The loan to Small Industries Development Bank of India is aimed at improving SMEs' access to finance and business development services, thereby fostering their growth, competitiveness and employment creation.
The Small and Medium Enterprise Financing and Development Project, supported by this loan is designed to achieve this objective through a multi-pronged approach.
"Small and medium enterprises are potentially a key engine of economic growth, job creation and greater prosperity in India," said Priya Basu, senior economist at the 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. This is largely because of the problems that SMEs face in accessing adequate financing and business development services," she 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," she said.
"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," she added.
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