The World Bank has approved a US$ 750 million MSME Emergency Response program to support 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 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. This is the first step among a broader set of reforms that are needed to propel the MSME sector over time.
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 by:
India’s financial system benefited from early and decisive measures taken by the RBI and the Government of India (GOI) to infuse liquidity into the market. Give 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 program will support 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.
Strengthening NBFCs and SFBs
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 government’s refinance facility for NBFCs. In parallel, the IFC is also providing direct support to SFBs through loans and equity.
Enabling financial innovations
Today, only about 8 percent of the 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 who currently may not have access to the formal channels.
The World Bank has to date committed US$ 2.75 billion to support India’s emergency COVID-19 response, including the new MSME project. The US$ 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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