Considering the fact that accessing finance is the major challenge for Indian MSMEs. in order to improve access to finance for Indian small and medium enterprises in manufacturing and services sector, World Bank approved USD 500 million loan for its MSME Growth Innovation and Inclusive Finance Project.
The project will also support manufacturing MSMEs through financial products such as Loan Extension Services (LES) and cluster financing - including women-led clusters and through direct financing by the Small Industries Development Bank ofIndia (SIDBI) and Participating Financial Institutions (PFIs) across three components viz.,
· Support to startup debt financing
· Support to Risk capital
· Support to service and manufacturing sector financing models.
Citing MSMEs potential to create several new, inventive jobs and 50 per cent of MSMEs being rural enterprises and widely distributed across low-income states making them an important sector for promoting economic growth and poverty reduction, Onno Ruhl, World Bank Country Director in India feels that easier access to finance will help them attain their true potential and address constraints.
Indian start-up s have attracted some 300 venture capital and 225 angel investment deals worth over USD 2.3 billion and over 20 mergers and acquisitions worth USD 1 billion in the last three years.
The sector contributes 45 per cent to manufacturing output and about 40 per cent to exports, both directly and indirectly and as 50 per cent of these are largely distributed across the rural landscape and low income-states, they are a way of reducing poverty and a help in economic growth.
But, MSME census of 2006-07 estimated that about 87 per cent of MSMEs did not have any access to finance and were self-financed and that credit towards micro and small enterprises represent only around 13-15 per cent of formal financial institutions portfolio.
The project will develop SIDBI's ability to scale up debt financing with a particular focus to expand manufacturing activity in financially underserved areas, including low income states especially through refinancing, as banks and other PFIs have a deeper network in these states. The loan, from the International Bank for Reconstruction and Development (IBRD), has a 5-year grace period, and a maturity of 18 years.