International Conference on Technology and Business Management

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The Role of Small Industries Development Bank of India (SIDBI) in developing the Micro, Small & Medium Enterprises (MSMEs) in India
Anand Chakravarthi [email protected] IBS, Hyderabad 1. Introduction to MSMES
The Micro, Small and Medium Enterprises (MSMEs) sector plays a vital role in the growth of our country in creating employment, exports, gross industrial value of output, gross value added, investment in fixed assets, contribution to GDP, and giving boost to manufacture, service and infrastructure sectors. The opportunities in MSME sector are enormous due to the factors like Less Capital Intensive, Extensive Promotion & Support by Government, Reservation for Exclusive Manufacture, Funding by way of Finance & Subsidies, Reservation for Exclusive Purchase by Government, Export Promotion, great demand in the domestic market size, export potential and so on. Under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 the filing of Memorandum (Registration) by Entrepreneurs intending to establish a Micro, Small or Medium Enterprise is discretionary and not mandatory. As such, the number of MSMEs functioning in the country as per Quick Results of 4th All India Census (2006-07), in the registered and unregistered categories are 1.55 Million (5.94%) and 24.55 Million (94.06%) respectively. In this study, besides making a brief review of the overall performance of the MSME sector, the roles played by the Small Industries Development Bank of India (SIDBI) in empowering MSMEs and in acting as the nodal agency for SME schemes of Government of India, have been described. SIDBI makes available the finance which MSMEs need. It helps them to expand, diversify and even rehabilitate. SIDBI also interfaces with Non-Governmental Organizations (NGOs) involved in micro-lending, as well as donor agencies engaged in the development of MSMEs. It supports entrepreneurs both in manufacturing and service industries. Thus, it helps MSMEs in many ways.

2. Need and Importance (Significance)

SIDBI plays a significant role in promotion, financing and development of MSMEs and coordinating the functions of institutions engaged in similar activities. Its sphere of activities include (i) Direct Finance Operations to MSMEs and Service Sectors besides Infrastructure; (ii) Indirect Finance by way of resource support to Banks, NBFCs, SFCs, and other Central Financing/Development Agencies, Development of Micro Credit Institutions; (iii) Promotion of Associate Institutions like Venture Capital, Rating Agency, Credit Guarantee Fund, Asset Reconstruction Company and so on; and (iv) Nodal Agency for Government of India MSME Schemes like Technology Upgradation Fund Scheme (TUFS), Credit Linked Capital Subsidy Scheme (CLCSS), Integrated Development of Leather Sector Scheme, Development of Infrastructure Development Projects and a few. SIDBIs focus is on development of manufacturing, service and infrastructure sectors through the growth of MSMEs and their promotion. The importance of the study is evident from the fact that SIDBI gives fillip to MSMEs which play a significant role as the growth engines of the Indian Economy. In fact, MSMEs have been playing a critical role in the socio-economic development of the country, with main objectives of mass employment generation, low investment, import substitution and export promotion, labor intensive mode of production, capacity to develop indigenous technology and high contribution to domestic production. Since MSME sector has lot of significance and SIDBI is playing a greater role in developing the MSME sector, there is a greater need for doing this study.

3. Objectives
To understand the performance of the MSME Sector To study the role played by SIDBI in developing the MSME Sector from various angles. To examine and analyze the financial performance of SIDBI with reference to the financial assistance sanctioned, and disbursed to MSME sector, and the assistance outstanding state-wise, industry-wise to understand the credit flow as well as the promotional role played by SIDBI in developing this sector and so on. Follow-up of Nayak Committee Recommendations. To understand the problems of MSMES and suggestions for the mitigation of the same. 714

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4. Methodology
Data and Sample The Data required for the study has been collected from both the primary and secondary sources. The Data Collection includes (i) Annual Reports of SIDBI; (ii) SIDBIs Reports on MSME Sector; (iii) Ministry of MSMEs releases; (iv) RBI Annual Reports, (v) Various Websites connected with the relevant topics and (vi) Field survey for empirical study. Data collected will be used to determine variables for research. Tools of Analysis Analysis of Balance Sheets of SIDBI and Key Ratios/Graphs. (2) Also an Empirical study has been made to test (with the help of t-Statistic) that the Micro Finance Schemes (under SIDBI Refinance) are useful for entrepreneurial development for different sections of women, Minorities & Weaker Sections. Limitations The study is limited to the SIDBI data, Ministry and Industry Association Reports besides the data released by the World Bank and such other related organizations. Empirical study has been don through direct survey which has its own limitations.

5. A Glance at the Performance of MSME Sector (As on 31.07.2007)

Contribution to GDP 8% Manufacturing output 39% Exports 31.2% Employment 32 Million persons No of units 13.4 Million Per Unit Fixed Investment Rs.3.38 Million Sickness Rate 14.47% SMSMED ACT 2006 MSMEs Classification as per MSMED Act 2006 Manufacturing Enterprises defined in terms of investment in Machinery and Equipment (excluding land and buildings) classified into: Micro Enterprises - Investment up to Rs 2.5 Million, Small Enterprises - Investment above Rs 2.5 Million and up to Rs 50 Million Medium Enterprises - Investment above Rs 50 Million and up to Rs 100 Million Service Enterprises defined in terms of their investment in equipment (excluding land and buildings) classified into: Micro Enterprises- Investment up to Rs 1 Million Small Enterprises- Investment above Rs 1 Million and up to Rs 20 Million Medium Enterprises- Investment above Rs 20 Million and up to Rs 50 Million

6. Performance of the MSME Sector as per SIDBI Report

The report brought out by SIDBI on MSME Sector, 2010 provides a systemic coverage of various aspects pertaining to the MSME sector, such as status, structure, policy initiatives, institutional support, credit dispensation etc. It generally covers up to the period ranging from 2005 to 2009. The Report, while discussing various issues concerning the MSME sector, has mentioned one such issue being the inadequate infrastructure facilities, including power, water, roads, etc. The Prime Minister had constituted, in 2009, a High Level Task Force (HLTF) on MSME Sector to address its problems. As per the recommendations of this Task Force, the share of Micro Enterprises in MSE lending needs to be increased from 50% to 60% in a phased manner i.e. from 50% in 2010-11 to 55% in 2011-12 and further to 60% in 2012-13. It would be mandatory for the Public Sector Banks to achieve this target. Further, the Banks should achieve an annual growth of 10% every year in the number of micro enterprise accounts. Some of the important topics that were dealt by HLTF in respect of MSMEs include: The importance of MSMEs The share of MSMES in Manufacturing Sector The share of MSMEs in the Exports of India Largest Job Creation by SMEs MSMES embracing Technology Share to GDP The impact of recession on MSMEs 715

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Increase in the share of MSMEs in GDP Policy measures in MSME Sector

The Reserve Bank of India constituted on 9 December 1991, a Committee under the Chairmanship of Shri P.R. Nayank, Deputy Governor to examine the difficulties confronting the small scale industries (SSI) in the country in the matter of securing finance. 1.2 The Committee had a wide range of issues before it relating to institutional credit to the SSI sector. The terms of reference of the Committee were: to examine the adequacy of institutional credit for the SSI sector, particularly, with reference to the increase in the cost of raw materials and locking up of the available resources due to delay in the realization of sale proceeds from large companies and Government agencies, to examine the adequacy of institutional credit for term finance to the SSI sector, to examine the need for making any modifications/relaxations in the norms prescribed by the Tandon/Chore Committee in respect of SSI units, to examine whether any revision is required in the present RBI guidelines for the rehabilitation of sick SSI units, Nayak Committee Recommendations As a follow up of Nayak Committee recommendations, Finance Minister in the Budget speech of 1995-96, announced a Seven Point Action Plan for improving the flow of credit to small scale sector consisting of the following: Time bound action for setting up specialized SSI branches in 85 identified districts; at least 100 such dedicated branches to be opened before the need of 1995-96. Adequate delegation of powers at the branch and regional levels. Banks to conduct sample surveys of their performing SI accounts to find out whether they are getting adequate credit. Steps to be taken to see as far as possible that composite loans (covering both term loans and working capital) are sanctioned to SSI entrepreneurs. Regular meetings by banks at zonal and regional levels with SSI entrepreneurs. Need to sensitize bank mangers and reorient them regarding working of the SSI sector. Simplification of procedural formalities by banks for SSI entrepreneurs.

7. The Share of MSMEs in Manufacturing Sector and Exports of India

The share of Micro and Small Enterprises in the manufacturing sector of the country is 45.24% for the year 2007-08 (latest available). The SME Sector as a whole also produces more than 8,000 different products annually both for the Indian Market and for International Market. Further thrust is being given to the SME subsectors such as pharma, food processing, auto ancillary, IT, retails, textiles and garments, agro, The global economic recession has adversely affected the export market for the entire Indian Industry, including various MSME Sectors, such as textiles, auto components, gems and jewellery, leather etc. However, RBI and various Public Sector Banks have taken several measures to protect and stimulate MSMEs, which include Extending loan limit under Credit Guarantee Scheme (CGS) from Rs.5 Million to Rs.10 Milliom with guarantee cover of 50%. Increasing the guarantee cover under CGS from 80% to 85% for credit facility up to Rs.0.5 Million. An advisory to Central Public Sector Enterprises for prompt payment of bills to MSMEs. Interest reduction of 2% to SME sector in pre and post shipment credit. Refinance limit of Rs. 70,000 Million to SIDBI for need based working capital Reduction in interest rates for borrowing by Micro Enterprises by 1% and in respect of SMEs by 0.5%. According to the ASSOCHAM, the MSMEs share to national exports currently is estimated at around 38% which will surge to over 45% in next 5 years. The main reason for the same is expected to be the technological up-gradation of their units. The recent down turn has strengthened the MSME sector more specifically the SME segment which now supplies critical components and ancillary parts to a host of large Industries like Auto, Agro Implements, Construction Equipments, Electronics etc.

8. Largest Job Creation by SMEs

As per the Quick Results: Fourth All India Census of MSMEs 2006-2007, 59.46 Million persons were 716

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employed during 2006-07 in the MSME Sector (latest available) and the total production (value) from the MSME Sector (Registered units) for the year 2006-07 was Rs.710 billion. Currently, MSME sector accounts for 95% of industrial units and it is contributing about 40% on the value addition in the manufacturing sector. More than 6 Million industrial units, as per latest quick survey, are spread over the country producing about 7500 items and providing employment to around 60 million persons. SMEs contribute to 45% of the industrial output, 40% of exports, and provide employment to 60 million people as mentioned above and creates 1 Million jobs per year. The SME sector reported about 25% job losses during the recent global recession. However, it has been one of the fastest to tide over the gloom, with steady job creation. After the recession, the sector alone created 40% of all jobs in the economy with flexibility and adaptability. MSME sector is the only one which has high employment potential at a low cost of capital. It is more labor intensive which has registered higher growth compared to the overall industrial sector. This sector has more adaptability to the changing market and shown remarkable innovativeness in each vertical. According to the fourth census of MSME sector, this sector employs 59.7 million people in over 26 million enterprises. The job creation by MSME is larger than the large industry sector.

9. MSMEs embracing Technology Share to GDP

MSMEs share including agriculture contribution to GDP was projected to go up by a minimum of 5% and reach 55% by 2011, since more than half of the MSMEs were aggressively up-grading their technologies to reduce their input costs, and increase production and exports. MSMEs share in the national GDP was being measured around 45% in the last couple of years even though the small-scale units of MSMEs were facing both recession and credit crunch besides a variety of regulations from Center, States and Local Governments. However, the scenario had changed after the enactment of MSMED Act, 2006. As a result, the units in the sector have become more competitive and innovative. The ASSOCHAMs paper named MSMEs-Cluster Development Deepens Inclusive Growth has revealed that the MSMEs which were growing at 35% over the last few years will register 40% growth and contribute to the production to the extent of 46% as against 42% currently, due to technology up-gradation. The MSME sector now supplies critical components and ancillary parts to some large industries like Auto, Agro Implements, Construction Equipments, Electronics, etc.

10. The impact of Recession on MSMEs

The global economic slow down had adversely affected the export market for Indian industry, including MSMEs, particularly sectors like textiles, leather, gems and jewellery, auto components. The Govt. of India, RBI and the Public Sector Banks (PSBs) had taken several measures to protect their ex ports, employment, which include: (i) Extending loan limit under Credit Guarantee Scheme from Rs.5 Million to Rs.10 Million, with a guarantee cover of 50%; (ii) Increasing the guarantee cover under Credit Guarantee Scheme from 80% to 85% for credit facility up to Rs.0.5 Million; (iii) An advisory to Central Public Sector Enterprises to ensure prompt payment of bills of MSMEs; (iv) Interest funding of 2% and post-shipment export credit to SME sector; (v) Refinance limit of Rs.70,000 Million to SIDBI for incremental on-lending to MSE sector; (vi) Grant of need based ad hoc working capital demand loans up to 20% of the existing fund based limits; and (vii) Reduction in interest rates of Micro enterprises by 1% and in respect of SMEs by 0.5%.

11. Increase in the Share of MSMEs in GDP

The MSME has acquired a prominent place in the growth of economy and contributed significantly to GDP, industrial production, employment generation and exports. The share of MSE sector alone to GDP of the country during the years 2004-05, 2005-06 and 2006-07, is given in the table below:
Year 2004-05 2005-06 Share of MSE Sector in GDP (Percentage) 5.84 5.83

2006-07* 7.20 * This includes Medium Enterprises in the Sector after the enactment of MSMED Act, 2006

Before liberalization and deregulation of MSME sector, the small scale units were mostly governed by 60 Central, State and Local laws. The recent High Power Committee in its report on MSME sector, has 717

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recommended various path breaking steps including sourcing by the government of at least 20% of its requirements of goods and services from MSME sector. All these steps are expected to improve the contribution of MSME sector in the GDP.

12. Policy Measures in MSME Sector

For strengthening the MSME Sector, the Government has undertaken many measures, some of which are described below: Enhanced Credit Flow to MSME Sector For strengthening the delivery of credit to the MSEs, the Government announced a Policy Package for Stepping up Credit to SMEs in August 2005 for doubling the credit flow to this sector within a period of five years, which has resulted in a significant increase in the credit from PSBs to this sector, thus the outstanding credit of PSBs increasing from Rs.676,340 Million as on 31.3.2005 to Rs.1,91,307 crores as on 31.3.2009. Skill Development The Government has taken up skill development as a high priority area through various measures like enhancing the training capabilities of Tool Rooms and setting up MSME Development Institutes. The Agencies under the Ministry of MSME conducted various skill development programs for 0.26 Million trainees, during 2008-09 and the target for 2009-10 was 0.32 Million trainees. The training is provided free of cost to all SC/ST trainees and other weaker sections besides monthly stipend for deserving sections of society. National Manufacturing Competitiveness Program (NMCP) Under NMCP for MSMEs, the Government aims at enhancing the competitiveness of the enterprises in this sector. National Cluster Development Program The Ministry of MSME, Govt. of India has adopted the cluster approach for holistic development of micro and small enterprises in a cost effective manner. Soft interventions like technical assistance, capacity building, exposure visits, market development, etc. are undertaken in the existing clusters. Credit Guarantee Scheme The Government has set up a Credit Guarantee Fund to provide relief to those micro and small entrepreneurs who are unable to pledge collateral security to obtain loans for the development of their enterprises. Credit Linked Capital Subsidy Scheme for Micro and Small Enterprises Under the Credit Linked Capital Subsidy Scheme (CLCSS), 15% capital subsidy is provided on loans up to Rs.10 Million for technology up-gradation by adoption of well-established and improved technology. The scheme is implemented through 10 Nodal Agencies i.e. SIDBI, NABARD, SBI, BOI, BOB, PNB, Andhra bank, SBBJ, Canara Bank and TIIC. Up to October, 2009, 7810 proposals of subsidy were approved and Rs.338.68 crores was released to the MSEs under the scheme. Other Schemes These include: (i) Incentive Scheme for Technological Up-gradation /Quality Improvement and obtaining ISO 9000/14001, through one time reimbursement of charges; (ii) National Awards for MSMEs in three categories viz. (a) Outstanding entrepreneurs, (b) For Women in MSMEs, and (c) For Bankers for excellence in lending to MSMEs; and (iii) MSME-EXPO 2009 during International Technical Fair at New Delhi. The other schemes include (i) International Co-operation Scheme; (ii) Rajiv Gandhi Udyami Mitra Yojana (RGUMY), (iii) Prime Ministers Employment Generation Program (PMEGP), and (iv) The Scheme of Fund for Regeneration of Traditional Industries (SFURTI) and a few more. DBI - Background

13. SIDBI and the Role played by it in developing the MSME Sector
Establishment: Established in 1990 under Act of Indian Parliament. Objective: Promotion, Financing & Development of MSMEs and co-ordinating the functions of institutions engaged in similar activities. Ownership: Public Sector Banks/FIs/Insurance Cos. owned or controlled by the Government of India. Structural Linkage: With Ministry of Finance and Ministry of MSME. Nodal Agency: For SME Schemes of Government of India (GoI).

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SIDBIs Sphere of Activities

Sphere of Activity Direct Finance Operations Indirect Finance Micro Credit operations Associate Institutions Nodal Agency Details MSMEs, Service sector, Infrastructure, etc. Resource support to Banks, NBFCs, SFCs, other State & Central financing/ development agencies. Pioneers in micro credit movement in the country. Developed several leading MFIs. SIDBI Venture Capital Ltd, MSME Rating Agency, ISTSL & Credit Guarantee Fund, India SME Asset Reconstruction Company Ltd. For several GoI MSME schemes like Technology Up-gradation Fund Scheme (TUFS), Credit Linked Capital Subsidy Scheme (CLCSS), Integrated Development of Leather Sector Scheme (IDLSS), Food Processing Industries and Development of Integrated Infrastructure Development (IID) Projects.

Focus Segments of SIDBI Manufacturing Micro: Investment in plant & machinery up to Rs.25 lacs. Small: Gross Machinery Investment up to Rs 5 crore. Medium: Gross Machinery Investment less than or equal to Rs 10 crore Service Sector Healthcare, Hospitality, leisure, entertainment, IT/IT enabled businesses, etc. (Project Cost limit up to Rs 2500 Million) Infrastructure Sector Power, Roads, Ports, Telecom, MSME infrastructure, etc. SIDBI: Direct Loans for MSME Segment Term Loans for MSME Units and Service Sector Entities Eligible Projects New projects; expansion / modernization / diversification projects, marketing requirements, working capital margin, etc. of well run MSME units. Land acquisition and construction of factory building with or without additional plant and machinery, for units relocating to industrial areas. Assistance Need based Interest: Competitive (PLR -1 to + 2.5) depending on the rating of the customer Current PLR 12.5% Security: Flexible, including collateral free lending for loans up to Rs.5 Million under CGTMSE (limit has since been increased to Rs.10 Million). Other Benefits: Dovetailing with GoI sponsored schemes such as CLCSS, TUFS, IDLSS and Food Processing subsidy based on eligibility. Indirect Assistance Scheme Under its indirect schemes, SIDBI extends refinance of loans to MSME sector by primary lending institutions viz. SFCs, SIDCs, snd Banks. All the Schemes of SIDBI both direct and indirect assistance are in operation in all the States of the country through its various regional/branch offices. Overall Operations of SIDBI during the Last 2 Years
A. Sanctions (Rs. Mn) Indirect Credit: Direct Credit: Total Sanctions: B: Disbusements (Rs. Mn) Indirect Credit: Direct Credit: Total Disbusements: FY 2009-10 Rs. Million 249,024.00 106,190.00 355,214.00 FY 2009-10 227,580.00 91,600.00 319,180.00 FY 2010-11 Rs. Million 260,064.00 162,074.00 422,138.00 FY 2010-11 259,474.00 128,485.00 387,959.00

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Financial Position/Results of SIDBI as on 31.3.2010 and 31.3.2011

Particulars Paid-up Capital (Rs. Mn.) Reserves & Surplus (Rs. Mn.) Total Outstanding Credit (RS. Mn.) Total Income (FY: 2010-11) (Rs. Mn.) Net Profit (FY: 2010-11) (Rs. Mn.) 4500 52650 379024 31980 4210 4500 56480 460536 38670 5140

Performance Ratios of SIDBI for 2009-10 and 2010-11

A. Analytical Ratios 2009-10 and 2010-11 Capital Adequacy Ratio (%) EPS (Rs.) B. NPA Ratios 2009-10 and 2010-11 Gross NPAs (Rs. Mn.) Net NPAs (Rs. Mn.) % Gross NPAs % Net NPAs Return on Assets (%) (After Tax) 771 691 0.2 0.18 1.15 2790 1272 0.6 0.28 1.09 30.1 9.36 30.6 11.42

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Performance of MSMEs
Year 2007 2008 2009 Total MSMEs (in Mn. Nos) 27.3 28.5 29.8 Fixed Investment (Rs in bn.) 5582 6217 6938 Production (Rs in bn.) 7908 8808 9829 Employment (Mn. Persons) 62.6 65.9 69.5

Main Benefits under Govt. sponsored Schemes Credit Linked Capital Subsidy Scheme (CLCSS): Under this, 15% capital subsidy is provided for adoption of proven technologies, for approved products / sub-sectors. Subsidy is limited to 15% of the purchase price (basic price) of plant & machinery with a ceiling on loan under Scheme of Rs.10 Million (4027 units assisted with Rs.1450 Million). Technology Up-gradation Fund Scheme (TUFS): Under this, interest subsidy of 5% or upfront capital subsidy of 15% is given under CLCSS -TUFS. For the processing units, additional 10% capital subsidy is provided on eligible machinery (7362 units for an amount of Rs.3180 Million). Integrated Development of Leather Sector Scheme: The Scheme is for existing units in leather and leather products. Under this, the GoI provides grant up to 30% of cost of plant and machinery for SSIs and 20% for non-SSIs subject to a ceiling of Rs.5 Million (517 units assisted with investment grants of Rs.5700 Million). 721

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Food Processing Industries: There is a scheme for new units as well as existing units undertaking modernization / expansion with eligible machinery. It covers 25% of the cost of eligible plant & machinery and technical & civil works with a cap of Rs.5 Million. Higher subsidy is available to units being set up in difficult areas e.g. J&K, HP, North East, Uttarakhand, etc. Limit is 33% of cost of plant & machinery & technical/civil work with a cap of Rs.7.5 Million. N Scheme for Energy Saving in MSME Sector (JICA Line of Credit) To fund new and improved technologies and processes for energy saving. New as well as existing MSME units propose to install equipments, changing the process and directly associated activities. The list of equipment will be revised/updated by Winrock International India duly appointed by JICA: Min. loan amount Rs.1 Million Intt. Rate 11% fixed. Asset coverage Lower than the normal funding Repayment period up to 7 years. Energy efficiency project on registration under CDM also eligible for CERs. Funding available through refinancing agencies which include select commercial banks and NBFCs. Receivables Finance Scheme (RFS) This covers the Discounting of bills arising out of sale of components/intermediates manufactured by MSMEs to large / medium scale units. Eligibility Purchasers-wise Limit: The purchaser should have been in commercial production for five years. be a corporate entity with good track record & no statutory arrears /defaults. Sellers-wise limit / Invoice discounting facility is also available Clean Limit to Large Corporations with good track record and sound financial position can be considered. Invoice Discounting Scheme It is a market friendly receivable management scheme (without bills of exchange) for SME sellers / service providers to the Established Corporates.

Working Capital: Under MoU with IDBI Bank Objective Meeting working capital requirements of SMEs and service sector units Eligibility All new or existing SME and service sector units and Government recognized Export / Trading Houses. Eligibility Parameters Eligible SME or service sector units TOL / TNW not to exceed 4 : 1 Current Ratio 1.33 : 1 Minimum Interest Coverage of 1.5 times Margin on stock / WIP / Finished Goods / Receivables, etc.: 30% Rate of Interest As per Credit Rating; Floating Rate linked to PLR Processing Fee 0.50% of the limit sanctioned. 0.25% of the limit for each renewal. Fee based Services Guarantee Scheme Both Financial and Performance Guarantee and Deferred Payment Guarantee Eligibility Existing customers of SIDBI in MSE sector and eligible service sector units with track record. New customers in need of both fund based and non fund based limits Stand alone facility (i.e. without debt) not to be considered. Medium Scale Units as of now are not eligible.

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Letter of Credit SIDBI opens letter of credit for import of capital equipment by units as well as for import of raw material for its customers under MSE sector. Equity Assistance Scheme Objective To provide equity support to well-run MSMEs to enable them to scale up their operations Eligibility Companies eligible under SIDBI schemes having good potential for scale up of operations and following /willing to adopt corporate structure. Existing customers of SIDBI or willing to avail debt from SIDBI Sectoral Coverage Focus on Auto components, engineering, pharma, textiles, software, IT / IT enabled services, EoUs Deal Size Generally up to Rs. 50-100 Million Purpose Expansion, modernization and diversification New Businesses, preferably in the same line Marketing, R&D, Product Development Expenses Working Capital Requirement Acquisitions in India and abroad Any other expenditure required for growth of the company Instruments Equity capital/Equity linked Instruments Convertible Pref. Shares or Convertible Debt. Investment Tenure Horizon of about 5 years. Exit Trade sale or listing / Buyback. Delivery of Micro Credit to Rural Poor: Performance of SIDBI as on 31/03/2008) Delivery of Micro Credit to the Rural Poor is one of the thrust areas of SIDBI O/S as of 31/03/2008: Rs.11000 Million Target for FY 09: Rs.16000 Million Assistance provided to beneficiaries (Mainly women): More than Rs.5 Million Equity Support: Rs.57 Million Capacity Building Grant: Rs. 122 Million SMERA (Small & Medium Establishments Rating Agency) It is Indias First Dedicated Rating Agency for SME Segment Joint initiative of SIDBI, Dun & Bradstreet and CIBIL along with leading PSUs, Private and Foreign Banks. Rating cost substantially reduced in case of coverage of eligible SSI units under NSIC Subsidy Scheme Already done more than 2350 ratings. Incentives for SMERA Rating for SIDBIs Customers: Nominal Rating fees. Reduction in rate of interest by 0.50% p.a. on existing loans if the customer is rated in the first three grades Would facilitate approval of applications for fresh loans in future Credit Guarantee Scheme It facilitates credit to MSE units in IT based activities from banking channel. Maximum loan guaranteed is Rs. 5 Million per unit (already increased to Rs.10 Million recently). Guarantee cover up to 75% of loan amount, i.e. Rs.3.75 Million per borrower (80% for loans up to Rs 0.5 Million advanced to micro enterprises/women entrepreneurs and units in North East). For loans up to Rs. 0.5 Million and, fee and annual service fee reduced to 1% and 0.5% respectively. Swift and simple settlement process fully backed by IT. Guarantee issued Amount guaranteed Rs. 38,200 Million 723

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14. An Empirical Study

Objective of the Study An Empirical Study has been conducted to ascertain whether the Micro Finance Scheme of a Bank (under Refinance Scheme of SIDBI) was effective in entrepreneurship Development of Women, Minorities & Weaker Sections. Hypothesis Null Hypothesis (H0): Microfinance Scheme of the Bank has no positive effect on entrepreneur development of women, Minorities & Weaker Sections. Alternative Hypothesis (H1): Microfinance Scheme of the Bank has positive effect on entrepreneur development of women, Minorities & Weaker Sections. Research Methodology In all a sample of 200 Micro Units from different Village industries viz. Leather Products, Handicrafts, Varieties of Khadi and Pottery (Flower Pots) were selected through Primary Data based on personal interviews and the same was subjected to the Testing of Hypothesis by using t-Statistic for possible rejection of the Null Hypothesis. The Study and Evaluation The Income Levels before and after Micro Credit had been granted of the respondents were collected and the calculation of the t-value for different units in different industries as stated in the Objective of the Study, were noted. The enumerations have been tabulated as below:
Table 1 Income Level (Rs.) 1,000 3,000 3,001 6,000 6,001 9,000 9,001 12,000 Total: No. of Respondents (Before availing Micro Finance) 126 (63%) 70 (35%) 4 (2%) O(-) 200 (100%) No. of Respondents (After availing Micro Finance) 24 (12%) 150 (75%) 26 (13%) O(-) 200 (100%)

Table 2 Calculation of t-Values for different Industrial Units promoted by Women, Minorities and Weaker Sections Industries Leather Products Handicrafts Varieties of Khadi Calculated t-Values 3.256 2.572 2.589 Table t-Values 2.228 2.131 2.086

Pottery (Flower Pots) 3.276 2.060 Note is 0.025 at different Degrees of Freedom viz. 10, 15, 20 & 25 respectively

Conclusion of the Empirical Study The Alternative Hypothesis is accepted i.e. that the Micro Finance Schemes (under SIDBI Refinance) are useful for entrepreneurial development for different sections of women, Minorities & Weaker Sections.

15. Conclusion
MSMEs Significance of MSMES: MSMEs play a significant role as the growth engines of the Indian Economy. In fact, they have been playing a critical role in the socio-economic development of the country. Their main objectives have been mass employment generation, low investment, Import substitution, export earnings, labor intensive mode of production, capacity to develop indigenous technology and high contribution to domestic production. MSME sector is heterogeneous, highly dispersed and mostly unorganized. Problems of MSMEs: The biggest problem of MSMEs is the unduly delayed payments by large industry players. The other problems are lack of infrastructure inputs and banking support. Now it is 724

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obvious that Indian MSMEs are striving to be on par with their counterparts in technology development. While in countries like China, North Korea and Taiwan, apart from hand-holding by the Government and banks, large corporates support them through prompt payments. A strong business model was nurtured in these countries instead of a subsidy mindset adopted in India. The MSME sector is yet to realize fully the benefits of liberalization and deregulation. There is a need to uplift the MSMEs not only technologically, but otherwise too. MSMEs still face the problem of obtaining the timely and affordable credit. The sector is still neglected by the Banks and Financial Institutions in the Private Sector, which are neglecting the mandatory 40% priority sector lending. The proposed SME Stock Exchanges should take initiative to raise capital from the public. Thus, it is obvious that a lot remains to be done for this sector to make it all the more dynamic and self-reliant. Role of SIDBI: SIDBI is committed to developing a strong, vibrant and responsive MSME sector. It is involved in both direct and indirect finance operations besides micro credit operations. It has many associate institutions engaged in venture capital, credit rating, credit guarantee, asset reconstruction and so on. It is the nodal agency for several GOI sponsored MSME schemes. It has new initiatives like setting up a Stock Exchange, meeting the shortfall in priority sector lending by banks, and it has a role to play in RBIs recent support of Rs.70000 Million to be used in incremental assistance to MSME sector after 30/09/2008.Thus SIDBI is required to play a responsible and vibrant role for the development of MSME sector. An Empirical Study also shows that the Micro Finance Schemes (under SIDBI Refinance) are useful for entrepreneurial development for different sections of women, Minorities & Weaker Sections.

16. References
1. 2. 3. 4. 5. 6. SIDBI Report on Micro, Small, and Medium Industries Sector 2010. Ministry of MSMEs PIB release. www.sidbi.com. www.thehindubusinessline.com. www.worldbank.org. www.iisd.org.

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