India secures $1 billion from IFC for long-term MSME credit via SIDBI

India secured one billion dollars from the International Finance Corporation for banks. This funding will provide long-term credit to small businesses and financial institutions. The facility will address a key gap by offering loans of up to seven years. It aims to galvanize MSME capital expenditure investment and support modernization.

New Delhi: India has secured $1 billion in funding from the International Finance Corporation (IFC) to help banks and financial institutions provide more long-term credit to small businesses, a senior finance ministry official told ET. This complements the credit support available to the sector through the government's Emergency Credit Line Guarantee Scheme (ECLGS).

"This will ensure availability of long-term credit to MSMEs (micro, small and medium enterprises)...," the official said, adding that the facility will help address a key gap in the sector by providing long-term loans of up to seven years.

The IFC has already provided $500 million to Small Industries Development Bank of India (Sidbi) from its own resources, and the balance $500 million would be arranged through the lender's syndicate for this long-term countercyclical funding platform, according to the official.

The finance ministry said this facility would help galvanise MSME capital expenditure investment, topping the efforts to address the short-term funding issues through the ECLGS 5.0.

The credit facility has been swapped into INR using the Reserve Bank of India's special swap window, said another official.

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This special funding facility under Sidbi will focus on MSMEs in the manufacturing and services value chains, including auto and auto components, engineering goods, electronics, textiles, food processing, logistics services and other employment-intensive sectors, the person said.

A large chunk of the funding will be deployed by Sidbi to directly on-lend to MSMEs for a tenor of seven years with a suitable moratorium, primarily for machinery acquisition, modernisation, expansion and project funding, the official said.

Sidbi will also use the proceeds to lend to financial institutions, especially the non-banking finance companies, to refinance existing MSME loans, extended primarily to micro enterprises and first-time borrowers, the person said.

This facility will help correct the mismatch in Sidbi's loan book and aid it in providing longer-tenure credit to the sector.

Currently, none of Sidbi's borrowings has a tenor of more than five years, while its MSME credit book has a tenor of 4.8-5.4 years.