The Asian Development Bank (ADB) has sanctioned a loan of $ 300 million ( Rs. 1,380 crore) for the development and expansion of micro, small and medium enterprises (MSMEs).

MSMEs stand out to be the second largest source of employment in India after agriculture.

The bank's board of directors has approved a sovereign loan of around Rs 230 crore ($ 50 million) and a partial credit guarantee of around Rs 1,150 crore for the Micro, Small and Medium Enterprise (MSME) Development Project.

The $50 million sovereign loan will go to the state-owned SIDBI to fund those enterprises that have become too big to avail microfinance aids but at the same time are not able to gain access to conventional bank finance- the so-called ‘missing middle sector' of MSMEs.

The partial credit guarantee (PCG) facility will allow public sector commercial banks to obtain medium- to long-term funds from international capital markets for lending to existing MSME clients.

Through this the Indian PSBs will get exposure to the international capital markets.

"The objective of the project is to remove key bottlenecks to MSME financing and development, thus helping pave the way for sector growth, competitiveness and employment creation," said Peter Marro, Senior Investment Specialist in ADB's South Asia department.

SIDBI will act as the borrower and executer of the loan. The PCG facility will be provided for three years.

Around 30,000 MSMEs are expected to benefit from the project.

"The sector's development has been hamstrung by the inability of these enterprises to tap adequate, competitively priced-long term funds," Marro said.

The loan will give ample amount of assistance and scope of development to women. Around 30 per cent of the funds provided through SIDBI's lending operations is meant for qualified female MSME entrepreneurs.

The loan available from ADB's ordinary capital resources has a 15-year term, with a grace period of three years and an interest rate determined in accordance with ADB's LIBOR-based lending facility. It includes a government guarantee to ADB.