Introduction:
It is in concurrence with the beliefs of the father of our nation, Mahatma Gandhi, that small-scale industries play a major role in the development of our economy and consequently in the development of society. In line with these beliefs, the Government of India has brought forth many initiatives and schemes to ensure the facilitation of the growth and development of MSMEs, with one such initiative being the setting up of SIDBI under the Industrial Development Bank of India. The mission of SIDBI as stated by the authority is as follows: SIDBI aims to facilitate and strengthen credit flow to MSMEs. Besides offering financial assistance to MSMEs, SIDBI also provides developmental support to the MSME ecosystem.
The Small Industries Development Bank of India was set up by the special Act of Parliament, 1988, and formally inaugurated on 2nd April 1990. It is a wholly-owned subsidiary of the Industrial Development Bank of India, brought forth intending to provide facilitation and promotion of the small and medium industries. The bank offers several financial and non-financial services to these MSMEs to ensure that these businesses, which constitute 40% of the manufacturing sector in the country, are given the required resources. After its establishment, SIDBI was made responsible for administering the Small Industries Development Fund and the National Equity Fund, which were previously undertaken by IDBI. The two schemes collectively aim to assist entrepreneurs in setting up new projects that can be classified as small-scale industries. Hence, the projects catering to MSMEs that were previously overseen by the Industrial Development Bank of India, have now gained an even more nuanced approach to implementation through the setting up of a separate body. Currently, the shares of SIDBI are held by the Central Government and 29 other institutions including public sector banks (PSBs), insurance companies owned and controlled by the Central Government.
Objectives and Functions of SIDBI
The function of SIDBI is primarily to cater to the financial and non-financial needs of MSMEs and the tertiary functions it undertakes to ensure employment generation by promotion of employment-oriented industries. Such employment generation serves a dual purpose by providing livelihood to the population in rural and semi-urban areas and also curbing the rate of migration to the already populated urban areas. It promotes the marketing and commercialization of the products created by SSIs and also assists them with technological facilities to increase productivity. One of the main functions it undertakes is the refinancing of loans and advances provided by commercial banks to small-scale units as there are specifically stipulated additional funds in various commercial banks for providing loans to SSI units. As per the recommendations of the Nayak Committee, there are various types of loans that may be provided to these SSI units. Hence, it helps to bridge the gap between the formulation of these initiatives by large-scale institutions and the MSMEs that require them.
SIDBI also undertakes initiatives like the provision of seed capital and soft loans to facilitate the emergence of newer entrepreneurs in the industry. Under the seed capital initiative, the initial expenditure of setting up the small-scale unit is borne by the bank and the provision of soft loans avails long-term loans repayable within a period of 15-20 years with minimal rates of interest. Further, these businesses can also avail loans for up to Rs 1 Crore from SIDBI without collateral. These provisions also allow SIDBI to identify and ensure the progress of potential emerging entrepreneurs in the district by assisting them as and when required. SIDBI also gives high priority to export-oriented units and import-substituting units. The process for such exports and the high costs of the same are borne by SIDBI to help in the promotion of SSI products in the international market. SIDBI has an authorized capital of Rs. 1000 crores which can be increased to Rs. 1000 crores. The RBI has also allocated INR 10,000 Crores to SIDBI for various venture capital activities and company startups in 2015. The entire operations of IDBI connected with small-scale industries are now handed over to SIDBI.
Apart from undertaking these financial activities, SIDBI also undertakes certain non-financial activities to ensure the promotion and development of MSMEs. It has developed various schemes to undertake marketing surveys and the potentialities of small-scale industries in a given area. A few of such activities include leasing and factoring. Lease finance institutions have allowed these SSI units to avail themselves of the facilities of using costly equipment, otherwise unavailable to them. These leasing facilities also ensure that the small-scale industries are allowed to modernize their production methods by making use of newer technologies. Under the factoring provision, SIDBI is allowed to buy the receivables of the customers of these SSI units at a discount and then collect those receivables directly. Another such facility provided by SIDBI is the hire-purchase financing scheme, where the industries are availed of the machinery of a higher value or machinery acquired from foreign countries at deferred payments. Every state has a State Finance Commission provided for the promotion of small-scale industries in their respective states, and the functioning of these are supervised by their respective state governments.
The National Small Scale Industries Corporation, set up in 1995 to promote small-scale industries, overlooks the financing of the SSI units on the national level. Hence, SIDBI ensures and facilitates the integrated functioning of these various institutions. The association of SIDBI with international institutions such as the World Bank and the Japan International Cooperation Agency ensures that it can provide concessional interest rates and other similar facilities when required. The single window scheme was introduced by SIDBI for providing finance to commercial banks which in turn will give all kinds of assistance to small-scale industries. They assist registration units in the marketing of products, which will be undertaken under this scheme. The SIDBI Venture Capital Ltd offers growth capital to MSMEs through VC funds. Some of the funding offered by this subsidiary includes India Aspiration Fund, Aspire Fund, Funds of Funds for Start-ups, and more.
Other notable activities include the establishment of SMERA or SME Ratings Agency, which was an initiative conceptualized jointly by the Ministry of Finance, the Government of India, and the Reserve Bank of India. The agency aims to help MSMEs grow by facilitating them in getting access to credit through independent and unbiased credit opinions that banks may rely upon. The Micro Units Development and Refinance Agency Bank (or ‘MUDRA’ Bank), was launched in 2015. It is a public sector financial institution that provides low-rate loans to micro-finance institutions which can further provide financial assistance to MSMEs as required. While the bank was introduced under the Pradhan Mantri MUDRA Yojana Scheme in the 2015 Union Budget of India, it was set up as a wholly-owned subsidiary of SIDBI with 100% capital being contributed from it. Hence, the MUDRA Banks help in the development of small-scale industries by financing the state and regional level financial institutions that cater to their financial requirements. SIDBI also supports the Government of India in the various initiatives undertaken by it, such as Make in India and Startup India, by functioning as a nodal agency.
Impact on MSMEs
The preliminary aim of setting up a separate body under the Industrial Development Bank of India was to ensure that the needs and requirements of small-scale industries are adequately looked after and the needs of regional industries are met at the grassroots level. The various initiatives brought forth ensure that the varying requirements of these industries are met at all levels of development. It ensures that policies can be customized and made to fit the needs of all that require them. Additionally, credit and loans are modified as per the size of the business. So, MSMEs could avail different types of loans custom-made for suiting their business requirement. SIDBI does not only assist the small-scale industries financially but also offers other services like financial advice and assistance till the process of the loan ends.
The wide array of schemes with concessional rates and convenient terms that are provided by SIDBI ensure that emerging entrepreneurs are not deterred, and the transparent manner of procedures ensures accountability. The reports brought forth by the institution ensure that any weak spots in these industries are recognized and accordingly improved upon. Apart from these, SIDBI provides advice to state governments, as and when sought by them, regarding carrying out the provisions of the MSMED Act of 2006 and the composition of Micro, Small Enterprises Facilitation Councils, among other functions. It has also been consulted in the past to refer advice regarding promotion, development, and enhancement of competitiveness of micro, small and medium enterprises as covered under Section 9 to 14 of the MSMED Act-2006, as well as examining matters referred by the NBMSME concerning promotion and development of MSMEs.
Conclusion
The functions that are undertaken by the Small Industries Development Bank of India are wide-ranging and encapsulate under its ambit not only the financial requirements of MSMEs but the growth of this sector in all aspects. Further, while great strides have been made in the direction of ensuring technological advancements for these small-scale enterprises, the same need to be taken further to adequately bridge the gap between urban and rural sector enterprises. This will not only bring the rural populace to par and create better employment facilities but also help the product created by these enterprises to be able to compete with the international market.
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