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Small Industries Development Bank of India: An Overview By S. Ramakrishnan, Regional Head, SIDBI, Kolkata

Small Industries Development Bank of India (SIDBI), set up on April 2, 1990 under an Act of Parliament, presently acts as the Principal Financial Institution for the Promotion, Financing and Development of the Micro, Small and Medium Enterprise (MSME) sector and also co-ordinates the functions of the institutions engaged in similar activities. Presently, the Bank provides refinance support through a network of eligible member lending institutions for onward lending to MSMEs and direct assistance is channelised through the Bank’s Branch Offices spread across the country. Besides, SIDBI extends financial assistance in the form of loans, grants, equity and quasi-equity to Non Government Organisations (NGOs) / Micro Finance Institutions (MFIs) for on-lending to micro enterprises and economically weaker sections of the society, enabling them to take up income generating activities on a sustainable basis.

Direct Credit:
SIDBI has been financing various manufacturing and service sector activities under SIDBI Act, MSMED Act and under various approvals received from Board/ Govt. of India over the years. However, to have better clarity on the activities being financed, the major thrust areas of direct financing of SIDBI may be stated as follows:

Enterprises eligible under the definition of MSMED Act, both manufacturing and service sector enterprises, by way of Term Loan/ WC Limit/ Risk Capital, etc.

Other Service sector projects earlier approved by SIDBI,

Assistance under Receivable Finance Scheme (RFS), with the objective to mitigate the problem of delayed payment to MSME units for their sales of various products/ components to Medium/ Large corporates.

Assistance to Infrastructure projects.

Risk Capital:
In order to meet the risk capital requirements of MSMEs, especially those involving innovations and new technologies, SIDBI provides Risk Capital assistance to MSMEs in the form of equity, preference capital, optionally convertible debenture, optionally convertible debt, sub-ordinated debt, etc., directly as well as through venture capital funds.

Secured Business Loan
The objective of the Scheme is to provide fast dispensation of credit to MSMEs for planned or unplanned requirements. The assistance is in the nature of term loan for any business related expenditure on the strength of the collateral security and repayment capacity based on current operations / cash flows.

Asset Light Scheme
Several service sector businesses/projects do not have / create immovable assets and they generally operate from leased premises. Such proposals may not meet the Fixed Asset Coverage Ratio (FACR) norms of asset backed assistance to service sector entities. SIDBI will assist such businesses selectively with i) more stringent eligibility criterion, ii) lower Debt Equity Ratio (DER) and iii) by exploring debt service comforts through free cash flow streams, wherever possible.

GEMS (Growth Capital and Equity Assistance Scheme for MSMEs)
To provide growth capital to deserving MSMEs for:

a) Bridging the gap in the means of finance for expansion/modernization/ scaling up.

b) Intangibles or non-asset creating investments, viz., product development, marketing related expenditure, R&D, investments in quality control, energy efficiency equipment, etc.

c) Margin money for working capital or working capital.

d) Any other bonafide expenditure required for growth of the business.

Responsible Micro Finance
Responsible Lending has been one of the top priorities of the Bank and SIDBI’s endeavours on spearheading the issue of responsible finance amongst the assisted MFIs was initiated much before the sectoral setback seen in Andhra Pradesh in the later half of 2010. As part of its responsible finance initiative, SIDBI has created a Lenders’ Forum, comprising key MFI lenders, with a view to promoting cooperation among MFI lenders for leveraging support to MFIs across the geography to promote more responsible lending practices. Pursuant to the initiatives of SIDBI, regional chapters of Lenders’ Forum have been set up for better co-ordination amongst the lenders and closer interaction with the MFIs.

SIDBI has developed a Code of Conduct Assessment Tool, which applies to providing credit services, recovery of credit, collection of thrift etc., by MFIs to assess their degree of adherence to the voluntary Microfinance Code of Conduct adopted by the MFIs. SIDBI has also partnered with ACCION International and is supporting Smart Campaign, which is a global effort to embed a set of Client Protection Principles (CPPs), viz., - awareness about client protection, develop, disseminate and assist MFIs to implement best practices and create processes to certify MFIs as pro-client and has undertaken the following activities, viz., educating MFIs on Client Protection Principles, conducting Client Protection Assessments and Capacity Building and Strengthening Client Protection amongst assisted MFIs under the SIDBI-Smart Campaign Partnership. These initiatives are in line with the Responsible Lending agenda adopted, practiced and advocated by SIDBI and efforts are on to further mainstream these initiatives.

SIDBI extends Nodal Agency services to the Government of India for schemes sponsored by various Ministries for encouraging implementation of modernisation and technology upgradation projects by manufacturing units in the MSME sector, viz.,

Credit Linked Capital Subsidy Scheme (CLCSS) [Ministry of MSME]

Technology Upgradation Fund Scheme for Textile Industry (TUFS) [Ministry of Textiles]

Integrated Development of Leather Sector Scheme (IDLSS) [Ministry of Commerce & Industry]

Scheme of Technology Upgradation / Setting up / Modernisation / Expansion of Food Processing Industries (FPTUFS) [Ministry of Food Processing Industries]

Scheme for Technology and Quality Upgradation Programme (TEQUP) of Ministry of Micro, Small and Medium Enterprises.
SIDBI has facilitated setting up of the following subsidiaries/ associates:

SIDBI Venture Capital Ltd. (SVCL):
SVCL, a wholly owned subsidiary of SIDBI, was set up in July 1999, is providing venture capital to emerging sectors, such as, life sciences, biotechnology, pharmaceuticals, engineering and information technology.

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE):
The Ministry of Micro, Small and Medium Enterprises, Govt. of India, and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Scheme (CGS). The scheme was formally launched on August 30, 2000. Under the scheme, credit facilities, are extended without third party guarantee or collateral security by eligible lending banks/Financial Institutions upto `100 lakh, to their MSE clients

SME Rating Agency of India Ltd. (SMERA):
SMERA was set up in September 2005 by SIDBI, Dun & Bradstreet Information Services India Private Limited (D&B) and several public, private and foreign sector banks as an MSME dedicated third-party rating agency to provide comprehensive, transparent and reliable ratings and risk profiling. SMERA is one of RBI approved rating agencies for MSMEs.

India SME Technology Services Limited (ISTSL):
ISTSL set up in November 2005, a platform where MSMEs can tap opportunities at the global level for acquisition of new and emerging/ green technologies or establish business collaboration. In order to help Indian MSMEs attain global competitiveness and achieve sustainable development, ISTSL renders total consulting solutions towards technology transfer, energy conservation and environment management, etc. The technologies are being disseminated amongst the MSMEs through the website, viz., www.techsmall.com and other channels available to ISTSL. ISTSL has been focusing on the Clean Development Mechanism [CDM] as a potential area to help MSME achieve sustainable development.

India SME Asset Reconstruction Company Ltd (ISARC):
ISARC was set up in April 2008 as an Asset Reconstruction Company (ARC) to acquire non-performing assets (NPAs) and to resolve them through its innovative mechanisms with a special focus on the NPAs of MSME sector.

www.smallB.in is SIDBI’s yet another initiative to inspire all individuals to look at the business opportunities all around and to demystify and simplify the process of starting a business in India.

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