The World Bank Report No: ISR10918 Implementation Status & Results India SME Financing & Development (P086518) Public Disclosure Copy Operation Name: SME Financing & Development (P086518) Project Stage: Implementation Seq.No: 18 Status: ARCHIVED Archive Date: 25-Jun-2013 Country: India Approval FY: 2005 Product Line: IBRD/IDA Region: SOUTH ASIA Lending Instrument: Financial Intermediary Loan Implementing Agency(ies): Key Dates Board Approval Date 30-Nov-2004 Original Closing Date 30-Jun-2008 Planned Mid Term Review Date Last Archived ISR Date 10-Apr-2013 Effectiveness Date 29-Apr-2005 Revised Closing Date 30-Jun-2013 Actual Mid Term Review Date 06-May-2011 Project Development Objectives Project Development Objective (from Project Appraisal Document) The objective of this project is to improve SME access to finance (particularly longer term financing) and business development services, thereby fostering SME growth, competitiveness and employment creation, which are key to achieving GoI's overall objectives of economic growth and poverty reduction. The project is designed to achieve its objective through a multi-pronged approach that will that will address key bottlenecks to SME financing and development in India, by focusing on: (a) creating a more enabling policy, regulatory and institutional framework for SME financing by banks (the primary target group for this project); (b) helping banks gain better access to longer term financing for lending to the SME sector, thereby facilitating capital formation and technology up-grading; (c) mitigating banks' risks related to SME lending and reducing transactions costs of such lending while, at the same time, ensuring that banks enhance the quality of their SME loan portfolios; and (d) strengthening business development services and market linkage programs for SMEs (the secondary target group), thereby helping SMEs to improve profitability and competitiveness, and become more creditworthy. Has the Project Development Objective been changed since Board Approval of the Project? Yes No Component(s) Component Name Component Cost Credit Facility 389.00 Public Disclosure Copy Risk Sharing Facility 10.00 TA 37.00 Overall Ratings Previous Rating Current Rating Progress towards achievement of PDO Satisfactory Satisfactory Overall Implementation Progress (IP) Moderately Satisfactory Moderately Satisfactory Overall Risk Rating Low Page 1 of 5 The World Bank Report No: ISR10918 Implementation Status Overview Implementation of the initial project (2005-2009) by the Small Industries Development Bank of India (SIDBI) was satisfactory and the objectives of expanding access to long term finance to SMEs and improving the quality of lending to SMEs were fully achieved under the original parent project. Public Disclosure Copy Overall progress on the Additional Financing Project (2009-present) outcome indicators remains satisfactory. Around US$390.7 million out of US$400 million has been disbursed. Project restructuring was approved on June 28, 2012 and resulted in an extension of the closing date by one year from June 30, 2012 to June 30, 2013 to allow for the implementation of the Risk Sharing Facility (RSF) and a reallocation of proceeds from the unallocated portion (US$9 million) to the Credit Facility (CF) component of the project. Targets with respect to Project Development Objective Indicators have been far exceeded. Against a target of a 30% increase in lending of term finance to SMEs by participating financial intermediaries' (PFIs) funded branches, the project has achieved over a 120% increase in lending by SIDBI. At the same time the profitability performance of benefiting SME businesses has exceeded expectations with a 1.39% Return on Assets (ROA) against the targeted 1%. Non-performing loans at SIDBI have remained excellent (0.53%) despite the 320% increase in the number of SMEs that receive funds. The additional financing project has supported over 10,000 new SME loans and the demonstration effect on the sector has been significant with banks learning to take up SME lending on their own. Overall implementation progress remains moderately satisfactory, as implementation of the RSF has been partial. Adherence to project implementation arrangements remains good. Notably the project has developed a model “good practice� Environmental and Social Risk Management Framework (ESMF) for lending to SMEs. It meets country and Bank requirements while being simple and pragmatic – having been developed in close consultation with operational credit officers. Three financial institutions have confirmed that they will adopt it as their framework. The Credit Facility has progressed well and the unallocated amount of US$9 million has, with the restructuring undertaken last year, been allocated to the CF. Its balance has been used for refinancing claims of a participating financial intermediary. The donor funded Technical Assistance (TA) component that supported (a) improving credit information, particularly by enhancing the SME database and building an interface between the consumer and commercial databases of the credit bureau (CIBIL); (b) the growth of the SME Rating Agency (SMERA); and (c) cluster development by identifying business development services, was closed with a satisfactory rating in October 2011. To implement the Risk Sharing Facility an initial budget allocation was transferred to the Credit Guarantee Fund Trust for SMEs (CGTMSE), the guarantee reserves were created and disbursements made from the World Bank to SIDBI. Two MoUs were signed and some guarantees have been issued. On June 7, 2013, CGTMSE confirmed the expected scheduled issuance (no later than June 30, 2013) of another 15-20 guarantees, which would leverage the allocation of US$1.43 million to the RSF. SIDBI, with the approval of the Department of Financial Services (DFS) and the Department of Economic Affairs (DEA) on June 4, 2013, has requested for a reallocation of US$8.57 million of proceeds from the Risk Sharing Facility component to the Credit Facility component of the project. The main reason for seeking this reallocation is that further Government budgeting will not materialize before the project’s extended closing date – a prerequisite for further utilization of the RSF. The reallocation to the CF could expand the coverage of SMEs under the project. Public Disclosure Copy Locations No Location data has been entered Results Project Development Objective Indicators Page 2 of 5 The World Bank Report No: ISR10918 Indicator Name Core Unit of Measure Baseline Current End Target 30% increase in lending (including term Percentage Value 0.00 123.00 30.00 lending) to SMEs by PFIs Date 31-Mar-2008 31-Mar-2013 30-Jun-2012 Public Disclosure Copy Comments (a) 15,087 (b) 19,276 SIDBI (a) SIDBI: 33,666 (+123%) Bank (b) 8829 BOM; 485 (AU) of Maharashtra (BOM):NA AU: NA (b) SIDBI: 57,642 (+199%) BoM: 11,289 (+27%) AU: 3,704 (+563%) Controlled net NPL ratio on the SME loan Percentage Value 0.25 0.34 3.00 portfolios of all PFIs Date 31-Mar-2008 31-Mar-2013 30-Jun-2013 Comments SIDBI: 0.25% SIDBI: 0.53% BoM: 1.32% BoM: 3.61% AU: NIL AU: 0.20% Well below maximum NPL ratio target for end project in weighted average terms Improved profitability of SME business in all Percentage Value 1.01 1.39 1.00 PFIs as measured by RoA of 1% or more Date 31-Mar-2008 31-Mar-2013 30-Jun-2013 Comments SIDBI: 1.39% BoM: Not available; SME lending is one of many areas serviced by BoM, which hence has difficulty providing this data. AU: 2.48% Scale-up of benefiting SME#s operations (as Percentage Value 0.00 31.00 15.00 measured by a 15% increase in turnover) Date 01-Apr-2008 31-Mar-2013 30-Jun-2013 Comments 589; Baseline (FY08) and end 774; (=31% increase) Public Disclosure Copy of project target (FY11) to be Baseline (FY08) and end of established through a project target (FY13) to be baseline and follow-up established through a surveys of a sample of SMEs baseline and follow-up surveys ofa sample of SMEs Intermediate Results Indicators Page 3 of 5 The World Bank Report No: ISR10918 Indicator Name Core Unit of Measure Baseline Current End Target Percentage Growth in the number of SMEs that Percentage Value 0.00 762.00 100.00 receive funds Date 31-Mar-2008 31-Mar-2013 30-Jun-2013 Public Disclosure Copy Comments Over 10,000 new SME loans were supported under AF; estimated 8,000 SMEs covered. Relative to 927 in parent project Percentage of the Credit Facility to PFIs Percentage Value 0.00 97.69 100.00 disbursed to eligible SMEs Date 31-Mar-2008 31-Mar-2013 30-Jun-2013 Comments Percentage of the RSF gurantees issued Percentage Value 0.00 14.00 100.00 Date 30-Jun-2009 31-Mar-2013 30-Jun-2012 Comments Volume of Bank Support: Lines of Credit - SME Amount(USD) Value 12000000.00 510000000.00 520000000.00 Date 31-Mar-2008 31-Mar-2013 30-Jun-2013 Comments Data in USD covers initial financing original parent project and additional financing (P086518 +P102767). Outstanding SME Loan Portfolio Amount(USD) Value 5.00 10.10 8.00 Date 31-Mar-2008 31-Mar-2013 30-Jun-2013 Comments bn dollars SIDBI's overall SME portfolio bn dollars bn dollars SIDBI: 10.1 BoM: 1.9 AU: 0.63 Percentage of project-supported institutions Percentage Value 0.00 3.00 3.00 Public Disclosure Copy that are reporting on this indicator Sub Type Supplemental No of active loan accounts -SME Number Value 5548.00 153000.00 Date 31-Mar-2008 31-Mar-2012 30-Jun-2012 Comments Estimated measure of SIDBI's SIDBI: 10,492 No target available number of SME clientele BoM: 139,081 AU: 3,883 Data on Financial Performance (as of 11-Jun-2013) Page 4 of 5 The World Bank Report No: ISR10918 Financial Agreement(s) Key Dates Project Ln/Cr/Tf Status Approval Date Signing Date Effectiveness Date Original Closing Date Revised Closing Date P086518 IBRD-72630 Closed 30-Nov-2004 14-Jan-2005 29-Apr-2005 30-Jun-2008 30-Jun-2009 Public Disclosure Copy P086518 IBRD-76940 Effective 30-Apr-2009 05-Jun-2009 30-Jul-2009 30-Jun-2012 30-Jun-2013 Disbursements (in Millions) Project Ln/Cr/Tf Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P086518 IBRD-72630 Closed USD 120.00 120.00 0.00 120.00 0.00 100.00 P086518 IBRD-76940 Effective USD 400.00 400.00 0.00 390.71 9.29 98.00 Disbursement Graph Public Disclosure Copy Key Decisions Regarding Implementation Reallocation of unutilized US$8.57 million from RSF component to CF component is being processed. Restructuring History CD Approval on 12-May-2008, Level two Approved on 28-Jun-2012 Related Projects P102767-SME Financing and Development Project: Additional Financing Page 5 of 5