1. Good Things in life Begin Small
SIDBI
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2. MSMEs Internationally.
• Europe – SMEs, USA – SMBs, India – MSMEs, South Africa-
SMMEs, Mexico – PYMEs (Family and non-family businesses), Rest
Africa MSMEs
• Internationally SMEs are defined on employment, turnover and
asset size
• EU – Micro <10, Small <50, Medium <250 employees
• US – Small Business <250 and Medium <500 employees
• Canada Small Business (Industry)<100, SB(Services)<50
employees
• New Zealand Small Businesses <19 employees
• Mexico 10 – 50 – 250 PYMEs (Manufacturing) and
10 – 50 – 100 PYMEs ( Services)
• Indian MSMEs defined on Investment in Plant and Machinery
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3. An overview of Indian MSME
MSME Sector Contribution to Indian Economy
45% of industrial production
35% share in exports
More than 8000 products
One of the major growth driver of Indian Economy
Model of Socio economic policies of the GoI
Develops appropriate indigenous technology
Second largest sector after agriculture
More than 26 million units
Provides employment to over 59 million
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4. Importance of SMEs
• Contribution to employment, growth and wealth
distribution
• Provide economies with greater flexibility. Low fixed cost
• Competitiveness in market place
• Seed bed for entrepreneurial ability and innovation
• Balanced Regional development
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5. Policy Initiatives
• Focused importance and protection since 1951
• Nationalisation of Banking and priority sector lending
• Separate Ministry to monitor the Growth
• Annual growth target for lending by PSBs at 20%
• Focused subsidy Programme –CLCSS, TUFS, etc.
• Excise Exemption limits
• Credit Guarantee Fund
• Specialised MSME Branches in clusters
• Standard Asset provisioning & Credit risk weight lower
• Food processing as priority sector
• MSMED ACT
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6. MSMEs
• SSI definition in 80s with Rs.20 lakh investment in P & M, 1985
(35lakh), 1991(Rs.60 lakh), 1997 (Rs.300 lakh), 1999 (Rs.100 lakh)
• Definition of ancillary
• Tiny Sector
• EOUs
• SSSBEs
• Medium Industries
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7. MSMED Act - 2006
• Micro– Investment in P & M Rs2.5 million
• Small– Investment in P & M Rs50 million
• Medium Investment in P&M Rs100million
• National Small and Medium Enterprises
Board
• Delayed Payment by large buyers reduced
to 45 days from 120 days
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8. MSME Definition in India
• Definitions vary globally
• MSMED Act 2006 in place w.e.f October 2006
Category Earlier MSME Act 2006
Investment in P&M ( Rs million)
Micro Tiny Upto 2.5 <=2.5
Small Upto 10.0 <=50.0
Medium Not defined 50.0,=100.0
Services
Micro Not defined Upto 1.0
Small Not defined <=20.0
Medium Not defined <=50.0
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9. MSMEs – Constraint
- Small in size
– Lack of Capital. Leverage constraint
– Technology and Quality issues
– Pricing Pressure
– high competition- no entry barriers,
– lack of entrepreneurial knowledge of market,
- No R&D initiatives from sector
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10. Higher Risk Perception…
- Majority Non corporate entities
- Issues of corporate governance
- Financial Discipline
- No transparency.
- Lack of professional skills.
- No growth strategies.
- Marketing
- Working Capital
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11. SME Financing- What they wish
• Availability of finance
• Reasonable cost
• Simple delivery process
• No collaterals
• Single window for financing requirements
• Transparency in dealings
• Awareness of schemes of Banks/FIs
• Support and Handholding services
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12. SME financing :Sources of debt
• Family sources
– Limited resources
• Unorganised sources
– Very high cost of lending
– Non transparency of terms
• Banks
– Working capital
– Banking facilities
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13. Issues in debt financing
• Banks shy of lending to start ups/ green
field projects due to high risk of NPA.
• High Transaction cost
• Security based lending. Insistence on
collaterals.
• Inadequate information
• Inadequate risk assessment mechanisms
• Cumbersome lending procedures.
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14. Recent trends in MSME financing
• With entry of private banks, more
sophisticated debt products have emerged
in the MSME market :
– Cash flow based business
– Derivative products (currency/commodity)
– Asset based simplified lending
– Rent works/ rent discounting
– Receivables and related derivatives
– Credit Insurance
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15. Future trends in MSME financing
• Risk Rating for MSMEs : would improve credibility of
MSMEs with commercial Banks
• Cluster approach to reduce transaction cost
• Simpler assessment modules
• CIBIL : credit delinquency data would enable faster
assessment
• Credit Insurance cover as collateral.
• Recognition of NBFC/MFI capacity to reach to MSMEs.
• Partnership arrangement between Banks and NBFCs
• Credit Delivery Channels with Associations
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16. India : The shift in SSI story
• Scale up : Traditional to modern SSI
sector
• Profile : Manufacturing to services sector.
• Scope : Domestic to global space
• Definition: SSI to MSME definition
• Subsidised finance to risk based finance
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17. New Institutional Build up
• Banks, FIs, SFCs
• Factoring Services
• Venture Capitalists/ PEs
• Technology Support & Guidance
• Incubators
• Mentoring services
• Rating Services
• Credit Guarantee Fund, Risk Sharing Models and credit insurances
• ARCs
• MFIs and SHGs - Credit to Poor & unbanked
• Risk Capital and sub-debt financing
• Credit Information Services
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18. MSME financing : Equity
• Institutional mechanism for providing equity to
smaller SMEs in early stages of growth
• More incubators for startups
• Simplified listing mechanism for SMEs to access
capital markets
• Small cap exchange/ trading of unlisted
companies
• Technology Innovation- Development,
commercialisation and scaling up of the new
Technology
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19. SIDBI – Background
• Constitution
– Set up in 1990 – SIDBI Act
– Initially wholly owned subsidiary of IDBI
– Act amended in 2000 – to broad base shareholding
– Authorised Capital – Rs.1000 Crore
– Paid-up Capital – Rs. 450 Crore
– Shares held by 35 GoI owned/controlled Banks, Insurance
Companies and FIs
• National Presence
– 6 Zonal offices
– 103 Branches across all the states
• Mandate
– Promotion, financing and development of MSMEs and to co-
ordinate the functions of institutions serving the sector.
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20. PRODUCTS & SERVICES
PROJECT
FINANCE
Term Loan
RISK
REFINANCE
CAPITAL
TECHNOLO
NG CAPITAL
UPGRADAT
INANCE
d/ Non-fund)
SIDBI Energy Effic
Clean Enviro
PROMOTIONAL &
RECEIVABLE
DEVELOPMENTAL
FINANCE
ACTIVITIES
MICRO
CREDIT
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One Stop MSME
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21. Indirect Finance
Refinance to commercial banks, SFCs, NBFCs, SLIs
Bills rediscounting
Lines of credit to
State level Institutions
Factoring Companies
NBFCs
Capacity building of SFCs
Resource Support to Micro Finance Institutions
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22. Direct Finance
Term Loan / Project loans
Working Capital
Bills Finance
Non Fund Based Finance
Risk Capital
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23. Micro Credit
- An Instrument of Financial Inclusion
Associated with over 131 MFI partners
Introduced the concept of rating of MFIs
Extend Capacity Building Grants
Help transform NGOs/Societies to MFIs
Over 60 lakh beneficiaries
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24. DEVELOPMENTAL INITIATIVES
Enterprise Promotion
Rural Industries Programme [RIP]
Implemented in more than 120 districts in 24
states
Cumulatively, almost 32,600 units promoted;
Capital formation of over Euro 17 mln and
Employment generation of more than 100
thousand persons.
Entrepreneurship Development Programme (EDP)
Over 2661 EDPs / Over 66,000 participants
trained
Small Industries Management Programme (SIMAP)
Non financial services for MSMEs
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25. DEVELOPMENTAL INITIATIVES
Enterprise Strengthening
Skill-cum-Technology Upgradation Programme
Cluster Development Programme
Marketing, technology, permanent exhibition
centres, etc.
North-East Initiative
Micro enterprise loans, MFI activities, Project
profiles and RIPs
10 cluster development programmes have been
sanctioned in the NER
Small Loan Scheme for North East at concessional
rate.
Non financial services for MSMEs
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26. CLUSTER LEVEL INITIATIVES
Initiated Business Development Services (BDS) in Cluster
In first phase, the project is implemented in 3 clusters-
Coir cluster at Alleppey
Leather cluster at Kanpur
Fruits & Vegetable Processing at Pune
BDS interventions involves
training, consulting & other services to address internal
constraints faced by MSMEs in clusters
Marketing & information services to gain access to better
services.
In first phase about 120 programs & events were organised which
has reached over 4500 beneficiaries.
15 more clusters are proposed to be covered under second phase
in pharms, knitwear, engineering, dyes & chemicals, leather, floor
coverings, etc..
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27. SIDBI – Associates
Credit Guarantee Fund Trust for Micro and Small
Enterprises (CGTMSE)
SME Rating Agency of India Ltd. (SMERA)
SIDBI Venture Capital Ltd. (SVCL) (100% subsidiary)
SIDBI Trusteeship Company Ltd (100% subsidiary)
India SME Technology Services Ltd. (ISTSL)
India SME Asset Reconstruction Co. Ltd. (ISARC)
SFCs
TCOs
CO-PROMOTED –
FACTORING COMPANIES
- Canbank Factors
- SBI Factors
North Eastern Development Finance Corporation
Indian Institute of Entrepreneurship
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28. Product Innovations
• Working Capital
• Non Fund based Products
• Risk Capital
• Energy Efficiency
• TIFAC
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29. Innovative Credit Delivery Models
• Industry Associations – FSIA, GSPMA
• Trade Union – Mumbai Taximen, School Vans
• NBFCs – Electronica Finance
• OEM Channel (Jyoti, ACE, Laxmi)
• MFIs
• Equity Financing through VC Funds
• Technology Incubator through IIT, Kanpur
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30. Innovative Technology Platforms
• CART
• NTREES
• Working Capital Platform
• MSME Exchange
• MSME Mentors
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31. Sustainable Initiatives
• Product for Financing Energy Efficiency
• Cluster Approach
• Identification of Energy Efficient Equipments
• Concept of Green Rating
• PCDM Project at Jodhpur
• Mumbai Taxi Financing
• Financing CNG Auto at Chandigarh through DFC
• Financing Solar Lanterns in North East through FWWB- MFI.
• Green Loan Scheme
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32. Thank You
We Empower MSMEs…
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