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MSME funding: Govt seeking $14.5B credit from foreign lenders for MSMEs

The government is in discussions with multiple foreign lenders, including Germany's state-owned development bank KfW Group, the World Bank, and a few Canadian institutions, for extending credit to MSMEs.

Team SMB
22nd Jul 2019
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Nearly $14.5 billion in credit for millions of Indian MSMEs is being sourced by the government from foreign lenders, say media reports.


Reuters reported that the government is in discussions with multiple foreign lenders, including Germany's state-owned development bank KfW Group, the World Bank, and a few Canadian institutions, for extending credit to MSMEs.


Although KfW's India confirmed this, it noted that the talks were at an early stage and that the focus was on credit lines to support solar power generation for MSMEs.


The report added that the government plans to source up to Rs 1 trillion of loans from foreign institutions because Indian banks were not in a position to provide enough capital for the small business sector, which is seen as critical to job creation.


Another source said the MSME is discussing the proposal to involve foreign banks with the country's ministry of finance, which will take the final call.


Despite MSMEs being the backbone of India’s economy, access to affordable credit is the biggest challenge they face. Ninety-five percent of companies in India are micro enterprises, according to Dun & Bradstreet Research.


This is because only four percent of MSMEs have access to a formal source of finance which can help them grow.


Speaking on the issue of the mismatch that exists between the total addressable demand for external credit and overall supply of finance from the formal sources, a finance ministry official seeking anonymity told SMBStory,


“We need to bring risk capital, which is patient capital. This will be a trigger for a bigger impact fund. The time has come where we need to explore alternative financial services.”


Indian banks are already risk-averse as they grapple with massive non-performing assets with gross bad loans amounting to over $150 billion. 


Similar to the $14.5 billion credit goal, the MSME Ministry has been working on several external aided projects with the likes of the World Bank for the past year.


Presently, the MSME sector in India employs over 100 million people and accounts for 45 percent of manufacturing output and more than 40 percent of the country’s exports.


(Edited by Dipti Nair)



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