Financial Institutions

Small Industries Development Bank of India (SIDBI)

It set up on April 2, 1990 under an Act of Indian Parliament, acts as the Principal
Financial Institution for the Promotion, Financing and Development of the Micro,
Small and Medium Enterprise (MSME) sector and for Co-ordination of the functions
of the institutions engaged in similar activities.

Business Domain of SIDBI

The business domain of SIDBI consists of Micro, Small and Medium Enterprises
(MSMEs), which contribute significantly to the national economy in terms of
production, employment and exports. MSME sector is an important pillar of Indian
economy as it contributes greatly to the growth of Indian economy with a vast
network of around 5.1 crore units, creating employment of about 11.7 crore,
manufacturing more than 6,000 products, contributing about 45% to manufacturing
output and about 40% of exports in terms of value, about 37% of GDP.

The business strategy of SIDBI is to address the financial and non-financial gaps in
MSME eco-system. Financial support to MSMEs is provided by way of

1. Indirect / refinance to banks / Financial Institutions for onward lending to

MSMEs
2. direct finance in the niche areas like risk capital, sustainable finance, receivable
financing, service sector financing, etc.

As on March 31, 2016, SIDBI has made cumulative disbursements of about `4.50 lakh
crore benefitting about 350 lakh persons. By this way, SIDBI would be
complementing and supplementing efforts of banks/ FIs in meeting diverse credit
needs of MSMEs.

Development Outlook

In order to promote and develop the MSME sector, SIDBI adopts a ‘Credit Plus’
approach, under which, besides credit, SIDBI supports enterprise development, skill
up-gradation, marketing support, cluster development, technology modernisation, etc.,
in the MSME sector through its promotional and developmental support to MSMEs.
These P&D support have benefitted more than 2.3 lakh persons in the MSME sector,
created more than 1.5 lakh employment and helped in setting up more than 80,000
units, mostly rural enterprises.
Some of the important initiatives of SIDBI

• SIDBI Make in India Soft Loan Fund for Micro, Small & Medium
Enterprises (SMILE)

Objective : The objective of the Scheme is to provide soft loan, in the nature of
quasi-equity and term loan on relatively soft terms to MSMEs to meet the
required debt-equity ratio for establishment of an MSME as also for pursuing
opportunities for growth for existing MSMEs.

Target MSME Sectors: Focus will be on all the identified 25 Make in India
sectors or other sectors as may be added, in the Make In India Programme.

• Financing Schemes For Sustainable Development

The scheme is for Micro,

a. Small and Medium Enterprises (MSMEs) planning to invest in:

i. Energy saving investments in plant and machinery / production
processes in order to reduce carbon footprint and enhance
Profitability.
ii. Cleaner Production and emission reduction measures, waste
management and Common Effluent Treatment Plant (CETP)
facilities.
b. Energy Service Companies (ESCOs) providing solutions for EE / CP /
renewable energy
c. Original Equipment Manufacturers (OEMs)which manufacture energy
efficient / cleaner production / green machinery / equipment for MSMEs

• Technology Up-gradation Fund Scheme-Textile Sector (TUFS)

Upgrade & modernize the Indian Textile Industry by encouraging it to
undertake & adopt modern technological process & or undertake capacity
expansion.
• TIFAC-SRIJAN Scheme
It aim to provide financial assistance to MSMEs towards development, up
scaling, demonstration and commercialization of innovative technology based
projects.
a. The assistance is given in the form of early stage “debt” funding on
softer terms for development, demonstration and commercialization of
 new innovations in emerging technological areas, un-proven
technologies, new products, process, etc. which have not been
successfully commercialized so far.
b. Maximum assistance is generally not more than `100 lakh per project.
c. Interest rate would be as approved by the Project Approval Committee
(PAC) (not be more than 5% p.a.).
Exim Bank

Exim Bank commenced operations in 1982 under the Export-Import Bank of India
Act, 1981 as a purveyor of export credit, mirroring global Export Credit Agencies. It
acts as a growth engine for industries and SMEs through a wide range of products and
services. This includes import of technology and export product development, export
production, export marketing, pre-shipment and post-shipment and overseas
investment. Shri. R.C. Shah was the first Chairman and Managing Director (CMD)
from 1982 - 1985.

Flagship programs include:

1. Buyer's Credit under NEIA

2. Corporate Banking
3. Line of Credit
4. Overseas Investment Finance
5. Project Finance

Buyer's Credit under National Export Insurance Account (NEIA)

It is a credit facility programme that motivates Indian exporters to explore new

geographies. Through this programme, the overseas buyer can open a "letter of credit"
in favour of the Indian exporter and can import goods and services from India on
deferred payment terms. While on the one hand, the exporter enjoys reduced
transaction costs and complexities of international trade transactions, on the other
hand, the Indian exporter gets to compete in the international market and can continue
to put his working capital to good use to scale up operations. While Indian companies
avail of buyers credit from other international financial institutions in order to finance
their imports at competitive LIBOR rates, buyer's credit that we provide can only be
used for the export of Indian goods or services.

Salient features

• Facilitates exports for SMEs by providing credit to overseas buyer to import

goods from India
• Offered for financing capital goods or services on deferred payment terms
• Provides non-recourse finance to Indian exporters by converting deferred credit
contract into cash contract
• Extended as advance payments to Indian exporters on behalf of the overseas
buyer
• Can be a transaction specific financing or a revolving/renewable limit
 • Can be extended to more than one overseas subsidiaries of any Indian company
• Since it is a non-LC transactions, it saves LC charges

Corporate Banking

Under it range of financing programmes are offered to enhance the export-

competitiveness of Indian companies. To cater to various business requirements - is to
encourage Indian exporters to invest more in their R&D spend to develop new
products and processes ; to extend export credit to Indian exporters to meet a wide
range of their trade financing requirements ; to enhance international competitiveness
and the capabilities of export-oriented Indian companies ; to enhance the
competitiveness of Indian companies ; to enhance the export capability creation
through financing non-project related equipment procurement; to cater to the specific
financing requirements of export oriented SMEs. Thus many programmes are
launched to achieve the objectives:

• Research & Development Finance for Export Oriented Units

• Pre-Shipment/Post-Shipment Credit Programme
• Lending Programme for Export Oriented Units
• Import Finance Programme
• Production Equipment Finance Programme
• Finance for SME

Lines of Credit

It aim to extending Lines of Credit (LOC) to enable Indian exporters to enter new
geographies or expand their business in existing export markets without any payment
risk from overseas importers. It extend LOCs to overseas financial institutions,
regional development banks, sovereign governments and other entities overseas, to
enable buyers in those countries to import developmental and infrastructure projects,
equipments, goods and services from India, on deferred credit terms.
In 2003-04, The Government of India (GOI) formulated the Indian Development
Initiative (IDI), now known as Indian Development and Economic Assistance Scheme
(IDEAS) with the objective of sharing India's development experience through:
• capacity building and skills transfer,
• trade, and
• infrastructure development,
 • by extending concessional LOCs routed through Exim Bank, to developing
partner countries, towards creating socio-economic benefits in the partner
country.
The Ministry of External Affairs (MEA) has now set up the Development Partnership
Administration (DPA) Division to deal with India's development assistance
programmes abroad, including LOCs routed through Exim Bank. These LOCs are
increasingly being extended to partner countries for large-scale and complex projects
(project exports from India).

Overseas Investment Finance

Exim Bank can provide access to foreign markets by providing:
• Term loans to Indian companies,
• Term loans to overseas Joint Venture (JV)/Wholly Owned Subsidiaries (WOS)
(JV/WOS) of Indian Companies towards part financing

Project Exports

In recent years, Indian project exporters have secured diverse contracts exemplifying
their versatility and technological capabilities. EXIM Bank has been one of the prime
movers in encouraging project exports from India; and has enabled Indian companies
to secure contracts across various geographies over two decades and supplement the
development objectives of host countries.

It has been providing a steady stream of support to project activities in engineering,

procurement, construction (civil, mechanical, electrical or instrumental). This includes
the provision of specific equipment related to supplies, construction and building
materials, consultancy, technical know-how, technology transfer, design, engineering
(basic or detailed). It can also support existing or new projects, plants or processes that
require additional assistance in processes such as international competitive bidding:
including multilaterally funded projects in India.
National Bank for Agriculture and Rural Development (NABARD)

NABARD came into existence on 12 July 1982 by transferring the agricultural credit
functions of RBI and refinance functions of the then Agricultural Refinance and
Development Corporation (ARDC). It was dedicated to the service of the nation by
the late Prime Minister Smt. Indira Gandhi on 05 November 1982.

Set up with an initial capital of Rs.100 crore, its’ paid up capital stood at Rs. 5,000
crore as on 31 March 2016. Consequent to the revision in the composition of share
capital between Government of India and RBI, the Government of India today holds
Rs. 4,980 crore (99.60%) while Reserve Bank of India holds Rs. 20.00 crore (0.40%).

It aimed at building an empowered and financially inclusive rural India through

specific goal oriented departments which can be categorized broadly into three heads:

• Financial,
• Developmental
• Supervision.

Through these initiatives it touches almost every aspect of rural economy. From
providing refinance support to building rural infrastructure; from preparing district
level credit plans to guiding and motivating the banking industry in achieving these
targets; from supervising Cooperative Banks and Regional Rural Banks (RRBs) to
helping them develop sound banking practices and onboarding them to the CBS
platform; from designing new development schemes to the implementation of GoI’s
development schemes; from training handicraft artisans to providing them a marketing
platform for selling these articles.

Various functions of NABARD

Loans for Food Parks and Food Processing Units in Designated Food Parks

Development of food processing industry in the country is accorded top priority by the
Government of India as it is one of the most critical links in the agri value chain.
Taking this agenda further, the Finance Ministry, in 2014, announced setting up of a
Special Fund of Rs. 2,000 crore in NABARD for providing direct term loans at
affordable rates of interest to Designated Food Parks (DFPs) and food processing
units in the DFPs.

The objectives of the Fund are:

• To provide impetus to development of the food processing sector on a cluster

basis in the country
 • To reduce wastage of agricultural produce
• To create employment opportunities especially in rural areas.

Loans to Warehouses, Cold Storage and Cold Chain Infrastructure

Consequent to the announcement of an allocation of Rs. 5,000 crore to NABARD in

the 2014-15 budget for supporting creation of infrastructure for storage of agricultural
commodities, Reserve Bank of India (RBI) issued guidelines for creation of
Warehouse Infrastructure Fund (WIF 2014 -15) in NABARD. The Fund envisages
extension of loans to Public and Private sectors for construction of warehouses, silos,
cold storages and other cold chain infrastructure.

Credit Facilities to Marketing Federations

Marketing federations and cooperatives are playing a very important role in

agribusiness and value/supply chain management of the various agricultural
commodities. Major activities undertaken by these institutions are:

• Procurement of agricultural commodities including milk

• Aggregation, storage and value addition in few select commodities like milk
etc.
• Marketing

Large number of farmers, producers’ organizations, and primary societies depend

upon these institutions for marketing of their produce and for value-added services
like input supply, value addition and storage facilities. The marketing operations by
these federations and cooperatives require seasonal and timely short-term credit
facility to support their day-to-day operations. The following institutions will be
eligible for funding under Credit Facility to Federations (CFF)

• State/Central Govt. Agricultural Marketing Federations, Corporations

• Dairy Co-operatives/Federations
• Agriculture Marketing Co-operatives/Federations
• Registered Companies

Rural Infrastructure Development Fund

Government of India created the RIDF in NABARD in 1995-96, with an initial corpus
of Rs.2,000 crore. With the allocation of Rs.25,000 crore for 2016-17 under RIDF
XXII, the cumulative allocation has reached Rs.2,67,500 crore, including Rs. 18,500
crore under Bharat Nirman. At present, there are 36 eligible activities under RIDF as
approved by GoI. The eligible activities are classified under three broad categories i.e.

• Agriculture and related sector

• Social sector
• Rural connectivity

Financing and supporting Producer Organisations

In an initiative which aims to bring real time empowerment to farming communities

across the country, NABARD set up “Producers Organization Development Fund”
(PODF) in 2011 with an initial corpus of Rs. 50 crore. Producers Organization
Development Fund (PODF) is used to support Producers Organizations across three
levers, viz. credit support, capacity building & market linkage. The objective of the
Fund is to meet end to end requirements of producers’ organizations as well as to
ensure their sustainability & economic viability.

The Fund supports formation and financing producer organizations by adopting a

flexible approach to meet the needs of producers. Any registered Producers
Organization viz, Producers Company ( as defined under Sec 581 A in part IXA of
Company’s Act 1956), Producers Cooperatives, registered Farmer Federations,
MACS (Mutually aided cooperative society), industrial cooperative societies, other
registered federations, PACS, etc. set up by producers are eligible under the fund. The
following types of support are provided under PODF:

• Credit Support in the form of grant, loans, or a combination of these for

capacity building & market interventions.
• Credit Support for contribution to share capital. This has been allowed since
most of the Producers Organisations are having low capital base.

GOVT. SPONSORED SCHEMES

The Government of India encourages farmers in taking up projects in select areas by

subsidizing a portion of the total project cost. All these projects aim at enhancing
capital investment, sustained income flow and employment areas of national
importance.
NABARD has been a proud channel partner of the Government in some of these
schemes shown in this section. Subsidy as and when received from the concerned
Ministry is passed onto the financing banks.

Dairy Entrepreneurship Development Scheme

The Department of Animal Husbandry, Dairying and Fisheries (DAHD&F), GoI

launched a pilot scheme titled “Venture Capital Scheme for Dairy and Poultry” in the
year 2005-06. The main objective of the scheme was to extend assistance for setting
up small dairy farms and other components to bring structural changes in the dairy
sector.

Capital Investment Subsidy Scheme for Commercial Production Units for

organic/ biological Inputs

The increasing and indiscriminate use of synthetic fertilizers and pesticides and
deteriorating soil health and productivity is concerning people all over the world.
Growing awareness for safe and healthy food has underlined the importance of
organic farming, which is a holistic system based on the basic principle of minimizing
the use of external inputs and avoiding the use of synthetic fertilizers and pesticides.

In view of these challenge, there is a need in the country to augment the infrastructure
for production of quality organic and biological inputs. Accordingly, under National
Project on Organic Farming a Capital Investment Subsidy Scheme for Commercial
Production Units for organic/ biological Inputs has been introduced. The scheme is
being implemented by the Department of Agriculture & Cooperation through National
Centre of Organic Farming (NCOF) in collaboration with NABARD or National
Cooperative Development Corporation (NCDC).

The scheme is being implemented since 2004-05.

Rural Godowns

It is a well-known fact that small farmers of the country do not have the economic
strength to retain their farm produce with them till the market prices become
favourable. There has been a felt need in the country to provide the farming
community with facilities for scientific storage so that wastage and produce
deterioration are avoided and enable farmers to meet their credit requirement without
being compelled to sell their produce at unfavorable prices.

A network of rural godowns will enable small farmers to enhance their holding
capacity in order to sell their produce at fair prices and avoid distress sales.
Accordingly, Grameen Bhandaran Yojana, a Capital Investment Subsidy Scheme for
Construction/Renovation of Rural Godowns was introduced in 2001-2002.

Agriclinic and Agribusiness Centres Scheme

The scheme aims to promote the establishment of Agri-Clinics and Agri-Business

Centres (ACABC) all over the country.

Agri-Clinics are envisaged to provide expert advice and services to farmers on various
aspects to enhance productivity of crops/animals and increase the incomes of farmers.
Agri-clinics provide support in the following areas: Soil health, Cropping practices,
Plant protection, Crop insurance, Post-harvest technology, Clinical services for
animals, feed and fodder management, Prices of various crops in the market, etc.

Agri-Business Centres are commercial units of agri-ventures established by trained

agriculture professionals. Such ventures may include maintenance and custom hiring
of farm equipment, sale of inputs and other services in agriculture and allied areas,
including post-harvest management and market linkages for income generation and
entrepreneurship development.

The scheme covers full financial support for training and handholding, provision of
loan and credit-linked back ended composite subsidy.

Objectives of the scheme

• To supplement efforts of public extension by necessarily providing extension

and other services to the farmers on payment basis or free of cost as per
business model of agripreneur, local needs and affordability of target group of
farmers
• To support agricultural development
• To create gainful self-employment opportunities for unemployed agricultural
graduates, agricultural diploma holders, intermediate in agriculture and
biological science graduates with Post Graduation in agri-related courses.

National Livestock Mission

National Livestock Mission is an initiative of the Ministry of Agriculture and Farmers

Welfare. The mission, which commenced from 2014-15, has been designed with the
objective of sustainable development of the livestock sector.

NABARD is the subsidy channelizing agency under Entrepreneurship Development &

Employment Generation (EDEG) component of National Livestock Mission. This
includes:
• Poultry Venture Capital Fund (PVCF)
• Integrated Development of Small Ruminants and Rabbit (IDSRR)
• Pig Development (PD)
• Salvaging and Rearing of Male Buffalo Calves (SRMBC)