IND: Micro, Small and ,Medium-sized Enterprise

Development Project p j

Francesco A. TornieriSenior Social Development Specialist (GAD)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 AsianDevelopment Bank (ADB), or its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy ofth d t i l d d i thi d t ibilit f f th i Th t i li t d i thi dthe data included in this paper and accepts no responsibility for any consequence of their use. The countries listed in this paper donot 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(1) IND: Micro, Small and Medium--sized Enterprise sized Enterprise Development Project : a Development Project : a hybridhybrid programprogram

(a) ADB OCR Loan ($50 mn), with sovereign counter-guarantee for on-lending to M/SMEs and 30% target to female entrepreneurs

(b) P ti l C dit G t ($250 )(b) Partial Credit Guarantee ($250 mn)(c) JFPR: Supporting Microentrepreneurship for

Women’s Empowerment ($3 mn)Women s Empowerment ($3 mn)

M/SME = micro, small and medium-sized enterprise;/ , p ;JFPR = Japan Fund for Poverty ReductionOCR= ordinary capital resources

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

Illustration 1:

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(%) Key elements in Loan design:(%) Key elements in Loan design:social/gender analysissocial/gender analysis/g y/g y

Illustration 2: “The Missing Middle”

Company size Finance size & source

Large companies Rs50 millionAmount of finance

gFinance is available for large

and micro businesses, but is limited for the small companiesin India

g p>201 employees International

commercial finance

Rs500,000–Rs50 millionLocal banks & subsidizedinternational finance

Amount of finance available

Small businesses5–100 employees

Micro businesses

te at o a a ce

Rs50,000–Rs500,000Local banks & loansharkspersonal loans

Rs1 Rs50 000Number of

“The Missing Middle”Small companies lack

access to finance

Micro businesses1–5 employees

Rs1–Rs50,000Microfinance loansharks &personal loans

companies

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(B) Key elements in Loan Design: (B) Key elements in Loan Design: definition of clear target groups/geographic focusdefinition of clear target groups/geographic focus

Clear definition of Target Groups:The ‘missing middle’ i.e. low-income women gentrepreneurs 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 ymore conventional bank financing. Loan requirements of Rs50,000 to Rs1,000,000 (around $1,042–$20,824).

Clear Geographic Foc sClear Geographic Focus:12 States ► Andhra Pradesh, Assam, Bihar, Jharkhand,Karnataka, Madhya Pradesh, Maharashtra, Orissa,Rajasthan, Tamil Nadu, Uttar Pradesh, and West BengalRajasthan, Tamil Nadu, Uttar Pradesh, and West BengalSelection based on poverty indices, socioeconomic andgender-related indicators

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

SIDBI

SIDBI Foundation for

SIDBI Foundation for Microcredit (SFMC) branches

Direct Lending Indirect Lending

NBFC Microfinance institutions (MFIs)

Banks (incl. cooperative banks)

Women Microentrepreneurs

LELAs

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(D) Key elements in Loan Design: (D) Key elements in Loan Design: Design and Monitoring FrameworkDesign and Monitoring Framework

DESIGN AND MONITORING FRAMEWORK

Design Summary

Performance Targets and/or Indicators

Data Sources and/or Reporting

Mechanisms Assumptions

and Risks Impact Micro, Small and Medium Enterprises (MSMEs) in India

li i th i f ll

• 5% increase in number of MSMEs established throughout the country

• Periodic reports from the Planning Commission

Assumptions• Continued strong

commitment by GOI for realizing their full potential, contributing to economic growth and poverty reduction – especially among women micro entrepreneurs

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)

• Project-specific Information and data collected

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

reforms• Global economy recovers from the financial crisis Risk • Weakened implementation

of reforms

down by gender)

g

Outcome Improved MSME access to term finance (through SIDBI under the OCR loan and the Participating Financial Institutions under the PCG F ilit ) d

• 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

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

Assumptions• Macroeconomic stability • Commitment to reforms • Project design is

implementable • Commitment of SIDBI and

SIDBI partners to further PCG Facility) and services and market opportunities (under the TA), thereby fostering MSME growth, competitiveness and employment creation.

Mobilization of additional private

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

• Quarterly reports from SIDBI and all PFIs

• Reports by international rating agencies on SIDBI and all PFIs

• Central Bank statistics

advance gender and socially-inclusive approaches

Risks • Lenders fail to develop

effective loan application processes and the supporting technical skills required for a sustainablecommercial medium-

to long-term financing.

Assets (ROA) of 1% or more

• Successful commercial debt finance or bond issue in international capital market

• Number of successful applications by low-income women entrepreneurs at SIDBI

statistics• Proceedings from

national and State-specific workshops (carried out under the TA)

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

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and SFMC branches in selected States increased [20% year increase compared to baseline (2010)]

1. Enhance credit delivery through

• MSME credit to total credit ratio of banks increases

• Economic reports and official

AssumptionsA il bilit f t tdelivery through

SIDBI and PFIs, especially in the non-urban/rural areas, to the MSME sector.

2. Increase of SME productive and managerial

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

and official statistics of Government and other international development agencies

• Periodic reports from the Planning Commission

• Quarterly reports

• Availability of counterpart staff

• Availability of data • Adequate resources to

undertake studies • Cooperation of other

development partners Risks • The proceeds from the

capacity and related new jobs created for new markets

3. Women's micro/small entrepreneurs

higher benefit from critical SIDBI MSME investments that remove key competitiveness constraints

• Training initiatives

organized [144] • Low-income women

entrepreneurs trained in

y pfrom SIDBI and all PFIs

• Baseline

information and data reports

pADB 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 inherentlyptrained

4. Financial services for low-income women developed

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

data reports • Training and

Capacity Needs Assessment reports

• Financial

services Business

• 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 women developed 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)

• Business processes

weaken coordination of TA activities

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(E) Key elements in Loan Design: Gender Action Plan

Activities Information Source Responsibility TimeOutcome: 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 by low-income women entrepreneurs at SIDBI and PFIs branches in selected states

• Periodic reports from SIDBI and PFIs

• Project Completion Report

SIDBI and PFIs Month 1–60

O t t 1 E h dit d li th h SIDBI d PFI i th MSME tOutput 1: Enhance credit delivery through SIDBI and PFIs in the MSME sector 1. Earmark 30% of the proceeds under the OCR loan to be

used by SIDBI's for its direct lending operations for lending to qualified women micro and small entrepreneurs.

• Baseline information and data reports collected in selected states

• Quarterly reports from SIDBI and PFIs

• Project Progress Report • Project Completion Report

SIDBI and PFIs Month 1–6

2. Collect baseline information and data on women's entrepreneurship in selected states on factors that enable women to, or constrain them from, becoming effective entrepreneurs in selected industries.

Month 1–36 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 markets1. Take stock of banking policies, strategies, and programs

related to the promotion of women entrepreneurship in SIDBI and PFIs.

• Technical report on stocktaking exercise reviewed and disseminated

SIDBI and PFIs Month 3–9

2. Carry out capacity needs assessment in selected PFIs in Month 6–9• Training and capacity

development needs assessment carried out in selected districts

• Gender content in all training modules developed and integrated.

• Gender-responsive

y p yterms of gender awareness in selected states.

3. Train senior and middle level managers, staff, and other stakeholders from SIDBI and retailers involved in the provision of credit to women entrepreneurs.

Month 6–36

4. Exchange and lateral learning initiatives organized among PFIs.

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Gender responsive practices adopted by PFIs

(E) Key elements in Loan Design: (E) Key elements in Loan Design: Gender Action PlanGender Action Plan

Activities Information Source Responsibility Time5. Train low-income women entrepreneurs (target: 1,500) in financial literacy, leadership and communication, and business

Month 9–36 y, p ,

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

lending procedures and proactively support lending f f

SIDBI and PFIs Month 6–60

products targeting the specific needs of women entrepreneurs.

Monitoring and Evaluation of social and gender-related results1. Project Performance Monitoring System is established for

monitoring of the social and gender related targets andSex-disaggregated data for project impact indicators

monitoring of the social and gender-related targets and indicators set out in the DMF.

2. Sex-disaggregated results are collected and incorporated in relevant project reports.

project impact indicators

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.

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(E) Key element of Project Design:(E) Key element of Project Design:an ‘integrated’ JFPRan ‘integrated’ JFPR

A. Gender-Related Policies, Strategies and Programs institutionalizedB. Stakeholders Involved in Women's Entrepreneurship Trained:

( ) D d Sid i(a) Demand Side ► women microentrepreneurs:

(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(b) Supply side ► SIDBI as wholesaler, and the retailers (SIDBI 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) Technology training specific to M&E software to enable users to(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.

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(E) Key element of Project Design:(E) Key element of Project Design:an ‘integrated’ JFPRan ‘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

t ilretailers.

D. Effective Monitoring and Evaluation of Results (a) Baseline and End line Assessment); and (b) Establishment of rating system for microenterprises

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((22) M/SME Project: some results (June) M/SME Project: some results (June--October, October, 20102010))

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 ($beneficiary works out to Rs. 210,000 approx ($ 4,700). Almost 30% beneficiaries covered in the first claim are women Out of the 224 beneficiaries around 47%are women. Out of the 224 beneficiaries, around 47% 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 ofWhile 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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