The International Finance Corp (IFC) and the Bank of Tokyo-Mitsubishi will together extend a six-year $60-million line of credit to Export-Import Bank of India (Exim Bank).
The new deal, the first under the IFC's Export Credit Agency initiative started in May, will enable Exim Bank of India to support export-orientated small and medium enterprises.
This would be a boon for small exporters who have been complaining of a credit squeeze as banks have tightened their lending to customers, in the wake of the global credit crisis.
The loan is being provided for a tenor of up to 6 months.
IFC's investment will help address the limited access to finance for small and medium size exporters, a problem exacerbated by the global financial crisis.
This is the first time the IFC, the World Bank's private lending arm, is offering credit to banks/financial agencies to ease credit flows.
Companies rely heavily on bank-financed trade credit to support their exports and imports. The current global financial crisis has significantly eroded export growth with demand falling for most products.
Moreover, the ongoing global financial crisis has adversely impacted banks' credit off-take in many ways: banks have become very cautious to lend due to capital restriction; borrowing cost have become greater than before; banks are hesitant to give letters of credit to importers hampering trade.
IFC, the largest multilateral financial institution, launched a set of initiatives to help private enterprises cope with the global financial and economic crises.
IFC is expected to finance more than $31 billion over the next three years, combining IFC funds with contributions mobilised from various sources, including governments and other international financial institutions.
Exim Bank provides financial assistance to exporters and importers and also assists them in various capacities such as identifying overseas markets, providing loans and guarantees and export credit.