The World Bank announced on Wednesday that it has approved a $ 750 million loan to increase the flow of funds to micro, small and medium-sized enterprises (MSMEs) in India, hit by the Covid-19 crisis are affected. This supports the MSME package announced by the government as part of its “Independent India” program.
“The World Bank’s MSME Emergency Program will meet the immediate liquidity and credit needs of approximately 1.5 million viable MSMEs to help them withstand the effects of the current shock and protect millions of jobs,” said a statement from the multilateral Credit institution.
India’s MSME sector, which contributes 30% of India’s GDP and 40% of exports, is currently under severe stress. The industry, which employs 150-180 million people, is now fraught with canceled orders, lost customers, and supply chain disruptions, resulting in a sharp drop in sales. This lack of cash flow is exacerbated by restrictions on access to finance, which can lead to solvency problems. The widespread loss of cash flows has sparked a chain of defaults across the economy, including the financial sector.
“The MSME sector is central to India’s growth and job creation and will be critical to the pace of India’s economic recovery after Covid-19. There is an urgent need to ensure that the liquidity brought into the system by the government is drawn from MSMEs. It is equally important to strengthen the entire funding ecosystem for MSMEs, “said Junaid Ahmad, Country Director of the World Bank in India.
“This operation aims to achieve both goals by strengthening the role of NBFCs and SCBs as effective financial intermediaries and by using fintech to expand the reach of funding to the MSME sector.”
The bank gave India its final fiscal year, which ended on 30. The first $ 1 billion emergency aid was announced in April to provide immediate assistance to the Indian health care sector. Another $ 1 billion project was approved in May to increase cash transfers and food services for the poor and the vulnerable, including a more consolidated delivery platform accessible across state lines to both rural and urban populations. The International Bank for Reconstruction and Development (IBRD) loan of $ 750 million to the MSME sector has a term of 19 years, including a five-year grace period. The fund will be used to improve the funding capacity of key market-driven credit channels such as the NBFCs and SFBs to help them respond to the urgent and diverse needs of MSMEs. “This includes supporting the government refinancing facility for NBFCs. In parallel, the IFC also offers the SFBs direct support through loans and equity, “said the World Bank.
As part of YesFinance Minister Nirmala Sitharaman announced in May that there will be 3 trillion support for the MSME sector Yes30,000 crore of liquidity support to NBFCs and Microfinance Institutions (MFIs) that would indirectly benefit small businesses. The scheme allows banks to invest in investment grade debt issued by NBFCs and MFIs. Funding from the World Bank could aid the government’s efforts in this regard.
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