World Bank, Govt of India Sign $750 Mn Agreement to Help MSMEs

The new deal is likely to provide immediate liquidity to 1.5 million MSMEs & protect millions of jobs, says the govt

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Amid the COVID-19 outbreak and shrinking economy due to multiple lockdowns imposed to check the spread of novel coronavirus, the Government of India, on Monday, 6 June, signed a $750 million agreement with the World Bank to aid Micro, Small, and Medium Enterprises (MSMEs).

"This program will support 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," the finance ministry said in its statement.

As per the ministry, the new deal is likely to provide immediate liquidity to 1.5 million MSMEs which are “severely impacted” due to COVID-19 pandemic and protect millions of jobs.

The government has also said that it is focused on ensuring that the abundant financial sector liquidity available flow to NBFCs, and that banks which have turned extremely risk averse, continue taking exposures in the economy by lending to NBFCs.

"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," read the statement.

The government also named three factors by which this initiative will protect MSMEs:

• Unlocking liquidity
• Strengthening NBFCs and SFBs
• Enabling financial innovations

The ministry has also highlighted that 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, as per the government statement.