Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.

Agreement for Emergency Response Programme for MSME

Note4Students

From UPSC perspective, the following things are important :

Prelims level : International Finance Corporation

Mains level : Paper 3- Credit supply to MSME

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.
Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments