SMALL INDUSTRIES DEVELOPMENT BANK (SIDBI)

HISTORY AND BACKGROUND

SIDBI stands for Small Industries Development Bank of India. It is an independent national level principal development financial institution aimed to aid the growth and development of micro, small and medium-scale enterprises in India. The government of India set up the SIDBI under a special act of the parliament in October 1989. It commenced its operation on April 2, 1990 with its head office in Lucknow and was incorporated initially as a wholly owned subsidiary of Industrial Development Bank of India (IDBI). Later, in 2000 the act was amended to broad base shareholding. Current shares are held by government of India owned/controlled banks, insurance companies and financial institutions. It has 5 zonal offices and 1 regional office and 100 branches across all states. Beginning as a refinancing agency to banks and state level financial institutions for their credit to small industries, it has expanded its activities, including direct credit to the Small and Medium Enterprises (SME). Besides, it has been playing the development role in several ways such as support to micro-finance institutions for capacity building and on lending. SIDBI is the apex financial institution for the Micro, Small and Medium Enterprises (MSME) in the country. It meets the credit needs of the MSME segment in various ways. A brief profile of the Bank is given below: y y y y y y y y y y y y Only financial institutions dedicated exclusively for the MSME sector. Presence in all major commercial centers and MSE clusters. Provides all banking services to MSME units. State-of-the-art technology platform to provide efficient services to customers. Automated processes for quick decisions. Nodal agency for several GOI schemes. Flexible and innovative credit products. Specialized products for clusters and new technology businesses. Equity support to growth oriented SME units. Flexible products for large corporate having SME vendors and suppliers. Collateral free assistance up to Rs. 50 lakh under CGTMSE scheme. Attractive interest rates.

y y

Incentive for MSME units rated by SMERA. SIDBI is leveraging technology to provide customer services through website like information about products and services, contact information, downloadable application forms, status of loan applications, online information about accounts of customers, etc. Submission of online application is also available.

OBJECTIVES
Four basic objectives are set out in the SIDBI Charter. They are:  Financing  Promotion  Development of Industries in the small scale sector.  Coordinating the functions of other institutions engaged in similar activities. The Charter has provided SIDBI a considerable flexibility in adopting appropriate operational strategies to meet these objectives.

MISSION
To empower the Micro, Small and Medium Enterprises (MSME) sector with a view to contributing to the process of economic growth, employment generation and balanced regional development.

VISION
To emerge as a single window for meeting the financial and developmental needs of the MSME sector to make it strong, vibrant and globally competitive, to position SIDBI Brand as the preferred and customer - friendly institution and for enhancement of share - holder wealth and highest corporate values through modern technology platform.

FUNCTIONS MEANT TO HELP SMALL SCALE INDUSTRIES

 Refinances loans given to small scale sector by primary lending institutions.  Discounts and rediscounts bills relating to the transaction of machinery of the small scale sector.  Extends seed capital through specified agencies.

 Assistance for export of products of small-scale sector.  Provides services like leasing and factoring.  Give financial support to purchase raw material and the sales of finished products. While finance is the basic need of the MSMEs, they also require different non-credit facilities to gain the extra mile in their endeavor to attain international competitiveness. SIDBI has been constantly working on building various institutional mechanisms to cater to the emerging needs (equity capital, credit rating, technology transfer and up gradation, etc.) of the MSME sector and has set-up various subsidiaries / associates viz. y Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) provides guarantees to banks for collateral-free loans extended to SME. y y SIDBI Venture Capital Ltd. (SVCL) is a venture capital company focused at SME. SME Rating Agency of India Ltd. (SMERA) is a MSMEs dedicated third party rating agency to provide composite, comprehensive, transparent and reliable ratings and risk profiling. y India SME Technology Services Limited (ISTSL) provides a platform for MSMEs to tap opportunities at the global level for acquisition of modern technologies y India SME Asset Reconstruction Company ltd (ISARC) is the country's first MSME focused Asset Reconstruction Company striving for speedier resolution of nonperforming assets (NPA) by unlocking the idle NPAs for productive purposes which would facilitate greater and easier flow of credit from the banking sector to the MSMEs.

ACHIEVEMENTS
SIDBI retained its position in the top 30 Development Banks of the World in the latest ranking of The Banker, London. As per the May 2001 issue of the Banker, London, SIDBI ranked 25th both in terms of Capital and Assets. Credit Guarantee Fund Trust for Micro and Small Enterprises popularly known as CGTMSE is widely being used by many PSU Banks and Private sector banks to fund MSME sector. SIDBI has received the highest rating of AAA by CRISIL and CARE.

ORGANISATIONAL CHART

BOARD OF DIRECTORS

CHAIRMAN & MANAGING DIRECTOR

DEPUTY MANAGING DIRECTORS

EXECUTIVE DIRECTORS

New Delhi, Coordination, Support Services & Policy advocacy for MSME sector

Head Office, Lucknow Operations & Services

SME Development Centre, Mumbai Operations & Services

Subsidiaries & Associate Organizations

Zone (6), Branches (103)

y y y y y

SIDBI Venture Capital Ltd. SIDBI Trustee Company Ltd. Credit Guarantee Fund Trust for MSE India SME Technology Services Ltd. SME Rating Agency of India Ltd. y India SME Asset Reconstruction Company Ltd.

VARIOUS SERVICES FOR ENTERPRENEURS

SIDBI extends direct/indirect financial assistance to SSIs, assisting the entire spectrum of small and tiny sector industries on All India basis.
1) DIRECT FINANCE: Assistance to MSMEs, Service sector entities, Resource support to

Non Banking Financial Companies/ Other intermediaries, infrastructure Projects, etc. y Direct Credit Scheme: for setting up of a new Micro/SSI unit or Medium scale enterprise/Service sector unit or their expansion/diversification/modernization/technology up gradation/quality certification. Minimum Loan amount is generally 25 lakhs. y Technology Upgradation Fund Scheme (TUFS): for textile and jute industries for technology upgradation / modernization. It envisage interest incentives of 5% and/or cover for exchange rate fluctuation upto 5% per annum on the loans availed of by SSIs from Primary Lending Instituitions (PLIs). y Scheme for Development of Industrial Infrastructure for SSI Sector: for Setting up of industrial estates/development of industrial areas or Strengthening of existing industrial clusters/estates by providing increased amenities for smooth working of the industrial units. y Integrated Infrastructural Development (IID): For setting up of IID centers with facilities like water supply, power, telecommunication, common services centre including for technological back up services for SSIs in rural backward areas. y Vendor Development Scheme: for large well run Corporate, PSU, MNC having a good SME vendor base and a satisfactory external rating. y Guarantee Scheme for SSI And Service Sector Units: Ordinary Guarantee (Both Financial and Performance Guarantee) and deferred payment guarantee are offered. The scheme is offered to the existing customers having satisfactory tract record. y SIDBI Financing Scheme for Energy Saving Projects in MSME Sectors: Japan International Cooperation Agency has extended a line of credit to SIDBI for financing energy saving projects in MSMEs sector. y Risk Capital Fund for MSMEs: is Growth funds to deserving MSMEs as Quasi equity to bridge the gap in project funding, margin money for working capital, non-asset creating investments viz marketing, brand building, R&D, etc.

2)

BILL FINANCE: Bills Finance Scheme involves provision of medium and short-term

finance to manufacturers of indigenous machinery, capital equipment, components subassemblies etc. y Receivable Financing Scheme: To enable SSI/SME/Eligible Service sector units (including construction / small road transport operators) selling components, parts, subassemblies, services, etc. to Medium & Large scale units realize their sale proceeds quickly. y Direct Discounting Scheme - Equipment (DDS-E): To enable manufacturers-sellers in SSI sector/service sector including construction/selling agents to offer deferred payment terms for credit sales and realize sale proceeds by discounting bills of

exchange/promissory notes. y Bills Re-Discounting Equipment: For sale/acquisition of machinery on deferred payment terms for setting up of new SSI units as also for expansion, diversification, modernization, replacement, addition of balancing equipment etc. y Bills Rediscounting Scheme - Equipment (Inland Supply Bills): Trade bills arising out of supply of goods by SSI units and discounted with commercial banks either by the drawer (seller) or the drawee (buyer) are rediscounted by the banks with SIDBI.

3) RE-FINANCE: Re-Finance Schemes are introduced for catering to the needs of funds of PLI for financing SSI sector. y Refinance Scheme For Acquisition Of ISO Series Certification By MSE Units: Expenses on consultancy, documentation, audit, certification fees, equipment and calibrating instruments required would be taken into account for determining the loan requirement. y General Refinance Scheme- This scheme for small and medium enterprises who want to set up new units or expands their existing ones. All forms of business viz. sole proprietorship, partnership, company etc. are eligible for this finance scheme. y Refinance For Small Road Transport Operators (SRTOs): To meet expenditure on cost of chassis, body building, initial taxes/insurance and working capital for Small road transport operators.

y Composite Loan Scheme (CLS): for equipment and/or working capital and also for work sheds to artisans, village and cottage industries in Tiny Sector. Loan Limit Max Rs. 25 lakh. y Single Window Scheme: to provide both term loan for fixed assets and loan for working capital through the same agency.

4) INTERNATIONAL FINANCE: An international Finance scheme enables SSI to raise finance at internationally competitive rates to fulfill their export commitments. y Post-Shipment Credit in Foreign Currency/Rupee: To provide post-shipment credit in foreign currency by discounting of customers export bills/purchase of sight/demand export bills. y Pre-Shipment Credit in Foreign Currency/Rupee: To enable SSI to raise finance as per RBI guidelines to fulfill their export commitments. y Foreign Currency Term Loan Scheme: For setting up new projects as well as for expansion, diversification, technology upgradation and modernization of existing units. y Opening of Foreign Letters Of Credit: To enable SSI to import capital equipment and import of raw materials, consumables etc. by SME units. y Line Of Credit Foreign Currency to Commercial Banks: For providing resource support to institutions/banks for extending export and domestic credit to SME units, Government recognized Export Houses/Trading Houses sourcing their requirements from SSIs. y Booking of Forward Contract: To provide SIDBI's clients with the facility of hedging of foreign exchange risks related to their import/export transactions.

5) MICRO FINANCE: SIDBI Foundation for Micro Credit (SFMC) was launched by the Bank for channelizing funds to the poor through a strong, viable and sustainable network of Micro Finance Institutions (MFIs). y Micro Credit Scheme: to meet the requirement of well managed Voluntary Agencies that are in existence for at least 5 years; have a good track record and have established network and experience in small savings-cum-credit programmes with Self Help Groups individuals.

y On-Lending: SIDBI Foundation identifies nurtures and develops select potential MFIs as long term partners and provides credit support for their micro credit initiatives. y Capacity Building: it provides need based capacity building support to the partner MFIs to enable them to expand their operations, cover their managerial, administrative and operational costs besides helping them achieve self-sufficiency in due course. y Liquidity Management: a special short term loan scheme, Liquidity Management Support (LMS) for the long term partners. y Equity: SIDBI provides equity capital to eligible institutions not only to enable them to meet the capital adequacy requirements but also to help them leverage debt funds. y Transformation Loan: Transformation Loan (TL) product is envisaged as a quasi-equity type support to partner MFIs that are in the process of transforming themselves/their existing structure into a more formal and regulated set-up. y Micro Enterprise Loans Scheme Direct Credit: It provides need based composite loan (ranging from Rs. 50,000 to Rs. 5 lakh ) to Micro Enterprises directly for acquiring capital assets and also for their working capital/marketing related requirements.

6) GOVERNMENT SUSIDIARY SCHEMES: y Technology Upgradation Fund Scheme for Textile Industry (TUFS): as discussed above under direct finance schemes. y Credit Linked Capital Subsidy Scheme: It facilitates technology upgradation in specified products/sub-sectors approved under the scheme by providing upfront capital subsidy to SSI units. y Scheme of Technology Upgradation/Setting Up/Modernization/Expansion of Food Processing Industries (FPTUFS): for upgradation of processing capabilities of food processing industries in India. y Integrated Development of Leather Sector Scheme: to strengthen leather industry and also to achieve increased share in global market.

7) PROMOTIONAL AND DEVELOPMENT ACTIVITIES: P&D initiatives of the Bank aim at improving the inherent strength of SSI sector and economic development of poor through promotion of micro-enterprises.

y Rural Industries Programme (RIP): address the problems such as rural unemployment and provides information, motivation, training and credit, backed by appropriate technology and market linkages for the purpose of enterprise promotion. y Entrepreneurship Development Programme (EDP): EDPs aim at training various target groups in entrepreneurial traits so that they obtain adequate information, motivation and guidance in setting up their own enterprises. y Management Development Programme: Small Industries Management Assistant Programme (SIMAP) to develop a cadre of industrial managers specifically trained to assist the SSI entrepreneurs. Skill-cum-Technology Up-gradation Programme (STUP) for owners, managers, supervisors and technical staff of the SSI units. y Technology Upgradation Programme: for creation of awareness on new

product/process technologies, Skill upgradation, Provision of unit-specific modernization package, Energy conservation and introduction of environment friendly technologies, etc. y Mahila Vikas Nidhi (MVN): To bring about economic empowerment of women, especially rural poor, by providing them avenues for training and employment opportunities by facilitating creation of infrastructural and training facilities.

8) OTHER SCHEMES: y Scheme for Domestic Factoring (FAC): To provide factoring service to the manufacturers in SSI sector supplying their products on credit terms to various purchasers in the domestic market with a view to assisting them in their receivable management. y Mahila Udyam Nidhi (MUN) Scheme: provides equity support to women entrepreneurs for setting up projects in Tiny Sector. y Scheme for financing activities relating to marketing of SSI products such as marketing research, R&D, product up gradation, participation in trade fairs and exhibitions, advertising branding, establishing distribution networks including show room, retail outlet, etc. y Equipment Finance Scheme for acquisition of machinery/equipment including Diesel Generator Sets which are not related to any specific project.

National Equity Fund Scheme which provides equity support to small entrepreneurs setting up projects in Tiny Sector.

Venture Capital Scheme to encourage SSI ventures/sub- contracting units to acquire capital equipment, requisite technology for building up of export capabilities/import substitution including cost of total quality management and acquisition of ISO-9000 certification.

ISO 9000 Scheme to meet the expenses on consultancy, documentation, audit, certification fee, equipment and calibrating instruments required for obtaining ISO 9000 certification.

Marketing Fund for Women (MFW): The assistance under the Fund is available to women entrepreneurs and organizations involved in marketing of products manufactured by women entrepreneurs to increase their reach, both in domestic and international markets.

MSME Receivable Finance Scheme: It gives the power to raise finance against the bills/invoices arising out of sale of components/parts/sub-assemblies/accessories and provision of services by MSMEs to large/medium enterprises.

TIFAC-SIDBI Revolving Fund for Technology Innovation Programme: TIFAC created the Fund of 30 crores and placed it with SIDBI for assisting MSMEs for development, up-scaling, demonstration and commercialization of innovative technology based projects.

9) NTREES- Trade Receivables Engine for E-discounting: An Electronic Super Market for Discounting of Account Receivables to Unlock Liquidity of Suppliers, particularly MSME

Case Study on SIDBI A Successful Financial Institution in SME Financing

Any banks operational excellence is measured by aggregate sanctions, subsequent disbursement of the sanctioned amount, the amount of revenue generated from the difference in spread over the loan taken and advances granted, higher amount of fee based income and the last and the most important timely recovery of dues.
10000 0 2004 2005

Sanctions Disbursements

Figure 1 - Overall Sanctions and Disbursements (Rs. in crores) SIDBIs aggregate sanctions under all schemes during the FY 2004-05 were Rs. 9090.60 crore registering a growth of 10.24 % over the previous year. The disbursements during the year were Rs. 6187.83 crore recording an impressive growth of 40.18 % over the disbursement in previous year. Refinance Assistance: SIDBI has remained the premier refinancing institute for the promotion and development of small and medium enterprises. The mechanism used by SIDBI is it lends to Primary Lending Institutions (PLIs) and they deliver the credit facility to existing entrepreneurs and first generation entrepreneurs.
5000 0 2004 2005 Sanctions Disbursements

Figure 2 - Total Sanctions and Disbursement under Refinance Assistance (Rs. in Crore) The aggregate sanctions and disbursements under refinance schemes during 2004-05 were Rs. 4419.19 crore and Rs. 2693.60 crore respectively. It shows the net growth of 3.98 % increase in Sanctions and impressively 56.69 % increase in disbursement. This is the result of the extra efforts in policy making and aggressive help provided by the bank for the overall welfare of the small scale industries.

Bills financing have been another feather in the cap for SIDBIs portfolio of financing for assistance of the SMEs. The objective of the scheme is to mitigate the problem of delayed payments to SSI units.
2000 Sanctions 0 2003 2004 Disbursements

Figure 3 - Sanctions and Disbursement for Bills Financing (Rs. in Crore) Total sanctions and disbursements for the FY 2003 and FY 2004 can be seen from figure 3, where the sanctions have increased by 37.19% in the year 2003 and disbursements have increased by 40.69% in the year 2004 which shows that the sanctions and disbursements have been at par with the target of SMEs being able to attain the credit available. Project financing being another area where SIDBI finances the whole project that is innovative, economically and financially feasible and unique which would lead to a birth of an industry in the near future.
2000 0 2004 2005 Sanctions Disbursements

Figure 4 - Sanctions and disbursements for Project financing (Rs in Crores) The above figure 4 shows that the overall sanctions for Project Financing by SIDBI has shown the dramatic fall in FY 2005 from total sanctions amount of Rs. 1619.41 crore in the financial year 2004 to Rs. 666.96 crore in the FY 2005 which is almost 59% lesser than the previous year. The underlying reason for low sanctions is stringent risk management practices adopted by the bank. Besides good track record in total sanctions and disbursements, SIDBI has performed pretty well in rationalizing of all its existing schemes and programmes in a bid to simplify the procedures, streamline the credit delivery mechanism and enhance the customer base. Secondly, in an effort to simplify procedures, SIDBI has developed an electronic workflow system which integrates and automates the main credit functions of sanctions, documentation and disbursement. This process is known as Direct Credit Process.

CONCLUSION
It is a real fact that more than 70% of Indian population resides in rural areas of our country. But the majority of that population is still backward due to less support of external environment. To this SIDBI came up as a solution by providing financial support to SSIs to encourage them and generate employment in rural India. It also works on improving the performance of small Industries. Through its various beautifully designed schemes, SIDBI has very rightly focused on every need of the small scale industries in rural India like setting up of new projects; expansion, diversification, modernization, technology up gradation, quality improvement, rehabilitation of existing units; strengthening of marketing capabilities of SSI units; development of infrastructure for SSIs; export promotion, etc. It also encourages and economically empowers women entrepreneurs through its Marketing Fund for Women, Mahila Udyam Nidhi and Mahila Vikas Nidhi Scheme. In this age of immense competition, survival is the key for any organization be it public or private. Same goes in case of SIDBI and other banks that are in its competition now. Though with a strong background, SIDBIs image hasnt shifted in the minds of the masses. The awareness level is still low and it will take a lot of aggressive marketing to actually build a place in the consumers mindset. Secondly, SIDBI being into only industrial financing cannot compete directly with commercial banks providing them with all kinds of deposits and schemes. Other than that, SIDBI always catered to small enterprises and when the small industries turned into medium enterprises, the banks role seemed to vanish. This became tough to target the same companys again as the scope of SIDBI remained only till the small industries start performing. In nutshell, it can be concluded that SIDBIs role towards SMEs has become to Catch them young and Watch them grow.

I also visited SIDBI (at Jhandewalan) which was totally a very nice and learning experience. I was well welcomed and attended by the officials. I was quite impressed by the energy and way of their working and management. One thing which I liked it very much was people working there were very enthusiastic about their work. They explained me about their different schemes and how these schemes help entrepreneurs and provided a great deal of information which helped me a lot in completing my survey.