World Bank provides $120M to SIDBI

Wednesday, 01 December 2004, 20:30 IST
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NEW DELHI: The World Bank has approved a $120 million loan to the Small Industries Development Bank of India (SIDBI) to improve the access of small and medium enterprises (SMEs) to finance and business development services. Backed by a government guarantee "this loan is aimed at improving SME access to finance and business development services, thereby fostering SME growth, competitiveness and employment creation", the Bank said Wednesday. The $120 million loan from the International Bank for Reconstruction and Development (IBRD) is a fixed spread loan, repayable in 15 years (including a five year grace period). Through a multi-pronged approach, the Small and Medium Enterprise Financing and Development Project will address key constraints to SME financing and development. "This project is an important step towards ensuring that small and medium enterprises have a fair shot at accessing financing and other services, which are critical to their competitiveness," said Michael Carter, the Bank's country director for India. "SMEs are potentially a key engine of economic growth, job creation and greater prosperity in India," said Priya Basu, senior economist at the World Bank. "But SMEs in India have been unable to achieve the competitiveness that would allow them to drive manufacturing sector and overall economic growth, employment and poverty reduction. In large part, this is because of the problems that SMEs face in accessing adequate financing and business development services," Basu said. Bankers are reluctant to lend to SMEs because of the high transaction costs and perceived risks of SME lending, in the face of insufficient credit information, inadequate credit appraisal and risk management skills, poor repayment records and low market credibility of SMEs. "Through its various components that focus on both financing issues and business development support for SMEs, we hope the project will demonstrate that it is possible for banks to scale up lending to SMEs in a profitable manner without compromising on loan quality," Basu added.
Source: IANS