World Bank to extend $750 mn support to small businesses; lauds Modi govt’s economic package for MSMEs

The World Bank on Wednesday said it will provide $750 million budget support to 15 crore MSMEs in the country to increase liquidity access for viable small businesses impacted by COVID-19.

Lauding the government’s Rs 3.7 lakh crore MSME support package under ‘Atmanirbhar Bharat’, World Bank Country Director in India Junaid Ahmad said the RBI also has used different instruments to infuse liquidity in the market either through banks or SIDBI.

The USD 750 million support is in addition to the USD 2 billion funding that the World Bank has already announced for the social and health sector. This takes the total lending to India due to COVID-19 to USD 2.75 billion within three months.

The MSME funding is under the multilateral lender’s Development Policy Loan, which is a direct budget support.

“In development policy loans, we do not fund a specific expenditure… We give direct budget support when the government puts together policy framework that we believe deserves support,” Ahmad said.

He further said the government steps would help unlock liquidity for MSMEs, strengthen NBFCs and small finance banks and enable inclusive access to financing.

“The government has piggybacked on guaranteed systems … to de-risk lending to MSMEs. By de-risking, the government is taking on a bit of risk themselves and in time of crisis, this is exactly what you want the government to do,” Ahmad told reporters.

During the 2020 fiscal (July 2019-June 2020), World Bank has extended USD 5.13 billion loans to India — which is the highest in a decade. This includes USD 2.75 billion given in three months in response to the COVID-19 pandemic.

The government in May announced a support package of Rs 3.70 lakh crore for the MSME sector, which included Rs 3 lakh crore collateral free loans for small businesses.

Ahmad further said the government has infused 1.5 per cent of GDP into the MSME sector between monetary and fiscal policy and the World Bank funding would support the operation.

“Our money is not a line of credit ….it is a budget injection to say that this story line, this whole package is something that the World Bank is supporting, is signalling to the market that this is the one which really strengthens economic stabilisation…

“This is about supporting and signalling a framework of liquidity de-risked into the hands of MSMEs at a time when you need to ensure that viable MSMEs survive and do not fall victim to the downturn,” he said.

Ahmad said in the next stage of the World Bank’s assistance programme for micro, small and medium businesses, the multilateral lender would engage with the MSME ministry and states to ensure capacity development at cluster level.

“World Bank’s Board of Executive Directors has approved a USD 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 said in a statement.

Earlier, the lender had approved a funding of USD 1 billion each for the social and health sector for support during the pandemic.