World Bank and Government of India sign $750 million Agreement for Emergency Response Programme for MSME
CHANDIGARH—In a bid to give revenue booster doze, the World Bank and the Government of India signed the $750 million agreement for the MSME Emergency Response Programme on Monday to increase finance flow for micro, small, and medium enterprises (MSMEs), severely impacted by the COVID-19 crisis.
The 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 Shri Sameer Kumar Khare, Additional Secretary, Department of Economic Affairs, Ministry of Finance on behalf of the Government of India and Mr Junaid Ahmad, Country Director (India) on behalf of the World Bank.
Mr Khare said that the COVID-19 pandemic has severely impacted the MSME sector leading to loss of livelihoods and jobs. The Government was focused on ensuring that the abundant financial sector liquidity available flow to NBFCs, and that banks which have turned extremely risk averse, continue taking exposures in the economy by lending to NBFCs. This project would 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 by unlocking liquidity; strengthening NBFCs and SFBs; enabling financial innovations-as at present only eight percent of MSMEs are served by formal credit channels.
Mr 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 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. 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 World Bank has to date committed $2.75 billion to support India’s emergency COVID-19 response, including the new MSME project. 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.