ADB Disburses $150 Million Financing to Chola to Improve Credit Access for MSMEs in India

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The Asian Development Bank (ADB) has completed the disbursement of a $150 million debt financing to Cholamandalam Investment and Finance Company Limited (Chola), in equivalent rupees, to help micro, small, and medium-sized enterprises (MSMEs) in India have better access to finance and expand financial inclusion in the country.

ADB's financing to Chola will help ensure that MSMEs, which are crucial to the Indian economy, have access to the necessary long-term capital that they need to continue contributing to the country's growth and development, said ADB Principal Investment Specialist for Private Sector Operations Department Mr. Anshukant Taneja. ADB's financing, which has been provided in the backdrop of a slowdown in credit growth in the Indian banking system, has a countercyclical effect and is expected to boost investments and employment.

MSMEs have huge potential to contribute to India's development. While 48.8 million MSMEs were reportedly operating across the country in 2014 and contributing about 11.5% to India's gross domestic product growth annually, about 94% of them are unregistered and unregulated. The realization of this potential is further hindered by the fact that access to credit is limited, with 78.2% of MSMEs being self-financing and only about 2% having access to credit from formal financial institutions.

ADB's assistance to Chola is composed of senior secured nonconvertible debentures of tenors from 3 to 5 years, to help finance its lending operations to MSMEs (like small road transport operators in the logistics and transportation businesses). Half of the target MSMEs under ADB's financing will be from lagging states in India, resulting in improved economic growth prospects and employment opportunities in these areas. MSMEs engaged in logistics, distribution, and transport-related industries will be given priority, although MSMEs seeking loans for investment and working capital will also benefit from access to term financing.

Chola has been working with ADB for setting up this credit line, said Chola Executive Director Mr. Arun Alagappan. The present transaction is a beginning of a long and mutually rewarding relationship and hence is a step that will help us strengthen our core operations."

Based in Chennai, Chola is a pan-Indian nonbank financial company, with more than 880 branches�90% of these being in secondary and tertiary cities, where the physical presence of the commercial banks is often low.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 67 members�48 from the region. In 2017, ADB operations totaled $32.2 billion, including $11.9 billion in cofinancing.

Source: Asian Development Bank