IND: Micro, Small and , Medium-sized Enterprise Development Project p j

Francesco A. Tornieri Senior Social Development Specialist (GAD) South Asia Department
The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this th d t i l d d i thi paper and accepts no responsibility f any consequence of th i use. Th countries li t d i thi paper d d t ibilit for f their The t i listed in this do not imply any view on ADB's part as to sovereignty or independent status or necessarily conform to ADB's terminology.

(1) IND: Micro, Small and Medium-sized Enterprise MediumDevelopment Project : a hybrid program

(a) ADB OCR Loan ($50 mn), with sovereign counter-guarantee for on-lending to M/SMEs and 30% target to female entrepreneurs (b) Partial Credit Guarantee ($250 mn) P ti l C dit G t ) (c) JFPR: Supporting Microentrepreneurship for Women s Women’s Empowerment ($3 mn)
M/SME = micro, small and medium-sized enterprise; / , p ; JFPR = Japan Fund for Poverty Reduction OCR= ordinary capital resources


(A) Key elements in Loan Design: social/gender analysis
Illustration 1:


(%) Key elements in Loan design: social/gender analysis /g y
Illustration 2:
“The Missing Middle” g Finance is available for large and micro businesses, but is limited for the small companies in India
Amount of finance available

Company size
Large companies g p >201 employees

Finance size & source
Rs50 million International commercial finance Rs500,000–Rs50 million Local banks & subsidized international finance te at o a a ce

Small businesses 5–100 employees Micro businesses 1–5 employees

“The Missing Middle” Small companies lack access to finance Number of companies

Rs50,000–Rs500,000 Local banks & loansharks personal loans Rs1–Rs50,000 Rs1 Rs50 000 Microfinance loansharks & personal loans


(B) Key elements in Loan Design: definition of clear target groups/geographic focus
Clear definition of Target Groups: The ‘missing middle’ i.e. low-income women g entrepreneurs in the unorganized sector ► microborrowers whose business has grown too large for traditional microfinance support, but whose activities are still too limited or who lack skills and capacity to access p y more conventional bank financing. Loan requirements of Rs50,000 to Rs1,000,000 (around $1,042–$20,824). Clear Geographic Foc s Focus: 12 States ► Andhra Pradesh, Assam, Bihar, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra, Orissa, Rajasthan, Tamil Nadu, Uttar Pradesh, and West Bengal Selection based on poverty indices, socioeconomic and gender-related indicators


(C) Key elements in Loan Design: ownership of ‘gender’ by the EA/IA

SIDBI Foundation for Microcredit (SFMC) branches

Direct Lending

Indirect Lending

Microfinance institutions (MFIs) LELAs


Banks (incl. cooperative banks)

Women Microentrepreneurs


(D) Key elements in Loan Design: Design and Monitoring Framework
Performance Targets and/or Indicators Design Summary Impact Micro, Small and Medium Enterprises (MSMEs) in India realizing li i th i their f ll full potential, contributing to economic growth and poverty reduction – especially among women micro entrepreneurs • 5% increase in number of MSMEs established throughout the country including in nonurban/rural areas over the next three years (figures to be broken down by gender) • 5% increase in MSME sector employment over the next three years (figures to be broken down by gender) • 10% growth in number of MSMEs that receiving term financing through this project starting from 2010 • 20% increase in term lending to MSMEs by SIDBI and the PFIs and overall increase in their MSME portfolio • Net NPL ratio on the MSME portfolios of SIDBI and all PFIs is 3% or less • Improved profitability of the MSME business in SIDBI and all PFIs as measured by Return on Assets (ROA) of 1% or more • Successful commercial debt finance or bond issue in international capital market • Number of successful applications by lowincome women entrepreneurs at SIDBI and SFMC branches in selected States increased [20% year increase compared to baseline (2010)] Data Sources and/or Reporting Mechanisms • Periodic reports from the Planning Commission • Project-specific
Information and data collected

Assumptions and Risks Assumptions • Continued strong commitment by GOI for reforms • Global economy recovers from the financial crisis Risk • Weakened implementation of reforms

• Economic reports and official statistics of Government and other international development g agencies

Outcome Improved MSME access to term finance (through SIDBI under the OCR loan and the Participating Financial Institutions under the PCG Facility) F ilit ) and d
services and market opportunities (under the TA), thereby fostering

MSME growth, competitiveness and employment creation. Mobilization of additional private commercial mediumto long-term financing.

• Economic reports and official statistics of Government and other international development agencies • Quarterly reports from SIDBI and all PFIs • Reports by international rating agencies on SIDBI and all PFIs • Central Bank statistics • Proceedings from national and State-specific workshops (carried out under the TA)

Assumptions • Macroeconomic stability • Commitment to reforms • Project design is implementable • Commitment of SIDBI and SIDBI partners to further advance gender and socially-inclusive approaches Risks • Lenders fail to develop effective loan application processes and the supporting technical skills required for a sustainable commercial MSME lending system • Political instability • Resistance to reforms from vested interests • ADB credit enhancement may not overcome international capital market access barrier



Enhance credit delivery through SIDBI and PFIs, especially in the non-urban/rural areas, to the MSME sector. Increase of SME productive and managerial capacity and related new jobs created for new markets

• MSME credit to total credit ratio of banks increases by 5% from 2010 to 2012


• Measured cost and time among MSME sectors to identify impact in terms of lowered business cost and higher benefit from critical SIDBI MSME investments that remove key competitiveness constraints
• •

• Economic reports and official statistics of Government and other international development agencies • Periodic reports from the Planning Commission • Quarterly reports y p from SIDBI and all PFIs

Assumptions • A Availability of counterpart il bilit f t t staff • Availability of data • Adequate resources to undertake studies • Cooperation of other development partners Risks • The proceeds from the p ADB loan and raised through the PCG are provided to SIDBI and the PFIs which in turn lend inappropriately to MSMEs without proper due diligence leading to a high level of non-performing loans • MSMEs are inherently vulnerable to economic downturns which could adversely affect their financial condition and performance • Restricted availability of and access to information • Absence of reliable data • Staff changes in EA/IA weaken coordination of TA activities


Women's micro/small entrepreneurs p trained

Training initiatives organized [144] Low-income women entrepreneurs trained in BDS and financial literacy [6,000] Networks among women entrepreneurs enhanced [40] Products and technologies to deliver sustained financial services to the poor developed by SIDBI partners (5) Business processes to reduce delivery costs of financial services to the poor developed by SIDBI partners (5)

Baseline information and data reports Training and Capacity Needs Assessment reports


Financial services for low-income women developed

• •

Financial services Business processes


(E) Key elements in Loan Design: Gender Action Plan
Activities Information Source Responsibility Time Outcome: Improved MSME access to commercial financing and market opportunities, thereby fostering MSME growth, competitiveness, and employment creation 20% increase (per year) in number of successful applications SIDBI and PFIs Month 1–60 • Periodic reports from by low-income women entrepreneurs at SIDBI and PFIs SIDBI and PFIs branches in selected states • Project Completion Report Output 1 E h O t t 1: Enhance credit delivery through SIDBI and PFI i the MSME sector dit d li th h d PFIs in th t SIDBI and PFIs Month 1. Earmark 30% of the proceeds under the OCR loan to be • Baseline information and used by SIDBI's for its direct lending operations for lending data reports collected in to qualified women micro and small entrepreneurs. selected states Month 2. Collect baseline information and data on women's • Quarterly reports from entrepreneurship in selected states on factors that enable SIDBI and PFIs women to, or constrain them from, becoming effective • Project Progress Report entrepreneurs in selected industries. • Project Completion Report j p p 3. Establish mechanisms (i.e., Challenge Fund, Credit Guarantee Scheme) (target: 1,200 women entrepreneurs) to support innovative proposals targeting women's entrepreneurship in selected states. 4. Technologies and business processes are developed to reduce delivery costs of financial services to low-income women entrepreneurs. 5. Develop cadre of Livelihood Enterprise Learning Advisors at participating retailers (25) to provide personal guidance to women entrepreneurs in accessing microcredit and other financial services. Output 2: Increase of MSME productive and managerial capacity and related new jobs created for new markets SIDBI and PFIs Month 1. Take stock of banking policies, strategies, and programs • Technical report on related to the promotion of women entrepreneurship in stocktaking exercise SIDBI and PFIs. reviewed and 2. Carry out capacity needs assessment in selected PFIs in y p y Month disseminated terms of gender awareness in selected states. • Training and capacity 3. Train senior and middle level managers, staff, and other Month development needs stakeholders from SIDBI and retailers involved in the assessment carried out in provision of credit to women entrepreneurs. selected districts 4. Exchange and lateral learning initiatives organized among • Gender content in all PFIs. training modules developed and integrated. • Gender-responsive Gender responsive practices adopted by PFIs 1–6 1–36

3–9 6–9 6–36


(E) Key elements in Loan Design: Gender Action Plan
Activities Information Source Responsibility 5. Train low-income women entrepreneurs (target: 1,500) in y, p financial literacy, leadership and communication,, and business development services. Output 3: The PFIs will increase their MSME portfolio through the use of ADB's PCG 1. Ensure that PFIs assess and review their overall credit SIDBI and PFIs lending procedures and proactively support lending products targeting the specific needs off women f entrepreneurs. Monitoring and Evaluation of social and gender-related results 1. Project Performance Monitoring System is established for Sex-disaggregated data for monitoring of the social and gender related targets and gender-related project impact indicators indicators set out in the DMF. 2. Sex-disaggregated results are collected and incorporated in relevant project reports. Time Month 9–36

Month 6–60

ADB = Asian Development Bank; DMF = design and monitoring framework; MSME = micro, small, and medium enterprise; OCR = ordinary capital resources; PFI = participating financial institution; PCG = Partial Credit Guarantee; SFMC = SIDBI Foundation for Microcredit; SIDBI = Small Industries Development Bank of India.


(E) Key element of Project Design: an ‘integrated’ JFPR
A. B. Gender-Related Policies, Strategies and Programs institutionalized Stakeholders Involved in Women's Entrepreneurship Trained: (a) Demand Sid ► women microentrepreneurs: ( )D d Side i (a.1) Financial literacy for microentrepreneurs; and (a.2) Leadership and communication; and (a.3) Business development training; (b) Supply side ► SIDBI as wholesaler and the retailers (SIDBI wholesaler, branches, NBFCs, and banks)— training activities will be carried out and include (b.1) Gender, microfinance, and micro entrepreneurship; (b.2) Appropriate operations, to enable users (retailers) to identify appropriate tools, methods, and financial products addressing the needs of low-income women entrepreneurs; (b.3) (b 3) Technology training specific to M&E software, to enable users to effectively monitor the project’s outputs, outcomes, and impacts; and (b.4) Enterprise financing to present models and effective practices in enterprise financing.


(E) Key element of Project Design: an ‘integrated’ JFPR
C. Financial Services for Low-Income Women Microentrepreneurs Developed: p p (a) Credit Guarantee Fund; (b) Recruitment of livelihood enterprise learning advisors (LELA); (c) Development of project-specific management information system (MIS) software for participating retailers. t il D. Effective Monitoring and Evaluation of Results (a) Baseline and End line Assessment); and (b) Establishment of rating system for microenterprises


(2) M/SME Project: some results (June-October, 2010) (June2010) A total number of 224 beneficiaries have been covered under the first claim. Average loan size per beneficiary works out to Rs 210 000 approx ($ Rs. 210,000 4,700). Almost 30% beneficiaries covered in the first claim are women. Out of the 224 beneficiaries, around 47% women beneficiaries have been disbursed assistance in the range of Rs. 50,000 to Rs. 100,000 [$1,042–$2,084] While around 10% beneficiaries fall in the bracket of assistance of Rs. 100,000 - Rs. 200,000, 43% lie in the range of Rs. 200,000 to Rs. 500,000 [$4,168– $10,420] , ] Having targeted the ‘missing middle’ is making sense.


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