CORPORATE FINANCE UNDER GOVERNMENT SCHEME

DR. SHAKUNTALA MISRA NATIONA REHABILITATION

UNIVERSITY LUCKNOW

PROJECT ON

(CORPORATE FINANCE UNDER GOVERNMENT SCHEME)

( UNDER THE SUPERVISION OF MISS MONISHA THAPAR

INTERNATIONAL TRADE LAW

SUBMITTED TO: SUBMITTED BY:

Miss Monisha Thapar Shashi Shekhar Dixit
LAW FACULTY ROLL NO. 49
DSMNRU ,LUCKNOW 8TH SEM

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ACKNOWLEDGEMENT

I feel highly elated to present the project Research on “CORPORATE FINANCE

”, which owes its very existence to a number of people without thanking whom,
I would fail to do proper justice to its original profounder.

Firstly, I would like to thank the Insurance law Subject Faculty, for showing his
belief in me and considering me potent enough to carry out the research
methodology, and thereby assigning the said topic to me. In fact without his
continuous exemplary guidance and worm- view criticism the project could never
have reached its current stature. Thus I extend a sincere heart-felt thanks to My
faculty Miss Monisha Thappar - the ever helping Faculty of DR.
SHAKUNTALA MISRA NATIONAL REHABILITATION UNIVERSITY.

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TABLE OF CONTENT
1.
2. 42 (End to End Energy Efficiency)
3. Bank Credit Facilitation Scheme
4. Credit Guarantee Scheme (CGS)
5. Credit Linked Capital Subsidy for Technology Upgrades
6. Coir Udyami Yojana
7. MSME Business Loans For Startups In 59 Minutes
8. Pradhan Mantri Mudra Yojana (PMMY)
9. SIDBI Make in India Soft Loan Fund for MSMEs (SMILE)
10.Standup India
11.Sustainable Finance Scheme

The government has launched a 59-minute loan platform that enables easy access to credit
for MSMEs

SIDBI has started lending to companies directly instead of through banks.

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Changes have been observed in the existing schemes for startups and MSMEs.

India today is home to more than 39K startups. The Indian startup ecosystem is producing
unicorns at double the speed than before, with multi-billion dollar fundings from global
investors, and celebrating high-profile exits such as the $16 Bn Walmart-Flipkart acquisition
last year. At the same time, the country’s micro, small, and medium enterprises (MSME)
sector comprising 577 Cr companies is beating challenges of setting up and building the
consumer base, among others.

But an idea remains an idea if it does not get the requisite working capital on time. According
to reports, less than 5% of MSMEs have access to formal credit, while others rely on informal
sources to fund their businesses. For Indian startups, while there are a number of private
equity and debt funding options available, to get funding at the idea or early stage is a
challenge.

In a much-needed move to address this gap, the Indian government has rolled out initiatives
to offer business loans for startups and MSMEs through authorised channels. Among the
several MSME schemes for entrepreneurs, one of the most important ones was the recently-
launched59-minute loan platform that enables easy access to credit for MSMEs.

Also, the Small Industries Development Bank of India (SIDBI) has started lending to companies
directly instead of through banks. These government loans for startups are at least 300 basis
points lower than the ones that are offered by banks. SIDBI offers long-term loans of up to
five years online.

A number of other government startup loans and schemes for entrepreneurs in India have
been introduced in the past few years. Here is a list of some of the most popular and notable
government schemes that offer business loans for start-ups And MSMEs in India.

12. 42 (End to End Energy Efficiency)

13. Bank Credit Facilitation Scheme
14. Credit Guarantee Scheme (CGS)
15. Credit Linked Capital Subsidy for Technology Upgrades
16. Coir Udyami Yojana
17. MSME Business Loans For Startups In 59 Minutes
18. Pradhan Mantri Mudra Yojana (PMMY)

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19. SIDBI Make in India Soft Loan Fund for MSMEs (SMILE)
20. Standup India
21. Sustainable Finance Scheme

1. 4E (End to End Energy Efficiency)

Launched in: September 2016

Headed by: Small Industries Development Bank of India (SIDBI)

Industry: Sector-agnostic

Eligibility: MSME startups in the manufacturing or services sector that have been operating
for at least three years and have earned cash profits in the last two years are eligible for the
loan. Here are the specific eligibility criteria.

The startup should not be in default with any bank/financial institutions

It should have undergone a process of detailed energy audit (DEA) through a technical
agency/consultant that is a Bureau of Energy Efficiency (BEE)-certified energy auditor

The detailed project report (DPR) prepared by the technical agency/consultant should have
been vetted by the Energy Efficiency Cell (EEC), SIDBI

The unit should not have availed a performance linked grant under the World Bank-Global
Environment Facility (WB-GEF) Project for the proposed energy efficiency (EE) Project and
should be in compliance with the Environment and Social Management Framework

Overview: This MSME scheme for entrepreneurs has been launched jointly by India SME
Technology Services Ltd (ISTSL) in association with World Bank. The main objective is to
implement energy efficiency measures across Indian industries on an end-to-end basis. Also,
it aims to help startups finance purchases of second-hand machinery/equipment.

The business loans for startups under this scheme meet part costs of:

Capital expenditure, including for the purchase of equipment/machinery, installation, civil

works, commissioning, etc.

Any other related expenditure required by the unit provided it is not more than 50% of capital
expenditure.

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2. Fiscal incentives under the 4E scheme:

The MSME startup has to pay only INR 30,000 and applicable taxes and the balance fee will
be paid by SIDBI to auditors

Up to 90% of the project cost with a minimum loan amount of INR 10 Lakh and a maximum
loan amount not exceeding INR 150 Lakh per eligible borrower can be granted under this
scheme.

Eligible loan amount should not exceed one-fifth of the total turnover of the applicant unit.

Time period: The repayment period, including the initial moratorium period of up to six
months, shall not be more than 36 months for loans up to INR 100 Lakh and 60 months for
loans beyond INR 100 Lakh.

3. Bank Credit Facilitation Scheme

Headed by: National Small Industries Corporation (NSIC)

Industry: Sector-agnostic

Eligibility: MSMEs registered in India

Overview: The scheme aims to meet the credit requirements of MSME units. The NSIC has
entered into a MoU with various nationalised and private sector banks for the purpose.
Through syndication with these banks, the NSIC arranges for credit support (fund- or non-
fund-based limits) from banks without any cost to MSMEs.

Fiscal incentives: NA

Time period: The repayment period varies depending on the income generated from the
startup and generally extends from five to seven years. However, in exceptional cases, it can
go up to to 11 years.

Credit Guarantee Scheme (CGS)

Headed by: Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

Industry: Sector-agnostic

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Eligibility: The scheme is applicable to new and existing MSMEs engaged in manufacturing or
service activities, excluding retail trade, educational institutions, agriculture, self-help groups
(SHGs), training institutions, etc.

Overview: The Credit Guarantee Scheme was launched by the government to strengthen the
credit delivery system and to facilitate the flow of credit to the MSME sector. The lending
institutions under this scheme mainly include public, private, and foreign banks, along with
regional rural banks and the SBI and its associate banks.

Fiscal incentives: This MSME scheme for entrepreneurs comes with a number of benefits,
including term loans and/or working capital loan facility up to INR 200 Lakh per borrowing
unit. Here are some more details of the scheme:

The guarantee cover provided is up to 75% of the credit facility up to INR 150 Lakh.

85% of credit facility for loans up to INR 5 Lakh is provided to micro-enterprises.

80% of credit facility for MSMEs owned/operated by women and all loans to NER including
Sikkim.

For MSME Retail trade, the guarantee cover is 50% of the amount in default subject to a
maximum of INR 50 Lakh.

Time period: The credit guarantee will commence from the date of payment of guarantee fee
and will run through the agreed tenure of the term credit in case of term loans/composite
loans and for a period of five years where working capital facilities alone are extended to
borrowers, or for such period as may be specified by the guarantee trust.

Credit Linked Capital Subsidy for Technology Upgrades

Headed by: Office of the Development Commissioner, Ministry of MSMEs

Industry: Sector-agnostic

Eligibility: Existing small-scale industry (SSI) startups registered with the State Directorate of
Industries that have upgraded their existing plant and machinery with state-of-the-art
technology, with or without expansion, are eligible for this scheme. Also, new SSI units
registered with the State Directorate of Industries that use the appropriate, eligible, and

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proven technology, duly approved by the Governing and Technology Approval Board
(GTAB)/Technical SubCommittee (TSC), will be eligible.

Overview: This business loan for startups aims to facilitate technology upgrades by providing
upfront capital subsidies to SSI units, including khadi, village, and coir industrial units, on
institutional finance (credit) availed by them for modernisation of their production equipment
(plant and machinery) and techniques.

Fiscal incentives: The ceiling on business loans for startups under the scheme has been raised
from INR 40 Lakh to INR 1 Cr while the rate of subsidy has been enhanced from 12% to 15%.
Here, the admissible capital subsidy is calculated with reference to the purchase price of plant
and machinery, instead of the term loan disbursed to the beneficiary unit.

Coir Udyami Yojana

Headed by: Coir Board

Industry: Agriculture

Eligibility: All coir processing MSME startups registered with the Coir Board under the Coir
Industry (Registration) Rules, 2008, are eligible for this scheme. Here is the criteria:

Assistance under the scheme will be made available to individuals, companies, self-help
groups, NGOs, institutions registered under the Societies Registration Act 1860, production
co-operative societies, joint liability groups, and charitable trusts

Startups that have already availed of a government subsidy under any other scheme of the
Indian government or any state government for the same purpose are not eligible to claim a
subsidy.

Overview: The scheme is aimed at supporting the establishment of coir units. Banks will
finance capital expenditure in the form of a term loan to meet the working capital
requirements in the form of cash credit. Projects can also be financed by the bank in the form
of composite loans consisting of capex and working capital.

Fiscal incentives: Banks will support project cost of up to INR 10 Lakh plus one cycle of working
capital, which shall not exceed 25% of the project cost. In addition:

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This should be exclusive of the INR 10 Lakh limit proposed.

The amount of credit will be 55% of the total project cost after deducting 40% margin money
(subsidy) and the owner’s contribution of 5% from beneficiaries.

The subsidy will be computed excluding working capital component.

Time period: Rate of interest chargeable for the business loans for startups shall be at par
with the base rate. Repayment schedule may not exceed seven years after an initial
moratorium, as may be prescribed by the concerned bank/financial institution.

MSME Business Loans For Startups In 59 Minutes

Launched in: September 2018

Headed by: Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

Industry: Sector Agnostic

Eligibility: For existing businesses: Borrower should be GST, IT compliant and must have six
months bank statement facility. The business loan eligibility is determined by a company’s:

a. Income/Revenue
b. Repayment capacity
c. Existing credit facilities
d. Any other factors as set by lenders (banks)

Overview: Prime Minister Narendra Modi described this initiative last year while unveiling
the 12-point action plan for the MSME sector. The initiative aims at automation of various
processes to loan appraisal in such a way that one gets an eligibility letter, in-principle
approval in less than 60 minutes and chooses the bank that one may prefer to ease access to
credit to smaller and micro enterprises.

Post the in-principle approval, the time taken for business loan disbursement depends on the
information and documentation provided on the platform and to the banks. Generally, post
the in-principle approval, the loan is expected to be sanction/disbursed in 7-8 working days.

Fiscal Incentives: The contactless business loans for startups are currently provided for value
from INR 1 Lakhs Upto INR 1 Cr. The rate of interest starts from 8% onwards.

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Pradhan Mantri Mudra Yojana (PMMY)

Launched in: 2015

Headed by: Micro Units Development and Refinance Agency Ltd (MUDRA)

Industry: Sector-agnostic

Eligibility: Non–corporate small business segment (NCSB) comprising

proprietorship/partnership firms in rural and urban areas can apply for the loan. Here are
some examples of NCSBs:

1. small manufacturing units

2. service sector units
3. shopkeepers
4. fruits / vegetable vendors
5. truck operators
6. food-service units
7. repair shops
8. machine operators
9. small industries
10. artisans
11. food processors and others

All kinds of manufacturing, trading and service sector activities can get a MUDRA loan.

Overview: MUDRA provides refinance support to banks/Micro Finance Institutions (MFIs) for
lending to micro units that have loan requirements of up to INR 10 Lakh. According to recent
media reports, in the financial year 2017-18, overall business loans worth INR 2.54 Lakh Cr
were classified as Mudra loans, an increase of 41% from INR 1.80 Lakh Cr loans sanctioned in
this category in the last financial year.

For 2018-19, a target of INR 3 Lakh Cr has been set. Interestingly, the non-performing assets
(NPA) level under the PMMY was only 5.38% as on March 31, 2018 — almost half of the gross
NPAs across all sectors in the country, which crossed 10% in fiscal 2017-18.

Fiscal incentives: MUDRA offers incentives through these interventions:

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> Shishu: Loans upto INR 50,000

> Kishor: Loans above INR 50,000 and up to INR 5 Lakh

> Tarun: Loans above INR 5 Lakh and upto INR 10 Lakh

Generally, loans upto INR 10 Lakh issued by banks to MSMEs are given without collateral.
Also, within these interventions, MUDRA ensures to meet the requirements of different
sectors/business activities as well as business/entrepreneur segments.

Time period: NA

SIDBI Make in India Soft Loan Fund for MSMEs (SMILE)

Launched in: August 2015

Headed by: Small Industries Development Bank of India (SIDBI)

Industry: Sector-agnostic

Eligibility: New enterprises in manufacturing as well as the services sector can apply for this
scheme. Existing enterprises undertaking expansion, modernisation, technology upgrades, or
other projects for growing their business will also be covered.

Overview: The aim of this scheme is to provide soft loans, in the nature of quasi-equity, and
term loans on relatively soft terms to MSMEs to meet the required debt-equity ratio for the
establishment of new MSMEs and also to enable the growth for existing ones.

Fiscal incentives:

For the general category, 10% of the project cost, subject to a maximum of INR 20 Lakh is
provided as the loan amount

15% for the enterprises promoted by Scheduled Caste (SC) /Scheduled Tribe (ST) / Persons
with Disabilities (PwD), and women, subject to a maximum of INR 30 Lakh

Persons belonging to these categories must own a controlling stake (ie 51% or higher)

Time period: On expiry of three years from the date of the first disbursement, the outstanding
soft loan, together with any dues thereon, shall be converted into a secured term loan and
the entire loan shall carry an applicable rate of interest as per internal rating of the borrower.

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The repayment period is generally upto seven years, inclusive of the moratorium up to one-
and-a-half years for the term loan and up to two years for a soft loan.

Standup India

Launched in: April 2016

Headed by: Small Industries Development Bank of India (SIDBI)

Industry: Sector-agnostic

Eligibility: Enterprises in trading, manufacturing, or services. In the case of non-individual

enterprises, at least 51% of the shareholding and controlling stake should be held by an SC/ST
or woman entrepreneur. The borrower should not be in default with any bank or financial
institution.

Overview: This scheme by the Indian government facilitates bank loans between INR 10 Lakh
and INR 1 Cr to at least one SC or ST borrower and at least one woman borrower per bank
branch, for setting up of a greenfield enterprise. So far, 3457 online business loans for
startups have been sanctioned through the Standup India platform.

Fiscal incentives:

It offers composite loans between INR 10 Lakh and INR 1 Cr to cover 75% of the project,
inclusive of the term loan and working capital

The stipulation of the loan being expected to cover 75% of the project cost would not apply
if the borrower’s contribution along with convergence support from any other schemes
exceeds 25% of the project cost

The rate of interest would be the lowest applicable rate of the bank for that category (rating
category) not to exceed [base rate (MCLR) + 3%+ tenor premium]

Time period: This government business loan for startups is repayable in seven years with a
maximum moratorium period of 18 months.

Sustainable Finance Scheme

Headed by: Small Industries Development Bank of India (SIDBI)

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Industry: Green energy, non-renewable energy, technology hardware, renewable energy

Eligibility: Renewable energy projects such as solar power plants, wind energy generators,
mini hydel power projects, biomass gasifier power plants, etc, for captive/non-captive use (ie,
power generated is sold/supplied to the grid/off-grid).

Any kind of potential cleaner production (CP) investments including waste management

Suitable assistance to original equipment manufacturers (OEMs) which manufacture energy

efficient/cleaner production/green machinery/equipment

Either the OEM should be an MSME or it should be supplying its products to a substantial
number of MSMEs

Overview: The objective of this startup scheme by the government is to assist the entire value
chain of energy efficiency (EE)/cleaner production (CP) and sustainable development projects
which lead to significant improvements in EE/CP/sustainable development in the MSMEs and
which are presently not covered under the existing sustainable financing lines of credits.

Fiscal Incentives: Suitable assistance by way of term loan/working capital to ESCOs

implementing EE/CP/Renewable Energy project provided either the ESCO should be an MSME
or the unit to which it is offering its services is an MSME. The rate of interest will be applicable
on basis of credit rating of MSMEs.

Since the launch of the Startup India Action Plan and Standup India scheme in January 2016,
and the setting up of the Funds of Funds worth INR 10K Cr, more than 50 government
schemes for small businesses have been put in place to support early-stage startups in taking
off.

These government loans for small-scale industries are a handful of the many initiatives taken
by the Indian government to boost the ease of doing business in the country. India ranked
77th in 2018 on the World Bank matrix in ease of doing business.

The government has been working at a macro level to promote entrepreneurship and opening
up international startup corridors between India and the world. To this end, the Department
of Industrial Policy and Promotion (DIPP) also launched the State Startup Ranking framework,

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on the basis of which it ranked states on the startup ecosystems, with Gujarat emerging on
top of the chart.

At the micro level, the government’s efforts to offer business loans to startups and MSMEs
will certainly supplement its larger gameplan and enable more entrepreneurs to turn their
ideas into businesses.

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