Asian Development Bank lends $40M to Northern Arc Capital to support Indian MSMEs

The Asian Development Bank (ADB) on Monday said it has signed a $40 million loan to Northern Arc Capital Limited (NACL) to support the livelihoods of microfinance borrowers and MSMEs in India. The loan is disbursed to NACL as part of ADB's ongoing COVID-19 response.

NACL will on-lend the loan proceeds and provide guarantees to financial institutions and individual borrowers. It will also on-lend to affordable housing finance companies, according to the spokesperson of the company.

"The pandemic has had a deep impact on the country's informal economy, especially among microfinance borrowers and MSMEs. NACL's unique business model of working with the most impacted segment of MSMEs and financial institutions makes them an ideal partner," said ADB's Private Sector Operations Department Director Christine Engstrom.

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This project will provide additional support for the government of India's ongoing efforts to kickstart credit flow to this segment of the economy, Engstrom added.

NACL connects NBFCs, microfinance institutions, and housing finance companies to mainstream financers for debt fundraising through a variety of products, such as partial risk guarantees for capital markets issuances, multi-originator securitisation, and pooled loan/bond issuance, the release said.

"This enables smaller and mid-sized NBFCs to deepen their presence and improve access to financial services to millions of financially excluded households in India," the spokesperson said.

They added that its innovative solutions have enabled around 250 partners, serving nearly 60 million customers across 680 districts across India, access funding from reputable investors.

India has more than 65 million MSMEs that employee over 110 million. The coronavirus pandemic has crippled the sector financial health of the sector.

Over the last few months, the central government has introduced certain schemes under the Aatmanirbhar Bharat Stimulus Packages especially the Rs 3 lakh-crore Emergency Credit Line Guarantee Scheme (ECLGS) to revive the sector from the impact of COVID-19.