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| Loan Name | Micro, Small, and Medium Enterprise Development Project - Project Loan | |||
| Country | India | |||
| Project Number | 43158- 01 | |||
| Fund Source/Amount[Proposed] |
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| Thematic Classification |
Economic growth
Private Sector Development |
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| Project Rationale | The small and medium enterprises (SME) sector in India plays a vital role in the growth of the country. The SME sector in India accounts for around 95% of the industrial units, almost 40% of the gross industrial value-added in the Indian economy, 34% of exports and provides direct employment to 20 million persons in around 3.6 million registered SME units. The SME sector in India contributes to about 7% of India's gross domestic product (GDP).
This intervention is part of GOI's responses to the on-going global financial crisis. Since the impact of the crisis on employment generation became apparent, the Government of India (GoI) has successively asked the commercial banks to increase their lending to SMEs. In addition, GoI is actively mobilizing additional external funding. GoI has been very active in the promotion and development of the SME sector and perceives this to be a key component in India's overall industrialization policy. GOI has requested ADB for a loan of up to $200 million to public and private sector commercial banks (to be called collectively as PFIs) to enable them to expand lending schemes to the SME sector. ADB will provide a sovereign loan of $50 million to GOI while the remaining amount of up to $150 million will be sourced for other cofinancers. The Project will provide long-term financing support to provide additional liquidity to the domestic financing markets to channel debt financing to the SME sector. |
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| Impact |
Small and Medium Sized Enterprises (SMEs) realizing their full potential, contributing to economic growth and poverty reduction.
Impact of Liberalization Owing to liberalization and opening up of the economy, the SMEs are facing stiff competition from imports and need technological upgrading to produce cheaper and better quality products. Globalization can also act as a tool for development of the SME sector. SMEs engaged in the manufacturing of engineering and automobile products have shown excellent growth in the past years due to their expertise in supplying original equipment manufacturer (OEM) assemblies and subassemblies, components, etc. Impact of the Global Financial Crisis on the Availability of Credit to SMEs in India In light of the critical importance of the SME sector in promoting growth and employment, the RBI (the Central Bank) has commenced deliberations with banks to inject credit into the sector. The global credit squeeze has impacted domestic financial institutions to the extent that credit flow to SMEs has virtually dried up and SMEs are now even being denied overdraft facilities by banks. In order to address the problem of credit squeeze, the RBI has slashed the repo rate by 350 basis points and the credit reserve ratio by 400 basis points since October 2008 to ease bank access to finance. In light of sector demands and to meet overall growth targets, both government and industry are requiring banks to lend more and charge less. However, to meet the demands of the economy, banks have to mobilize costly bulk deposits to meet higher demand. While banks may accommodate the demands made on them, there are also disincentives to credit expansion across the portfolio spectrum. |
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| Outcome | Improved SME access to term finance through Participating Financial Institutions (PFIs), thereby fostering SME growth, competitiveness and employment creation | |||
| Outputs | Enhanced credit delivery through PFIs, especially in the nonurban/rural areas for SMEs | |||
| Geographical Location | India | |||
Safeguard Categories
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| Environment | FI | |||
| Resettlement | C | |||
| Indigenous People | C | |||
| Summary of Environmental and Social Issues | ||||
| Social Aspects | An initial poverty and social analysis will be undertaken. Following an initial poverty and social analysis, a full social analysis, particularly on gender and labor issues, will be conducted, if necessary. The Project is not expected to have any significant impact on involuntary resettlement or on indigenous peoples. In fact, it is expected that the Project would have beneficial social impacts. This is because financing of SMEs moves beyond microfinance for individual and group activities to `Livelihood Finance' that benefit large sections of the workforce and provides sustainable livelihoods for micro entrepreneurs. Such employment benefits entire families including women. | |||
| Environmental Aspects | The PFIs will be required to adopt an ESMS in accordance with ADB's guidelines. The PFIs will not finance activities falling within ADB's list of exclusions. | |||
| Stakeholder Participation and Consultation | ||||
| During Project Design | As a collaborative effort, the SME Development Project will be implemented in close consultation with other donors (The World Bank, International Finance Corporation, Department for International Development of the UK, Japan International Cooperation Agency, and German Technical Cooperation) and stakeholders. | |||
| During Project Implementation | ADB will monitor project implementation through regular reviews and progress reports throughout implementation. Based on these reviews, modifications and improvements will be considered. The Government will facilitate such reviews by assisting ADB with relevant data and information in such detail as ADB may reasonably request. | |||
| Procurement | ||||
| Consulting Services | Any consultants will be recruited in line with ADB's Guidelines on the Use of Consultants (2007, as amended from time to time). | |||
| Civil Works/Goods | All procurement to be financed under an ADB loan will be carried out in accordance with ADB's Procurement Guidelines (2007, as amended from time to time). | |||
| Responsible ADB Officer |
Peter Marro |
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| Responsible ADB Department |
South Asia Department |
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| Responsible ADB Division |
Financial Sector, Public Management and Trade Division, SARD |
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| Timetable | ||||
| Concept Clearance | 08 Jun 2009 | |||
| Fact-finding | 24 Aug 2009 to 04 Sep 2009 | |||
| Appraisal | 19 Oct 2009 to 21 Oct 2009 | |||
| Board Approval | 11 Dec 2009 | |||
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