World Bank Grants Approval of a $500 Million Programme to Support MSMEs

The World Bank approved a $500 million programme for providing support to the Government of India’s nationwide initiative to revitalise the Micro, Small and Medium Enterprises (MSME) sector, which are heavily impacted by the COVID-19 crisis. 

The $500 million programme targets to improve the performance of 5,55,000 MSMEs. There is an expectation of mobilising the finance of $15.5 billion as part of the government’s $3.4 billion ‘MSME Competitiveness – A Post-COVID Resilience and Recovery Programme’ (MCRRP).

The $500 million programme, i.e. ‘Raising and Accelerating Micro, Small and Medium Enterprise (MSME) Performance’ (RAMP) Programme, is the World Bank’s second initiative in this sector. The first initiative of the World Bank was the $750 million MSME Emergency Response Programme that was approved in July 2020. 

The $750 million MSME Emergency Response Programme addressed viable MSMEs’ immediate credit and liquidity needs, severely impacted by the COVID-19 pandemic. Around 5 million firms have accessed finance from the government programme to date. With the approval of the RAMP programme, the World Bank’s financing towards improving the financial viability and productivity of the MSME sector amounts to $1.25 billion over the past years.

The RAMP programme will support the government’s efforts to increase MSME financing and productivity in the current economic recovery phase and tackle long-standing financial issues that are holding down the growth of the MSME sector. This program will promote green investments, access to services for women-headed businesses, technology-based solutions, and partnerships with the private sectors as service providers for achieving a grander scale.

World Bank Country Director in India, Junaid Ahmad, stated that the MSME sector is the backbone of India’s economy and the COVID-19 pandemic has hit the MSME sector. The RAMP programme will boost efforts to support firms for returning to their pre-crisis production and employment levels while laying down foundations for a generation of much-needed jobs and longer-term productivity-driven growth in the MSME sector.

The World Bank Group, including the International Finance Corporation (IFC), its private sector arm, will support the MSMEs by establishing an MSME Council for better coordination between the national and state-level programmes. The state-level Strategic Investment Plans (SIPs) will facilitate measurable metrics and a roadmap for enhancing the capacity of the MSME ministry to implement, design and assess programs and policies through innovative digital platforms and data systems. 

The RAMP programme will provide enhanced access to working capital and finance for the MSMEs by scaling up the online dispute resolution mechanisms that address delayed payments and strengthening the receivable financing markets.

The MSME sector contributes to about 30% of India’s GDP and 40% of exports. Though it is the backbone of India’s economy, 40% of the MSMEs lack access to formal sources of finance. The MSMEs in India face several challenges when it comes to obtaining credit and finance. Thus, it is necessary to strengthen the formal sources of finance for the MSMEs.

Peter Mousley, Lead Private Sector Specialist and World Bank’s Task Team Leader for the program, stated that there is a requirement for strengthening access to non-financial services and formal sources of finance, including women-headed MSMEs. He stated that it is essential for strengthening the coordination between the national and state MSME support programmes.  

The MSMEs are facing challenging times due to the current COVID-19 wave. They need support to revive their businesses. The government is helping the MSME sector in all possible ways. The RAMP program of the World Bank will surely help the MSME sector to obtain credit and help them revive quickly.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in