World Bank on Wednesday said that it be granting $750 million as a loan to India for emergency aid to help strengthen the micro, small and medium enterprises (MSMEs), the backbone of the country's economy, to fight the impact of COVID-19 on their businesses. The Bank said in a statement that this financial aid will ensure liquidity to around 1.5 million small businesses and protect millions of jobs.
The funding will help the government channel liquidity to meet the MSME sector's urgent needs through a range of instruments, including credit guarantees and de-risk lending from banks and non-banking finance companies (NBFCs).
The World Bank said that the loan supports the government's policy framework and it's not funding a specific expenditure. It would work with the government for specific sectors in the next stage.
The International Finance Corporation is separately providing direct support to Small Finance Banks through loans and equity.
The MSME sector, that contributes 30 percent to India's GDP (gross domestic product) and 40 percent of the country's exports is facing a cash crunch due to cancelled orders, supply chain disruptions and more. The liquidity shortage has or could potentially lead to close down of many businesses.
Including the funding announced on Wednesday, the World Bank has committed $2.75 billion to support India's emergency COVID-19 response efforts. In April, it had declared $1 billion emergency aid for immediate support to India's health sector. Another billion in the month of May was to increase cash transfers and food benefits to the vulnerable sectors of the society.