India inks $750 mn pact with World Bank to boost MSMEs financials

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New Delhi: The World Bank and the Government of India have signed a $750 million agreement for the MSME Emergency Response Programme to support the increased flow of finance into the hands of micro, small, and medium enterprises (MSMEs), severely impacted by the COVID-19 crisis.

The World Bank’s MSME Emergency Response Programme 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. This is the first step among a broader set of reforms that are needed to propel the MSME sector over time.

The agreement was signed by Department of Economic Affairs Additional Secretary Sameer Kumar Khare on behalf of the Government of India and Mr Junaid Ahmad, Country Director (India) on behalf of the World Bank.

Mr Khare said this project will support the Government in providing targeted guarantees to incentivize NBFCs and banks to continue lending to viable MSMEs to help sustain them through the crisis.

The World Bank Group, including its private sector arm – the International Finance Corporation (IFC), will support the government’s initiatives to protect the MSME sector.

In view of the limited flow of credit even to the viable enterprises in the sector, this program is aimed to support the government’s efforts to channel that liquidity to the MSME sector by de-risking lending from banks and Non-Banking Financial Companies (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 Small Finance Bank (SFBs), will help them respond to the urgent and varied needs of the MSMEs. This will include supporting the 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 percent of MSMEs are served by formal credit channels. The program will incentivize and mainstream the use of fintech 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 that currently may not have access to the formal channels.

Shri Junaid Ahmad said that 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 $750 million loans 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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