India: World Bank Approves $407 m Loans for Microfinance Projects

Jun 2010
Washington, DC , June, 03 2010 - The World Bank has approved two projects worth $407 million to India, consisting of a $300 million credit/loan for the Scaling up Sustainable and Responsible Microfinance Project and a $107 million loan for the Statistical Strengthening Loan.

While India has a well-developed banking system and there has been significant progress in banking sector reforms, performance, and stability, a significant portion of its population is still estimated to have only limited or no access to financial services, a press release from the World Bank said here today.

"Increasing access to finance for millions of India’s financially under-served people remains a challenge," Mr Niraj Verma, World Bank Senior Financial Sector Specialist and project team leader, said.

"India’s microfinance sector has grown exponentially in recent years and has contributed to reducing the gap between the unmet demand and supply of financial services for households and microenterprises – but there is still a long way to go. In addition to providing funding for Microfinance Institutions to help them scale up their operations particularly in under-served areas, this project also promotes transparency, good governance, and responsible microfinance, to ensure that microfinance continues to expand in a sustainable manner," he said.

The funding from the Scaling up Sustainable and Responsible Microfinance Project will be used by the Small Industries Development Bank of India (SIDBI) for on-lending to Indian Microfinance Institutions (MFIs).The funding to MFIs is designed to support their operations and growth, enhance their financial strength, and enable them to leverage private commercial funds to on-lend larger amounts to the under-served. The project will also support responsible finance initiatives such as the establishment of a microfinance information platform and promotion of adherence to a code of conduct for MFIs, as well as for capacity building and monitoring.

According to the release, meanwhile, India’s rapid economic and social transformation over the past decade has brought to the fore a need for better and timelier statistical information.

First, rapid economic growth has brought about structural change and has increased the importance of new sectors in the economy. Second, private investment and output now occupy a larger and growing share of the national economy. Third, the role of sub-national Governments has increased appreciably over time and much of the policy improvements needed to sustain progress are in the realm of the states. Fourth, the recent effects of the global economic crisis, which India is weathering successfully, have nevertheless renewed demands for more accurate statistical information on its impact, it said.

"All of these changes need to be captured by the statistical system to provide the data needed to support effective policy and decision making at all levels," Ms Farah Zahir, World Bank Senior Economist and project team leader, said.

"A renewed and modernized statistical system has become essential in order to measure rapid economic and social change, monitor the effects of reform, and to calibrate policy change both in the states and at the Centre," she said.

The Statistical Strengthening Loan will support an institutional and policy based reform of the Government of India for strengthening state statistical systems within a national policy framework. It will enable States and Union Territories to make progress towards common national standards relating to key statistical activities and to improve the credibility, timeliness and accuracy of these and other statistics at both central and the state levels.

According to the release, the $100 million for the Scaling up Sustainable and Responsible Microfinance Project is a credit from the International Development Association, the World Bank’s concessionary lending arm. It carries a 0.75 percent service fee, a 10-year grace period, and a maturity of 35 years.

The $200 million loan for the Scaling up Sustainable and Responsible Microfinance Project is a loan from the International Bank for Reconstruction and Development (IBRD). It has a 25- year maturity which includes a 14.5-year grace period.

The $107 million loan for Statistical Strengthening from the IBRD has a 30-year maturity including a 5-year grace period.

Source : NetIndian

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