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Agreement for MSME Emergency Response Programme

  • Category
    Economy
  • Published
    16th Jul, 2020

The World Bank and the Government of India signed the $750 million agreement for the MSME Emergency Response Programme to support the increased flow of finance into the hands of micro, small, and medium enterprises (MSMEs), severely impacted by the COVID-19 crisis.

Context

The World Bank and the Government of India signed the $750 million agreement for the MSME Emergency Response Programme to support the increased flow of finance into the hands of micro, small, and medium enterprises (MSMEs), severely impacted by the COVID-19 crisis.

About

  • The World Bank’s MSME Emergency Response Programme will address the immediate liquidity and credit needs of some 1.5 million viable MSMEs to help them withstand the impact of the current shock and protect millions of jobs. This is the first step among a broader set of reforms that are needed to propel the MSME sector over time.
  • The COVID-19 pandemic has severely impacted the MSME sector leading to loss of livelihoods and jobs. The Government of India is focused on ensuring that the abundant financial sector liquidity available flow to NBFCs, and that banks which have turned extremely risk-averse, continue taking exposures in the economy by lending to NBFCs.
  • This project will support the Government in providing targeted guarantees to incentivize NBFCs and banks to continue lending to viable MSMEs to help sustain them through the crisis.

The World Bank Group, including its private sector arm – the International Finance Corporation (IFC), will support the government’s initiatives to protect the MSME sector by:

  • Unlocking liquidity: This program will support the government’s efforts to channel that liquidity to the MSME sector by de-risking lending from banks and Non-Banking Financial Companies (NBFCs) to MSMEs through a range of instruments, including credit guarantees.
  • Strengthening NBFCs and SFBs: This will include supporting the government’s refinance facility for NBFCs. In parallel, the IFC is also providing direct support to SFBs through loans and equity.
  • Enabling financial innovations: Today, only about 8 percent of MSMEs are served by formal credit channels. The program will incentivize and mainstream the use of fintech and digital financial services in MSME lending and payments.

    Potential of MSME

Trend of SMEs in other countries

  • China in the last 20 years has created more SMEs than the total number of SMEs in Europe and the US combined. There SMEs contribute to over 68% of the exports.
  • In Japan, SMEs contribute 55% of the value-added and  employ 70% of the wage earners
  • In Thailand, SMEs contributes to 38 % to the GDP and employ 60.7% of the population

Challenges to MSME

  • Despite the importance of MSMEs in Indian economic growth, the sector is facing challenges. The list of the problems that are faced by existing/new companies in the SME sector are:
    • Absence of adequate and timely banking finance
    • Limited capital and knowledge
    • Non-availability of suitable technology
    • Low production capacity
    • Ineffective marketing strategy
    • Constraints on modernization & expansions
    • Non-availability of skilled labor at affordable cost
    • Follow up with various government agencies to resolve problems due to lack of man-power and knowledge etc.

Some of the steps taken by the government to develop MSME

  • The government has announced to revive the Indian economy amid the Covid-19 pandemic, an economic package under Atmanirbhar Bharat Abhiyan. The main thrust of the announcements has been a massive ?3-lakh crores collateral-free assistance or sovereign credit guarantee to the Micro, small and medium enterprises (MSMEs).
  • Trade-Related Entrepreneurship Assistance and Development (TREAD) was launched by the MSME ministry to promote women entrepreneurs by providing loans/credit.
  • Zero Defect-Zero Effect (ZED) Scheme was launched to rate and handhold all MSMEs for producing top quality products by utilizing clean technology.
  • Prime Minister Employment Generation Programme and Other Credit Support Schemes
    • Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)
    • Interest Subsidy Eligibility Certificate (ISEC)
  • Development of Khadi, Village and Coir Industries
    • Market Promotion & Development Scheme (MPDA)
    • Revamped Scheme Of Fund for Regeneration Of Traditional Industries (SFURTI)
    • Coir Vikas Yojana (CVY)

Way Forward

  • It is very important to empower the SME sector to utilize the limited resources (human & economic) they have in an optimum manner.
  • SMEs need to be educated and informed of the latest developments taking place globally and help to acquire skills necessary to keep pace with global developments.
  • Status and concessions are to be provided to emerging entrepreneurs so that they feel that they are on the right track.
  • The potential women entrepreneurs should be identified and steps should be taken to commence viable units by female entrepreneurs.
  • The registration procedure for MSME units may be simplified.
  • Technology up-gradation should be periodically done in MSME units. Governments, MSME Department, Department of Industries and Commerce, District Industries Centre, Chamber of Industries and Commerce, etc. should help the MSMEs units to go in for up-gradation of technology in their units.
  • Labor problems can be solved to the maximum extent by providing suitable training facilities and proper working conditions. Workers' participation in decision making will also reduce the problems in the MSME units.
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