World Bank has approved a $750 million MSME Emergency Response programme to support increased flow of finance into the hands of micro, small, and medium enterprises, severely impacted by the COVID-19 pandemic.
COVID-19 crisis has placed the MSME sector – the backbone of India’s economy – contributing to 30 percent of India’s GDP and 40 percent of exports, under severe stress, according to a release.
The sector, which employs about 150-180 million people, is today burdened with cancelled orders, loss of customers and supply chain disruptions – causing a sharp fall in revenues. This cash flow shortage is exacerbated by constraints to accessing finance, potentially leading to solvency problems. The broad-based loss of cash flows has triggered a chain of non-payments throughout the economy, including to the financial sector.
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 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 and enabling financial innovations.
“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 World Bank has to date committed $2.75 billion to support India’s emergency COVID-19 response, including the new MSME project. 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.
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.
World Bank Group COVID-19 Response
The World Bank Group, one of the largest sources of funding and knowledge for developing countries, is taking broad, fast action to help developing countries strengthen their pandemic response. We are supporting public health interventions, working to ensure the flow of critical supplies and equipment, and helping the private sector continue to operate and sustain jobs.
The Bank Group will be deploying up to $160 billion in financial support over 15 months to help more than 100 countries protect the poor and vulnerable, support businesses, and bolster economic recovery. This includes $50 billion of new IDA resources through grants and highly concessional loans.