MICRO, SMALL AND MEDIUM ENTERPRISES EMERGENCY RESPONSE

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The development objective of Micro, Small and Medium Enterprises (MSME) Emergency Response Development Policy Loan (DPL) is to support the government of India (GoI) in preserving flows of finance to MSMEs through the Coronavirus (COVID-19) crisis and lay the foundations for a stronger MSME financing ecosystem in the recovery phase. This operation draws on the GoI’s recent Coronavirus (COVID-19) emergency response for MSMEs, the RBI’s various liquidity initiatives to shore up MSMEs and financial sector financing, and recommendations from the RBI MSME Committee Report of 2019. The DPF also considers experiences of various credit guarantee schemes (CGS) which have been leveraged across the globe to mobilize financing options for MSMEs during a downward economic cycle when risk aversion heightens, and financial institutions scale back credit to private sector. The DPF also considers experiences from the previous crises episodes which suggest that, to reduce misallocation of public resources during the crisis, the response programs should focus on supporting firms and financial intermediaries which have had long-term viable business models prior to the crisis. Other relevant measures taken by the government and its agencies recently to deal with the adverse impact of the Coronavirus(COVID-19) crisis are also taken into account. The project will have three pillars: (i) Channeling financing flows to MSMEs, (ii) Strengthening Non-Banking Financial Company (NBFCs); and (iii) Incentivizing the use of Fintech and digital channels in MSME lending and payments.