World Bank offers USD 750 million to unlock liquidity, strengthening NBFCs and SFB and enabling financial innovations in the banking so as viable small and medium enterprise could get liquidity
The Union Finance Ministry said that the World Bank’s MSME Emergency Response Programme would 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. The World Bank would give $750 million loans from the International Bank for Reconstruction and Development (IBRD) to Indian NBFC and Small Finance Banks with a maturity of 19 years including a 5-year grace period.
The agreement was signed by 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.
Khare admitted that the COVID-19 pandemic has severely impacted the MSME sector leading to loss of livelihoods and jobs. He said the Indian government is ensuring abundant liquidity flow NBFCs and the banks which have turned extremely risk-averse. This project will 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 has so far committed $2.75 billion to support India’s emergency COVID-19 response including the present USD 750 million commitments. The first $1 billion emergency support was announced in April this year for immediate support to India’s health sector. Another $1 billion projects were 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.
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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 the limited flow of credit even to the viable enterprises in the sector. This
program will support the 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.
·
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 the government’s refinance facility for
NBFCs. In parallel, the IFC is also providing direct support to SFBs through
loans and equity.
·
Today, only about 8 per cent of 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.
BY Vijay Thakur, Special Representative, The Statesman, vijaythakurx@gmail.com
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