September 19, 2021
  • September 19, 2021

World Bank approves $ 500 million program to boost the performance of micro, small and medium enterprises in India

By on June 5, 2021 0

WASHINGTON DC, June 04, 2021 – The Board of Directors of the World Bank today approved a $ 500 million program to support the Indian government’s national initiative to revitalize the MSME sector, which has been severely affected by the COVID crisis- 19. The program aims to improve the performance of 555,000 MSME and should mobilize funding from $ 15.5 billion, as part of the government’s $ 3.4 billion MSME Competitiveness – A Post-COVID Resilience and Recovery Program (MCRRP).

The $ 500 Million Raising and Accelerating the Performance of Micro, Small and Medium Enterprises (MSMEs) (RAMP) The program is the World Bank’s second intervention in this sector, the first being the $ 750 million MSME Emergency Response Program, approved in July 2020 to meet the immediate cash and credit needs of millions. of viable MSMEs severely affected by the current COVID-19 pandemic. To date, 5 million businesses have accessed government program funding. With the program approved today, World Bank funding to improve the productivity and financial sustainability of the MSME sector amounts to $ 1.25 billion in the past year.

Having supported the immediate liquidity and credit needs of viable MSMEs in the first phase, the RAMP program will support the efforts of the Indian government to increase the productivity and financing of MSMEs in the economic recovery phase, attract private sector financing to medium term, and tackle long-standing financial sector issues that constrain the growth of the MSME sector.

The MSME sector is the backbone of the country’s economy, contributing 30% of India’s GDP and 40% of exports. Of some 58 million MSMEs in India, more than 40 percent do not have access to formal sources of finance.

“The MSME sector, an essential pillar of the Indian economy, has been hit hard by the Covid-19 pandemic”, mentionned Junaid Ahmad, World Bank Country Director in India. “The RAMP program will step up efforts to help businesses return to pre-crisis production and employment levels, while laying the groundwork for long-term productivity-driven growth and job creation.” essential in the MSME sector. ”

The World Bank Group, including its private sector arm, the International Finance Corporation (IFC), will support the MSME sector by:

• Institutional capacity building and coordination
At the national level, MSME policies and programs are implemented in all ministries and departments, including key players such as the Reserve Bank of India (RBI) and the Small Industries and Development Bank of India (SIDBI). There is also a myriad of state-level initiatives with limited coordination between them. There is a need for “convergence” of policies, programs and schemes at all levels.

To bring about this fundamental change, the program will help establish a high-level MSME council to enable better coordination between national and state programs. State-level Strategic Investment Plans (SIPs) will provide a roadmap and measurable actions; strengthen the capacity of the MSME ministry to design, implement and evaluate policies and programs through innovative digital platform data systems; support integrated portals to deliver cost-effective online services for MSMEs at scale; and create a more decentralized, flexible and coherent program that responds to the local context and the challenges of MSME growth.

• Support business capacities and access to markets and finance
The RAMP program will provide better access to finance and working capital for MSMEs by strengthening debt finance markets; and expand online dispute resolution mechanisms to address the problem of late payments. These efforts are expected to improve the cost effectiveness, quality, accessibility, impact and reach of these programs.

The program will promote technological solutions, green investments and access to services for women-led businesses. It will also partner with the private sector as service providers to reach scale.

“The MSME sector in India faces several challenges. There is a need to strengthen access to formal sources of financial and non-financial services, including women-led MSMEs, and to strengthen coordination in national and state MSME support programs. Given the scale and geographic distribution across the country, direct interventions can be prohibitively expensive ”, mentionned Peter Mousley, Senior Private Sector Specialist and World Bank Task Team Leader for the program. “The RAMP program will support the government’s MCRRP goal of providing a more comprehensive and coordinated Central State approach to improve the productivity of the MSME sector, reduce the gender gap and promote more gender-friendly investments. ‘environment.

In addition to activities at the national level, the program will launch targeted activities in five “pioneer” states – Gujarat, Maharashtra, Punjab, Rajasthan and Tamil Nadu with the possibility of other states joining the program in the future.

The International Bank for Reconstruction and Development (IBRD) $ 500 million loan has a maturity of 18.5 years, including a grace period of 5.5 years.

MSME landscape in India

  • The MSME sector is dominated by small businesses that do not grow with age.
  • More than 90% of companies have less than 5 employees.
  • Global experience suggests that in the absence of distortions, companies grow with age.
  • However, in India, the average number of employees in a 40-year-old Indian factory is almost the same as its five-year-old counterpart.
  • These asymmetric growth models impose enormous productivity costs.

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