World Bank approves $750 mn emergency response fund for India's MSME sector

The World Bank on Wednesay approved a $750 million loan to support increased flow of finance into the hands of India's micro, small, and medium enterprises (MSMEs), severely impacted by the Covid-19 crisis.

The World Bank’s MSME Emergency Response program will aim to 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 takes the World Bank's total commitment to $2.75 billion to support India’s emergency Covid-19 response. 

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. 

In a release, the World Bank said that the organisation seeks to consolidate the MSME infra which it considers to be the backbone of Indian economy. “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,” said Junaid Ahmad, World Bank Country Director in India. “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 Bank in association with its private sector arm - International Finance Corporation (IFC) will support the government's initiatives to protect the MSME sector by helping increase liquidity, strengthening NBFCs and SFBs and will also try to incentivise financial innovations. The help in fintech and financial digital services will help deepen digital payments system and drive India towards a more cashless economy. 

The release added that 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.