NEW DELHI — The micro, small and medium enterprises (MSMEs) India are about to receive a significant boost in funding. This increase is due to the IndusInd Bank which will use the proceeds from a $225 million loan from the U.S.’s Overseas Private Investment Corporation (OPIC) to finance the sub-continent’s small business sector.
At least 25 percent of the OPIC loan to India will be used to fund women entrepreneurs and the “unbanked” populations. MSMEs are the backbone of the Indian economy but historically have had limited access to bank financing.
At the same time that OPIC announced its loan, Wells Fargo Bank committed to a $20 million loan to IndusInd Bank to support its MSME programs. As with the OPIC loan, 25 percent of the Wells Fargo investment will go to female entrepreneurs.
MSMEs are crucial to the economy of India and are expected to play a central role in raising the share of manufacturing in the nation’s Gross Domestic Product (GDP) from 16 percent in 2013 to an estimated 25 percent by the end of 2022. MSMEs total more than 32 million individual businesses and employ around 70 million people. They produce 6,000 different products. They account for 45 percent of India’s manufacturing output and 40 percent of exports. The OPIC loan to India should help make those numbers grow.
Gaining access to financing was identified by a 2010 Indian government task force as one of the four challenges facing MSMEs in their drive for growth. MSMEs have made progress on three of the problems it is attempting to address. These include operations, infrastructure/technology and legal taxation. However, financial issues have persisted while the organization continues to deal with these matters.
The OPIC loan to India is intended to help ameliorate financial issues. Specifically, the investment hopes to reduce MSMEs’ lack of access to credit. MSMEs often end up borrowing outside the regulated lending markets, paying much higher interest rates. That, in turn, drives up prices for their products and inhibits their ability to invest in technology, improve quality and implement modern management.
OPIC is a self-sustaining organization and a U.S. government agency. The agency was established to help U.S. businesses invest in emerging markets.
IndusInd Bank, founded in 1994 in Mumbai, provides both consumer and commercial banking services and products. This task gets accomplished through its 1,200 branches and 2,036 ATMs in 683 geographical locations. The $225 million OPIC loan to India fulfills one part of OPIC’s promise to provide $1 billion to finance MSMEs in the country.
– Robert Cornet