The World Bank and the Government of India signed the $750 million agreement for the MSME Emergency Response Programme to support increased flow of finance into the hands of micro, small, and medium enterprises (MSMEs), severely impacted by the COVID-19 crisis.

How will the agreement protect the MSME sector

1. Unlocking liquidity

• The Government is focused on ensuring that the abundant financial sector liquidity available flow to NBFCs and that banks.
• Banks and NBFCs have turned extremely risk-averse.
• This project will support the Government in providing targeted guarantees to incentivize NBFCs.
• Project will also support banks to continue lending to viable MSMEs to help sustain them through the crisis.
• It will be achieved by de-risking lending from banks and Non-Banking Financial Companies (NBFCs) to MSMEs.
• This derisking will be done through a range of instruments, including credit guarantees.

2. Strengthening NBFCs and SFBs

• Improving the funding capacity of the NBFCs and Small Finance Bank (SFBs), will help them respond to the urgent and varied needs of the MSMEs.
• This will include supporting government’s refinance facility for NBFCs.
• In parallel, the IFC is also providing direct support to SFBs through loans and equity.

3. Enabling financial innovation

• Only about 8 percent of MSMEs are served by formal credit channels.
• The program will incentivize and mainstream the use of fintech and digital financial services in MSME lending and payments.
• Digital platforms will play an important role by enabling lenders, suppliers, and buyers to reach firms faster and at a lower cost.
• The digital platform will be helpful especially to small enterprises who currently may not have access to the formal channels.

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now