent of the MSMEs are served by formal credit channels. The programme will incentivise and mainstream the use of financial technology and digital financial services in MSME lending and payments.
Digital platforms will play an important role by enabling lenders, suppliers, and buyers to reach firms faster and at a lower cost, especially small enterprises who currently may not have access to the formal channels.
The World Bank has to date committed $2.75 billion to support India’s emergency COVID-19 response, including the new MSME project.
The first $1 billion emergency support was announced in April this year 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 from the International Bank for Reconstruction and Development (IBRD), has a maturity of 19 years including a 5-year grace period.
COVID-19 has placed India’s MSME sector, which contributes 30 per cent to the country’s GDP and 40 per cent to its exports, under severe stress. The sector, which employs about 150-180 million people, is today burdened with cancelled orders, loss of customers and supply chain disruptions, causing a sharp fall in revenues.
The World Bank Group, including its private sector arm the International Finance Corporation (IFC), will support the Indian government’s initiatives to protect the MSME sector by unlocking liquidity, strengthening non-banking finance companies (NBFCs) and small finance banks (SFBs) and enabling financial innovations, according to a press release from the bank.
Given the current uncertainties, lenders remain concerned about borrowers’ ability to repay, resulting in limited flow of credit even to the viable enterprises in the sector. This programme will support government’s efforts to channel that liquidity to the MSME sector by de-risking lending from banks and NBFCs to MSMEs through a range of instruments, including credit guarantees.
Improving the funding capacity of key market-oriented channels of credit, such as the NBFCs and SFBs, will 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.
Today, only about 8 per cent of the MSMEs are served by formal credit channels. The programme will incentivise and mainstream the use of financial technology and digital financial services in MSME lending and payments.
Digital platforms will play an important role by enabling lenders, suppliers, and buyers to reach firms faster and at a lower cost, especially small enterprises who currently may not have access to the formal channels.
The World Bank has to date committed $2.75 billion to support India’s emergency COVID-19 response, including the new MSME project.
The first $1 billion emergency support was announced in April this year 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 from the International Bank for Reconstruction and Development (IBRD), has a maturity of 19 years including a 5-year grace period.
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