MICROCAPITAL BRIEF: World Bank Approves $750m Loan to Support 1.5m MSMEs in India as Emergency Response to COVID-19

The World Bank’s Board of Directors recently approved a 19-year loan of USD 750 million, with a 5-year grace period, to create an emergency response program for micro-, small and medium-sized enterprises (MSMEs) in India that “have been severely impacted by the COVID-19 crisis.” The program is meant to provide “immediate liquidity” to approximately 1.5 million MSMEs that are deemed “viable.”

In addition to the World Bank, fellow World Bank Group member the International Finance Corporation (IFC) will support the program, which includes: (1) credit guarantees to de-risk lending to MSMEs by retail financial institutions; (2) supporting the Indian government’s existing refinance facility for non-banking financial institutions (NBFCs); (3) investing in small finance banks (SFBs) via loans and equity; and (4) incentivizing wider usage of financial technology (fintech) by financial institutions and MSMEs for purposes such as loan transactions and purchasing.

Junaid Ahmad, the World Bank Country Director in India, argues that “The immediate need is to ensure that the liquidity infused into the system by the government is accessed by MSMEs… by furthering the role of NBFCs and SFBs as effective financial intermediaries and leveraging fintech to broaden the reach of finance into the MSME sector.”

This emergency response program is part of a wider commitment to India by the World Bank Group, including USD 1 billion each to support: (1) the country’s health sector; and (2) cash transfers and food benefits for vulnerable people.

The World Bank Group is a multilateral organization whose two overarching goals are to promote shared prosperity and end extreme poverty by 2030. With 189 member nations as of 2020, the group encompasses: (1) the International Development Association and the International Bank for Reconstruction and Development, which make up the World Bank; (2) the International Finance Corporation; (3) the Multilateral Investment Guarantee Agency; and (4) the International Centre for Settlement of Investment Disputes. During the year ending June 2019, the World Bank Group disbursed a total of USD 62.3 billion in loans, grants, equity investments, and guarantees to partner countries and private businesses.

IFC offers loans, equity investments, advisory services and technical assistance to private companies with the intent of alleviating poverty and promoting open and competitive markets in developing countries. As of 2019, it reported total assets of USD 94.3 billion.

By Madigan Ruch, Research Associate

Sources and Additional Resources

World Bank press release on emergency response to COVID-19 in India
https://www.worldbank.org/en/news/press-release/2020/06/30/world-bank-approves-750-million-emergency-response-program-for-micro-small-and-medium-enterprises-in-india

Previous MicroCapital post on the World Bank
https://www.microcapital.org/microcapital-brief-world-banks-id4d-launches-2nd-mission-billion-challenge-offering-150k-in-prizes-for-innovation-in-identification-digital-inclusion-for-vulnerable-grou/

Previous MicroCapital post on the IFC
https://www.microcapital.org/microcapital-brief-central-bank-of-solomon-islands-ifc-developing-comprehensive-credit-reporting-system-to-boost-financial-inclusion-of-individuals-msmes/

IFC homepage
https://www.ifc.org/

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