World Bank approves $500 mn to strengthen MSMEs in India

08 Jun '21
3 min read
Pic:  srs1191995 / Shutterstock.com
Pic: srs1191995 / Shutterstock.com

The World Bank’s board of executive directors has recently approved a $500 million programme to support the Government of India’s nationwide initiative to revitalise the micro, small and medium enterprise (MSME) sector, which has been heavily impacted by the COVID-19 crisis. The programme targets improvements in the performance of 555,000 MSMEs.

The programme is expected to mobilise financing of $15.5 billion, as part of the government’s $3.4 billion MSME Competitiveness – A Post-COVID Resilience and Recovery Programme (MCRRP).

The $500 million Raising and Accelerating MSME Performance (RAMP) programme is the World Bank’s second intervention in this sector, the first being the $750 million MSME Emergency Response Programme, approved in July 2020 to address the immediate liquidity and credit needs of millions of viable MSMEs severely impacted by the ongoing COVID-19 pandemic. To date, 5 million firms have accessed finance from the government programme. With the approval of the latest programme, the World Bank's financing towards improving the productivity and financial viability of the MSME sector amounts to $1.25 billion over the past year.  

Having supported the immediate liquidity and credit needs of viable MSMEs in the first phase, the RAMP programme will support the Government of India’s efforts to increase MSME productivity and financing in the economic recovery phase, crowd in private sector financing in the medium term, and tackle long-standing financial sector issues that are holding back the growth of the MSME sector, the World Bank said in a press release. 

The MSME sector is the backbone of the country’s economy, contributing 30 per cent of India’s GDP and 40 percent of exports. Out of some 58 million MSMEs in India, more than 40 percent lack access to formal sources of finance. 

“The MSME sector, a critical backbone of India’s economy, has been hard hit by the COVID-19 pandemic,” said Junaid Ahmad, World Bank Country Director in India. “The RAMP programme will intensify efforts to support firms to return to pre-crisis production and employment levels, while laying the foundations for longer-term productivity-driven growth and generation of much-needed jobs in the MSME sector.”

The World Bank Group, including its private sector arm the International Finance Corporation (IFC), will support the MSME sector by strengthening institutional capacity and coordination, and by supporting firm capabilities and access to markets and finance.

“The MSME sector in India faces several challenges. There is need to strengthen access to formal sources of financial and non-financial services, including of women headed MSMEs, and strengthen coordination in the national and state MSME support programmes. Given the magnitude and geographical spread across the country, direct interventions can be prohibitively costly,” said Peter Mousley, lead private sector specialist and World Bank’s task team leader for the programme. “The RAMP programme will support the Government’s MCRRP objective of providing a more comprehensive and coordinated Centre-State approach to improve MSME sector productivity, reduce the gender gap, and promote more environmentally sustainable investments.” 

In addition to national level activities, the programme will initiate targeted activities in five “first mover” states – Gujarat, Maharashtra, Punjab, Rajasthan, and Tamil Nadu with the potential of additional states joining the programme going forward.

The $500 million loan from the International Bank for Reconstruction and Development (IBRD), has a maturity of 18.5 years including a 5.5-year grace period.  

Fibre2Fashion News Desk (RKS)

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