India and the World Bank signed a US $500 million loan agreement for the MSME Growth Innovation and Inclusive Finance Project to improve access to finance for Micro, Small and Medium Enterprises (MSMEs) working in the manufacturing and services sector from early to growth stage, including through innovative financial products.
In India, MSMEs account for more than 80 percent of total industrial enterprises, produce over 8,000 value-added products and employ an estimated 60 million people. It contributes around 45 per cent to manufacturing output and about 40 percent to exports, both directly and indirectly, the World bank press release said.
In addition, over 50 percent of MSMEs are rural enterprises and widely distributed across low-income states making them an important sector for promoting economic growth and poverty reduction.
The project will support MSMEs through direct financing by the Small Industries Development Bank of India or SIDBI, an apex financial institution for promotion, financing and development of MSMEs in India, as also through Participating Financial Institutions (PFIs) across three components. These include support to startup debt financing and risk capital as well as support to service and manufacturing sector financing models.
The project will also support MSMEs in the manufacturing sector through innovative financial products including Loan Extension Services (LES) and cluster financing – including women-led clusters. Particular focus will be to expand manufacturing activity in financially underserved areas, including low-income states especially through refinancing, as banks and other PFIs have a deeper network in these states.
The loan, from the International Bank for Reconstruction and Development (IBRD), has a 5-year grace period, and a maturity of 10 years.