World Bank approves $750 Mn Emergency Response Program for Indian MSMEs

03 July 2020: The World Bank’s Board of Executive Directors approved a $750 million MSME Emergency Response program to support increased flow of finance into the hands of micro, small, and medium enterprises (MSMEs), severely impacted by the COVID-19 crisis. The World Bank’s MSME Emergency Response program 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.

In its official communiqué, the World Bank noted that the MSME sector is the backbone of India’s economy, contributing to 30 percent of India’s GDP and 40 percent of exports. The Bank also noted that COVID-19 has placed Indian MSMEs under severe stress. 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 Group, including its private sector arm – the International Finance Corporation (IFC), will support the government’s initiatives to protect the MSME sector. 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. The World Bank’ s 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.