WASHINGTON, April 30, 2009 ─ The World Bank today approved a US$400 million additional financing loan to the Small Industries Development Bank of India (SIDBI), designed to improve access to finance for Small and Medium Enterprises (SMEs). This additional financing will help scale up the fully disbursed original project which had been approved by the World Bank on November 30, 2004.
Access to adequate and timely financing on competitive terms, particularly longer tenure loans remains a challenge for Indian SMEs. This problem has been exacerbated by the current global financial crisis, the ensuing liquidity constraints and the slowdown in credit growth in the Indian financial sector. In particular, credit growth to SMEs has declined over the last year, which has held back the growth of SMEs and impacted 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 supported by the Project will channel long-term and working capital loans for SMEs in geographical areas beyond those that were covered in the original Project. This includes expanding to new geographical areas, possibly to India’s low-growth states, thereby promoting inclusive growth.
Under the credit facility SIDBI will also explore refinancing other banks and financial institutions for on-lending to SMEs. In addition, this Project will build linkages with an on-going DFID financed technical assistance component which is helping banks enhance the quality of their SME loan portfolios, strengthening business development services and building market linkage programs. “This integrated Project will help SMEs improve their profitability and competitiveness, and become more creditworthy,” said Niraj Verma, World Bank Senior Financial Sector Specialist and project team leader.
Finally, the Risk Sharing Facility supported by the Project will expand the coverage of this innovative initiative launched under the parent Project.
The lending from the original project has covered 927 SMEs spread across 10 Indian states. A survey showed that nearly two-thirds of the SMEs financed upgraded their technology, which helped increase productivity.
The loan, from the International Bank for Reconstruction and Development (IBRD), is backed by a Republic of India guarantee. It has a 15 year maturity which includes a 5-year grace period.
Access to adequate and timely financing on competitive terms, particularly longer tenure loans remains a challenge for Indian SMEs. This problem has been exacerbated by the current global financial crisis, the ensuing liquidity constraints and the slowdown in credit growth in the Indian financial sector. In particular, credit growth to SMEs has declined over the last year, which has held back the growth of SMEs and impacted 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 supported by the Project will channel long-term and working capital loans for SMEs in geographical areas beyond those that were covered in the original Project. This includes expanding to new geographical areas, possibly to India’s low-growth states, thereby promoting inclusive growth.
Under the credit facility SIDBI will also explore refinancing other banks and financial institutions for on-lending to SMEs. In addition, this Project will build linkages with an on-going DFID financed technical assistance component which is helping banks enhance the quality of their SME loan portfolios, strengthening business development services and building market linkage programs. “This integrated Project will help SMEs improve their profitability and competitiveness, and become more creditworthy,” said Niraj Verma, World Bank Senior Financial Sector Specialist and project team leader.
Finally, the Risk Sharing Facility supported by the Project will expand the coverage of this innovative initiative launched under the parent Project.
The lending from the original project has covered 927 SMEs spread across 10 Indian states. A survey showed that nearly two-thirds of the SMEs financed upgraded their technology, which helped increase productivity.
The loan, from the International Bank for Reconstruction and Development (IBRD), is backed by a Republic of India guarantee. It has a 15 year maturity which includes a 5-year grace period.
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