SIDBI (Small Industries Development Bank of India) is an organization that has its prime focus on the development of the MSME sector along with the promotion of energy-efficient and clean production. The bank also contributes to a greener and cleaner India. The bank finances MSMEs (Micro Small and Medium Enterprises) for their growth, development, marketing, and commercialization of their innovative technologies, ideas, and products. Additionally, the bank offers various schemes as well as financial services/products to meet individual businesses.
Benefits of SIDBI
- Collateral-free: The bank finances a sum of up to Rs. 100 lakhs to entrepreneurs without any collateral security. This is possible through a Trust called Fund Trust for Micro and Small Enterprises (CGTMSE)
- Risk and growth capital: Entrepreneurs can acquire required capital to meet growth requirements without dilution in the ownership of the company/ firm.
- Venture and equity funding: SIDBI owns SIDBI Venture Capital Limited which aims at providing growth capital in the form of equity through venture capital funds.
- Government subsidiaries: Through SIDBI, one can take advantage of various schemes featuring relaxed terms and concessional rates offered by the Indian government. SIDBI has an in-depth knowledge of such schemes and products.
Loan facilitation by SIDBI
- Securing a business loan by entrepreneurs is assisted by SIDBI by generating complete and accurate applications along with the completion of documents for the same.
- SIDBI provides a second check to the information furnished by the entrepreneurs while applying for the loan which is done through an independent validation by ACs (Accredited Consultants). Through this process, the information furnished by the MSMEs is made more reliable so that banks don’t hesitate in accepting the loan.
Steps to avail loan through SIDBI
- Documents required for the loan are prepared by ACs empanelled with SIDBI. ACS will draft a BIM (Basic Information Memorandum) based on requirements and information furnished by the firm. The document contains all relevant information.
- The entrepreneur approves BIM which is then submitted to SIDBI.
- If required, a rating agency approved by RBI will rate the proposal.
- SIDBI handles the following cases directly:
- Existing growth-oriented units are provided equity and quasi-equity by SIDBI.
- Units in the service sector.
- Credit to MSMEs for cleaner and energy-efficient production.
- For other cases, the application is submitted to PSBs (Public Sector Banks).SIDBI has entered into a Memorandum of Understanding (MOU) with public sector banks for providing such loans.
Entrepreneurs are assisted by SIDBI at every stage of loan processing. Through SIDBI, MSMEs have bright chances of getting the loan sanctioned well in time and hence unnecessary delays can be avoided.
Finance Schemes for Sustainable Development including Energy Efficiency and Cleaner Production in MSMEs
These schemes aim at the assistance of manufacturers and companies dealing in energy saving, facilitating cleaner production, etc. These schemes boost energy-saving projects by the way of providing finance to such projects at attractive rates. Enhancement of profit can be done by reducing energy costs. Additionally, the scheme also focuses on pollution control, participation in sustainable growth, waste reduction, and recovery of valuable by-products in production.
Such schemes can be funded in the below-listed ways
- Direct funding by SIDBI
- Refinance to NBFCs (Non-Banking Financial Companies)
- Refinance to PLIs (Primary Lending Institutions)
- MSMEs (Micro Small and Medium Enterprises) that intend to ply cleaner and energy-efficient products in the business. SIDBI offers special schemes and offers to firms/ businesses for investment in plants, production processes, and machinery that could help in increasing profitability, saving energy, and reducing carbon footprint.
- ESCOs (Energy Service Companies) provide solutions to renewable energies, clean production, and energy efficiency.
- OEMs (Original Equipment Manufacturers) deal in equipment production/ manufacture which is cleaner, energy-efficient, and increase production.
- SFS- Sustainable Finance Scheme
- GLS- Green Load Scheme
- JICA phase 3- scheme for Energy-Saving Projects in the MSME sector
- 4E financing scheme- financing End to End Energy Efficiency investment projects in MSME
Performance Linked Grant Scheme
This scheme aims to improve and encouragement of energy efficiency by the way of commercial investments. The target sector for this scheme is MSMEs dealing and investing in energy-efficient goods and services which ultimately help in the reduction of greenhouse gases. Finance under such schemes can be applied by applying SIDBI along with a brief description of the requirements and the business.
World Bank- GEF (Global Environment Facility) Project: Financing Energy Efficiency at MSMEs
It is a joint initiative of GEF and the World Bank to help MSME clusters in India through the Bureau of Energy Efficiency (BEE) and SIDBI which aims to reduce greenhouse gases and improve energy efficiency through better financing. The grant agreement was signed on September 13, 2010, and came into effect on October 28, 2010. A sum of $9.05 was granted to SIDBI which was to be utilized in four years. A sum of $2.25 million was also granted by GEF to BEE which was supposed to be utilized for the implementation of practices relating to energy efficiency in India for MSME.
A project management unit was set up by SIDBI in New Delhi with the objective of coordinating the disbursement of grants to a target group consisting of 5 energy-intensive clusters.
- Forging at Pune
- Chemical at Ankleshwar
- Foundry cluster at Kolhapur
- Limekilns at Tirunelveli
- Mixed at Faridabad
Activities under the Grant
- Activities to build awareness and capacity for achievement of efficiency in energy in MSMEs.
- Program knowledge management.
- Activities relating to increasing investments in energy efficiency in MSMEs.
- Project management.
- Preparation of DRPs.
- Supporting BEE in the implementation of energy efficiency in additional 25 clusters.
- Assistance in the completion of energy audits.
- Supporting finance acquisition from local Indian banks to ensure successful implementation of energy efficiency measures.
Growth capital and Equity assistance
SIDBI assists existing small and medium enterprises in meeting their capital requirements for growth purposes. Under this scheme, SIDBI assists the enterprises in the form of convertible instruments or mezzanine, equity, and subordinated debt to eligible enterprises.
- Ensuring if the businesses have an adequate amount of capital resources required for growth and meeting aspirations without dilution in ownership.
- To help businesses in acquiring funds by having longer moratorium periods, which ultimately increase the chances of venture success.
- Funding investments in marketing, purchase of software, brand building, creation of distribution network, research, development, etc.
- Providing loans to businesses that intend to acquire funds based on business strengths that are backed by cash flows and not on assets/ collateral.
- A longer moratorium period is offered by SIDBI for overall repayment of loan which increases the chances of venture success.
- Access to flexible structuring of loans is provided to loan applicants to suit the individual needs of the business.
- Financial needs arising out of the expansion, modernization, and up-scaling are met through finance provided by SIDBI.
- Through this scheme, issues like the exit of investors, enterprise valuation, and other complexities relating to equity investment, can be avoided by the enterprises.
- Structured and long-term assistance can be availed by the enterprises, especially in cases where investment is meant for intangible assets.
- Sub debt and leverage equity assistance can be acquired by the MSMEs which results in raising high debt funds.
While applying for finance under this scheme (for debt-based instruments), the following security needs to be provided to SIDBI:
- Charge on assets available in beneficiary’s unit
- CGTME coverage- if it is applicable
- Personal guarantee of the promoters
- Charge on assets created with SIDBI’s financial assistance
- SIDBI’s internal customers meet internal rating criteria
- MSMEs fall under the Indian government’s definition (MSMED Act)
- Enterprises with a profitable track record for the previous three years with two years of satisfactory conduct concerning banking credit history. The business should either meet the internal rating criteria or must furnish external ratings from agencies like D&B, CRISIL, ICRA, or SMERA.
Receivable Finance Scheme
It is a common problem among MSMEs that their payments are usually delayed in case of credit sales being made to large purchasing companies. SIDBI recognizes such problems being faced by the MSME and knows the impact of the problem on the profitability and working capital management of the companies. Hence, it has come up with a special scheme that is aimed at financing companies/ enterprises against invoices or bills held by them against credit sales made to the purchasing companies.
- MSMEs are engaged in manufacture or undertaking related to the sale of components, parts, intermediaries, accessories, subassemblies, and services to medium and large units.
- The seller/ purchaser essentially needs to be an MSME in the service or manufacturing sector.
- Large corporate is involved in the procurement of raw material from the MSMEs.
Finance for modernization/ up-gradation
In the case of enterprises dealing with technology, a constant need for upgrading is always there. To stay at par with the current conditions, the companies need to upgrade and modernize their technological processes. A need for expansion of capacity is also there always. Now, to implement this, there is a need for financial resources as these technological up-gradations require a huge amount of money. SIDBI plays an important role here, by providing these companies ample financial resources so that a technological shift can be made easier with time. SIDBI is a Nodal Agency that helps in monitoring and assistance of interface/ coordination with the government, other financial institutions, and the banks.
- Credit Linked Capital Subsidy Scheme (CLCSS)
- IDLSS- Integrated Development of Leather Sector Scheme
- Quality up-gradation and technology support to micro, small and medium enterprises
- FPTUFS – Scheme for Food Processing Industries
SIDBI revolving fund for technology innovation- TIFAC
Under this scheme financial assistance to MSMEs is provided by SIDBI to those enterprises which intend to invest in up-scaling and development. SIDBI also helps in demonstrating innovative technology-based projects and commercialization needs.
SIDBI assists in the form of early-stage debt funding. The terms of the finance are quite relaxed and thus help MSMEs in the demonstration, development, and commercialization of new ideas. The scheme supports new products, new processes, emerging technology, and unproven technology which are not commercialized yet. The project is funded up to 80% of the project cost and the maximum amount is Rs. 100 lakhs. In some cases, the maximum limit of finance can be raised by a few more lakhs if the project is found to be highly innovative and feasible.
- After the submission of the finance proposal, a technical evaluation by TIFAC will be conducted.
- SIDBI will evaluate the financial viability of the project/ proposal.
- In the final stage, the project will be approved by the PAC- Project Approval committee consisting of SIDBI and TIFAC officials.
The PAC holds the right of deciding the amount of interest to be charged from the business for any finance made under this scheme. Whatsoever may be the case, the interest rate does not exceed 5% per annum.
An upfront fee at the rate of 0.5% excluding taxes is levied on the advance.
The repayment period of the finance is flexible but it cannot exceed 6 years from the date of advance. The moratorium period is included in the period of 6 years. This period can be extended in special cases.
- The first charge on immovable and moveable assets is created through finance.
- A personal guarantee needs to be given by the promoters.
- The first or second charge on other assets of the enterprise needs to be created. It can be ignored if the prior charge is sufficient.
Existing, as well as new MSME units, can apply for finance/loans under this scheme.
As far as government schemes for MSME are concerned, SIDBI plays the role of a nodal agency and has a crucial job. It offers various schemes and assists MSMEs to achieve profitability with growth. Securing finance has been made easy by SIDBI.