World Bank Lends More Support to India’s Small and Medium Enterprises

The World Bank has agreed to release US$400 million new financing loan to the Small Industries Development Bank of India (SIDBI), in an endeavour to further strenghten the growth of Small and Medium Enterprises (SMEs). This additional financing will add to the already disbursed original project which had been fixed by the World Bank on November 30, 2004.

Indian SMEs face constant challenges when it comes to obtaining finance on competitive terms, especially in case of longer term loans. This problem got further heightened by the current economic slowdown, leading to liquidity crises and the dawdling credit growth in the Indian Financial sector. SMEs, in particular were severely affected by the credit decline last year that impacted the overall growth and development.

"This Project is part of a larger program of support in response to the Government of India request for funding in light of the financial crisis. It is targeted particularly at SMEs, to help address the credit slowdown that has resulted from the financial crisis,” said Roberto Zagha, World Bank Country Director for India. “Achieving and sustaining growth and employment will require a sharp step up in industrial and services growth. This needs to be spurred by SMEs which have the greatest potential to provide employment.”

The credit facility available through the project will help finance long-term and working capital loans for SMEs in areas that were previously left uncovered in the original project. The new areas, probably means less developed states, and this change in standpoint will help particularly promote overall economic growth.

Refinancing of other financial institutions and banks who on-lend to SMEs are also on the cards. The project had earlier covered 927 SMEs spread across 10 Indian states. In fact, a survey revealed that around two-thirds of the SMEs financed under this project, fine-tuned their technology, which helped them enhance productivity.

The loan, from the International Bank for Reconstruction and Development (IBRD), is supported by a Republic of India guarantee. The maturity period is of 15 years which includes a 5-year grace period.