World Bank approves USD 500 million program to help boost MSME sector in India

The USD 500 million Raising and Accelerating Micro, Small and Medium Enterprise Performance (RAMP) Program is the second intervention by World Bank in this sector.

World Bank program for MSME sector
World Bank program for MSME sector

The Board of Executive Directors of the World Bank has given approval to a 500 million dollar program to support India’s nationwide initiative to boost the MSME sector of the country, which has been heavily impacted by the Coronavirus crisis.

As per the statement released on June 4, 2021, the program targets the improvements in the performance of the 5,55,000 MSMEs. It is expected to mobilize the financing of USD 15.5 billion, as part of the Indian government’s USD 3.4 billion MSME Competitiveness-A Post- COVID Resilience and Recovery Program (MCRRP).

The statement added that to date, 5 million firms have accessed finance from the government program. With the latest approved program, the financing by the World Bank towards improving the productivity and financial viability of India’s MSME sector amounts to USD 1.25 billion over the past year.

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

RAMP Program by World Bank:

The USD 500 million Raising and Accelerating Micro, Small and Medium Enterprise Performance (RAMP) Program is the second intervention by World Bank in this sector.

The first was the USD 750 million MSME Emergency Response Program which was approved in July 2020 for addressing the immediate liquidity and credit needs of millions of MSMEs that were severely impacted by the COVID-19 pandemic.

How RAMP program will strengthen India’s MSME sector?

•  The RAMP Program by World Bank will support the Indian Government’s efforts to increase the MSME productivity and financing in the economic recovery phase, crowd in the private sector financing in the medium-term and will help in tackling the long-standing financial issues that are holding back the growth of MSME sector.

•  The program will intensify the efforts to support firms to return to pre-crisis employment levels and production, while also laying the foundation for the long-term productivity-driven growth and generation of much-needed jobs in MSME.

•  It will also provide better access to the finance and the working capital for MSMEs by strengthening the receivable financial markets and will scale up the online dispute resolution mechanisms to address the issue of delayed payments.

•  Such efforts by RAMP will help in improving the quality, cost-effectiveness, impact, accessibility, and outreach of such schemes.

•  The World Bank’s Program will support the Indian Government’s MCRRP objective of providing a more comprehensive and coordinated Center-State Approach for improving productivity, promoting more environmentally sustainable investments, and reducing the gender gap in MSME.

MSME sector in India: Why it needs special assistance?

The MSME sector in India is the backbone of the country’s economy, as it contributes 30% of India’s GDP and 40% of exports. Out of some 58 million MSMEs in the country, more than 40% lack access to formal sources of finance.

The sector is a critical backbone of India’s economy which has been hit hard by the ongoing pandemic and faces several challenges.

As per the Lead Private Sector Specialist and World Bank’s Task Team Leader for the Program, there is a need to strengthen access to the formal sources of financial and non-financial services, including those MSMEs that are headed by women, and strengthening the coordination in the national and state MSME Support Programs.

Also, because of the geographical spread across India, direct interventions can be prohibitively costly.

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