We Empower MSMEs

Overview of Indian MSMEsOverview of Indian MSMEsContribution to Economic Growth, Poverty Contribution to Economic Growth, Poverty Reduction, employment creationReduction, employment creationEntrepreneurship & Innovation wave.Entrepreneurship & Innovation wave.Professionals becoming MSME entrepreneursProfessionals becoming MSME entrepreneursRural Development, balanced Regional Rural Development, balanced Regional DevelopmentDevelopmentOutsourcing, l inkages with large units/ MNCs Outsourcing, l inkages with large units/ MNCs increasing vertical integration.increasing vertical integration.Growth of service sectorsGrowth of service sectorsInnovative, f lexible, quick to adapt.Innovative, f lexible, quick to adapt.

ParticularsParticularsManufacturingManufacturing

(Investment in P&M) (Investment in P&M) ((`̀))

ServicesServices

(Investment in Equipment)(Investment in Equipment)

(( )̀)̀

Micro Micro EnterprisesEnterprises Up to 25 lakhUp to 25 lakh Up to 10 lakhUp to 10 lakh

Small Small EnterprisesEnterprises

Above 25 lakh and up Above 25 lakh and up to 5 croreto 5 crore

Above 10 lakh and up to 2 Above 10 lakh and up to 2 crorecrore

Medium Medium EnterprisesEnterprises

Above 5 croreAbove 5 crore and up and up to 10 croreto 10 crore

Above 2 crore and up to 5 Above 2 crore and up to 5 crorecrore

MSMEs - Definition

MSMEs-Backbone of Indian Economy Economy Constitutes more than 90% of total units (134

lakh).

More than 8000 products

MSEs Contribute about 45% of manufacturing

Contributes around 35% of direct exports.

Second largest source of employment, after agriculture (>340 lakh)

Indian MSMEs- Opportunit iesIndian MSMEs- Opportunit ies Contribution to employment, growth and wealth Contribution to employment, growth and wealth

distributiondistribution

Provide economies with greater flexibility. Low fixed Provide economies with greater flexibility. Low fixed cost cost

Competitiveness in market placeCompetitiveness in market place

Seed bed for entrepreneurial ability and innovationSeed bed for entrepreneurial ability and innovation

Balanced Regional developmentBalanced Regional development

Effective utilization of local resourcesEffective utilization of local resources

Indian MSMEs – ConstraintsIndian MSMEs – Constraints Small in size Small in size

Lack of Capital. Leverage constraintLack of Capital. Leverage constraint

Technology and Quality issuesTechnology and Quality issues

Pricing PressurePricing Pressure

High competition- no entry barriers, High competition- no entry barriers,

Lack of entrepreneurial knowledge of marketLack of entrepreneurial knowledge of market

No R&D initiatives from sectorNo R&D initiatives from sector

Higher Risk PerceptionHigher Risk Perception Majority Non corporate entitiesMajority Non corporate entities

Issues of corporate governanceIssues of corporate governance

Financial DisciplineFinancial Discipline

No transparency.No transparency.

Lack of professional skills.Lack of professional skills.

No growth strategies.No growth strategies.

MarketingMarketing

Working CapitalWorking Capital

SME Financing- What they wishSME Financing- What they wish Availability of financeAvailability of finance

Reasonable costReasonable cost

Simple delivery processSimple delivery process

No collateralsNo collaterals

Single window for financing requirementsSingle window for financing requirements

Transparency in dealingsTransparency in dealings

Awareness of schemes of Banks/FIsAwareness of schemes of Banks/FIs

Support and Handholding servicesSupport and Handholding services

SME financing :Sources of debtSME financing :Sources of debt Family sources Family sources

Limited resourcesLimited resources

Unorganised sourcesUnorganised sources Very high cost of lendingVery high cost of lending Non transparency of termsNon transparency of terms

BanksBanks Working capitalWorking capital Banking facilitiesBanking facilities

Issues in debt f inancingIssues in debt f inancing Banks shy of lending to start ups/ green field projects Banks shy of lending to start ups/ green field projects

due to high risk of NPA.due to high risk of NPA.

High Transaction costHigh Transaction cost

Security based lending. Insistence on collaterals. Security based lending. Insistence on collaterals.

Inadequate informationInadequate information

Inadequate risk assessment mechanismsInadequate risk assessment mechanisms

Cumbersome lending procedures. Cumbersome lending procedures.

Recent trends in MSME financingRecent trends in MSME financingWith entry of private banks, more sophisticated debt products have With entry of private banks, more sophisticated debt products have

emerged in the MSME marketemerged in the MSME market : :

Cash flow based businessCash flow based business

Derivative products (currency/commodity)Derivative products (currency/commodity)

Asset based simplified lending Asset based simplified lending

Rent works/ rent discountingRent works/ rent discounting

Receivables and related derivativesReceivables and related derivatives

Credit InsuranceCredit Insurance

Future trends in MSME financingFuture trends in MSME financing Risk Rating for MSMEs : would improve credibility of MSMEs Risk Rating for MSMEs : would improve credibility of MSMEs

with commercial Bankswith commercial Banks

Cluster approach to reduce transaction cost Cluster approach to reduce transaction cost

Simpler assessment modulesSimpler assessment modules CIBIL : credit delinquency data would enable faster CIBIL : credit delinquency data would enable faster

assessmentassessment

Credit Insurance cover as collateral.Credit Insurance cover as collateral.

Recognition of NBFC/MFI capacity to reach to MSMEs. Recognition of NBFC/MFI capacity to reach to MSMEs.

Partnership arrangement between Banks and NBFCsPartnership arrangement between Banks and NBFCs

Credit Delivery Channels with AssociationsCredit Delivery Channels with Associations

Scale up : Traditional to modern SSI sectorScale up : Traditional to modern SSI sector

Profile Profile : Manufacturing to services sector.: Manufacturing to services sector.

ScopeScope : Domestic to global space: Domestic to global space

Definition: SSI to MSME definitionDefinition: SSI to MSME definition

Subsidised finance to risk based financeSubsidised finance to risk based finance

India : The shift in SSI storyIndia : The shift in SSI story

New Institutional Build upNew Institutional Build up Banks, FIs, SFCsBanks, FIs, SFCs Factoring ServicesFactoring Services Venture Capitalists/ PEs/IncubatorsVenture Capitalists/ PEs/Incubators Technology Support & Guidance/Mentoring servicesTechnology Support & Guidance/Mentoring services Rating ServicesRating Services Credit Guarantee Fund, Risk Sharing Models and credit Credit Guarantee Fund, Risk Sharing Models and credit

insurancesinsurances ARCsARCs MFIs and SHGs - Credit to Poor & unbankedMFIs and SHGs - Credit to Poor & unbanked Risk Capital and sub-debt financingRisk Capital and sub-debt financing Credit Information ServicesCredit Information Services

SIDBI-OverviewSIDBI-Overview Constitution

Set up under an Act of Parliament - April 1990 Initially carved out as a wholly owned subsidiary of IDBI Subsequently made autonomous in 2001

Mandate Promotion, financing and development of SSIs (now MSME) Promotion, financing and development of SSIs (now MSME)

Co-ordinate the functions of institutions serving the sector. Co-ordinate the functions of institutions serving the sector. ShareholdingShareholding

Authorised – Rs. 1000 crore / Paid-up – Rs. 450 croreAuthorised – Rs. 1000 crore / Paid-up – Rs. 450 crore Shares held by 35 GoI owned / controlled Banks and FIs Shares held by 35 GoI owned / controlled Banks and FIs

StructureStructure Head office at Lucknow,15 Regional Offices,84 Branches Head office at Lucknow,15 Regional Offices,84 Branches

across all the states.across all the states.

MissionMission

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 - centric institution through modern technology platform and setting up of institutions and funds to meet the varied credit, equity and developmental needs of the MSME sector.”

“To empower the Micro, Small and Medium Enterprises (MSME) for economic growth, employment generation and balanced regional development of our country.”

SIDBI – Products & ServicesSIDBI – Products & Services Fund based channels of AssistanceFund based channels of Assistance

Institutional Loan Products - Refinance to banks, SFCs, Institutional Loan Products - Refinance to banks, SFCs, SIDCsSIDCs

Direct Assistance -Term Lending, Bills DiscountingDirect Assistance -Term Lending, Bills Discounting Micro Credit Micro Credit

Promotional and Developmental ActivitiesPromotional and Developmental Activities

GoI ProgrammesGoI Programmes

Policy AdvocacyPolicy Advocacy

Specialised functions through subsidiaries/ associatesSpecialised functions through subsidiaries/ associates

Direct FinanceDirect Finance

SIDBI has evolved itself as a supplier of specialized lending products for longer tenuresFocused financing in clustersEnergy EfficiencyReceivable FinancingVenture Capital/Risk Finance, Subordinate DebtCo-branding/Channel Financing Securitisation support to NBFCsFinancial support to Factoring Companies

Micro Credit Micro Credit - An Instrument of Financial Inclusion- An Instrument of Financial Inclusion

Associated with over 130 MFI partnersAssociated with over 130 MFI partners

Introduced the concept of rating of MFIsIntroduced the concept of rating of MFIs

Extend Grants/Transformation LoansExtend Grants/Transformation Loans

Help transform NGOs/Societies etc. to MFIs. Tie up with Help transform NGOs/Societies etc. to MFIs. Tie up with

DFID/IFAD- training/capacity building support to MFIs. (130)DFID/IFAD- training/capacity building support to MFIs. (130)

Benefiting more than 66 lakh poor, mostly women.Benefiting more than 66 lakh poor, mostly women.

DEVELOPMENTAL INITIATIVESDEVELOPMENTAL INITIATIVESEnterprise PromotionEnterprise Promotion

Rural Industries Programme [RIP]Rural Industries Programme [RIP]

Implemented in Implemented in more than 100 districts in 24 statesmore than 100 districts in 24 states

30,600 units promoted; 30,600 units promoted;

Capital formation - over Rs. 100 croreCapital formation - over Rs. 100 crore

Employment generation -more than one lakh persons.Employment generation -more than one lakh persons.

Entrepreneurship Development Programme (EDP)Entrepreneurship Development Programme (EDP)

Over 2680 EDPs Over 2680 EDPs

Over 66,000 participants trained.Over 66,000 participants trained.

Small Industries Management Programme (SIMAP)Small Industries Management Programme (SIMAP)

SIMAPs supported – 281 SIMAPs supported – 281

Nos of candidates trained approximately 7,000.Nos of candidates trained approximately 7,000.

DEVELOPMENTAL INITIATIVESDEVELOPMENTAL INITIATIVES

Enterprise Strengthening

Skill-cum-Technology Upgradation Programme (STUP)

STUPs supported – 1429.

Corpus support to 14 Institutions

(Including 3 IITS).

Cluster Development Programme (CDP)

Intervened in more than 55 MSME clusters

Marketing, technology, permanent exhibition centres, CETPs,

common facility centres, etc.

North-East Initiative

Micro enterprise loans, MFI activities, Project profiles and RIPs

SIDBI as Nodal Agency -GOI Schemes to facilitate to facilitate modernisation of select industriesmodernisation of select industries

Credit Linked Capital Subsidy Scheme (CLCSS)Credit Linked Capital Subsidy Scheme (CLCSS)::. 15% capital subsidy for induction . 15% capital subsidy for induction of proven technologies approved products / sub-sectorsof proven technologies approved products / sub-sectors. . Subsidy will be limited to Subsidy will be limited to 15% of the purchase price of plant & machinery or Rs 15 lakh whichever is less.15% of the purchase price of plant & machinery or Rs 15 lakh whichever is less.

Technology Upgradation Fund Scheme (TUFS)Technology Upgradation Fund Scheme (TUFS):: For modernisation and technology For modernisation and technology upgradation in textile and jute industry.upgradation in textile and jute industry. The scheme provides for an interest The scheme provides for an interest subsidy of 5%/4% or upfront capital subsidy of 20%/15%. subsidy of 5%/4% or upfront capital subsidy of 20%/15%.

Technology Upgradation for Food Processing Industry (TUFPITechnology Upgradation for Food Processing Industry (TUFPI)) :. The Scheme :. The Scheme provides for capital subsidy of 25% of the cost of plant and machinery and technical provides for capital subsidy of 25% of the cost of plant and machinery and technical civil work subject to maximum of Rs.50 lakh in general areas and 33% upto Rs.75 civil work subject to maximum of Rs.50 lakh in general areas and 33% upto Rs.75 lakh in difficult areas.lakh in difficult areas.

Integrated Development of Leather Sector Scheme (IDLSS)Integrated Development of Leather Sector Scheme (IDLSS) : : Existing unitsExisting units in in leather and leather products going for technology upgradation / modernisation is leather and leather products going for technology upgradation / modernisation is eligible for assistance under the Scheme. eligible for assistance under the Scheme. The financial assistance will be The financial assistance will be investment grant to the extent of 30% of cost of plant and machinery for SSI and investment grant to the extent of 30% of cost of plant and machinery for SSI and 20% of cost of plant and machinery for other units (i.e. non SSI units) subject to a 20% of cost of plant and machinery for other units (i.e. non SSI units) subject to a ceiling of Rs. 50 lakh.ceiling of Rs. 50 lakh. Under this , loan availment is not mandatory.

SIDBI as Nodal Agency -GOI Schemes

Credit Linked Capital Subsidy Scheme (CLCSS) Capital subsidy – Rs. 198.23 crore 4968 units covered

Technology Upgradation Fund Scheme for Textiles / Jute (TUFS) Capital subsidy & interest – Rs. 456.87 crore 6709 units covered

Integrated Development of Leather Sector Scheme (IDLSS) Rs. 95.42 crore 695 units covered

Scheme of Technology Upgradation /Setting up /Modernisation /Expansion of Food processing Industry

Rs. 1.88 crore / 10 units covered

Credit Guarantee

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

Credit Rating

SME Rating Agency of India Ltd. (SMERA)

Venture Capital

SIDBI Venture Capital Ltd. (SVCL)

Technology Transfer

India SME Technology Services Ltd. (ISTSL) Asset Reconstruction

India SME Asset Reconstruction Company Ltd. (ISARC)

SIDBI – A ONE - STOP WINDOW

Credit Guarantee Fund Trust for Micro & Small Enterprises(CGTMSE)

Set up to provide credit upto Rs. 100 lakh without any collateral security / third party guarantee.

Guarantee provided more than 9 lakh proposals

Cumulative guarantee covered– more than Rs. 43500 crore

Awareness being created on an on-going basis

SIDBI – A ONE STOP WINDOWSIDBI – A ONE STOP WINDOW

MSME Credit Rating - SMERA

Set up in FY 2006 along with Banks and D&B.

First dedicated, independent, third party rating agency in India for MSMEs approved by RBI.

So far, rated more than 9000 MSMEs

SIDBI – A ONE - STOP WINDOW

Venture Capital Support – SVCL

VC Support to Knowledge based industries and other sunrise industries like biotechnology

Manages 2 Venture Capital Funds

SIDBI awarded international award by ADFIAP in 2011

SIDBI – A ONE - STOP WINDOW

Technology Transfer – ISTSL

Technology Matchmaking & Transfer

Loan Syndication

Carbon Credit/ Clean Development Mechanism

Energy Audit

Bundling of Carbon Credit

SIDBI – A ONE - STOP WINDOW

MSME Asset Reconstruction – ISARC

Focus on NPAs in the MSME Sector

Capital base (proposed) of Rs. 100 crore

19 shareholders consisting of 12 PSBs, 4 FIS, LIC, SIDBI and

SVCL

Got RBI Certificate of Registration to commence the

business.

SIDBI – A ONE - STOP WINDOW

GROWTH CAPITAL FOR MSMEs (GEMs)Problems of Growth capital in MSMEsProblems of Growth capital in MSMEs Growing MSMEs require continuous margin for seeking Growing MSMEs require continuous margin for seeking

more bank loans (both for capex and WC)more bank loans (both for capex and WC) Bank loans also dependent on CollateralsBank loans also dependent on Collaterals Sources of promoter funds are limited in MSMEs. Sources of promoter funds are limited in MSMEs.

External equity (PE/ VC) non existent. External equity (PE/ VC) non existent. Hence, MSME units face difficulties in maintaining Hence, MSME units face difficulties in maintaining

growth and have to forego many growth growth and have to forego many growth opportunities. opportunities.

Sometimes units use internal accruals which affects Sometimes units use internal accruals which affects liquidity and impact current ratio. WC banks penalise liquidity and impact current ratio. WC banks penalise due to low CR. due to low CR.

Problems of Growth capital in Problems of Growth capital in MSMEsMSMEs Bank loans are generally not available for Intangible Bank loans are generally not available for Intangible

investments : investments :

R&D, marketing, patents, hiring professionals, etc. R&D, marketing, patents, hiring professionals, etc. Technology & new economy/ service sector companies Technology & new economy/ service sector companies (which may not create assets).(which may not create assets).

Thus there remains a funding gap for MSMEs.Thus there remains a funding gap for MSMEs.

Promoters resort to unsecured loans from other sources at Promoters resort to unsecured loans from other sources at very high rate (18-20%) for 2-3 years with no moratorium on very high rate (18-20%) for 2-3 years with no moratorium on repayments. repayments.

SIDBI has launched a scheme – GEMs – to obviate this problem SIDBI has launched a scheme – GEMs – to obviate this problem of MSMEsof MSMEs

GEMs- Eligibi l i tyGEMs- Eligibi l i ty For well established growing units requiring growth capitalFor well established growing units requiring growth capital Eligible customers :Eligible customers :

Those who have availed/ are availing SIDBI term loan Those who have availed/ are availing SIDBI term loan assistance (meeting rating criteria)assistance (meeting rating criteria)

Other Bank customers (meeting rating criteria)Other Bank customers (meeting rating criteria) 3 year profit track record3 year profit track record 2 year credit track record2 year credit track record

Customers with funding from reputed VC/ PE investorsCustomers with funding from reputed VC/ PE investors Professional management/ promoters Professional management/ promoters Innovative/scalable businessInnovative/scalable business

33

GEMs– Other featuresGEMs– Other features Assistance – generally Rs. 50 lakh to Rs. 5 crAssistance – generally Rs. 50 lakh to Rs. 5 cr Maximum tenure : 7 years (including need-based Maximum tenure : 7 years (including need-based

moratorium of upto 3 years)moratorium of upto 3 years) IRR – about 16% p.a.IRR – about 16% p.a. Security – Last/Security – Last/Residual charge on business assets. Residual charge on business assets.

Charge junior to all existing and prospective Senior Charge junior to all existing and prospective Senior lenders lenders (No NOC required from banks). No (No NOC required from banks). No Collaterals requiredCollaterals required

Simple documentation (loan agreement + Simple documentation (loan agreement + hypothecation)hypothecation)

34 34

Energy Efficiency-Why Energy Efficiency

Energy cost a significant contributor to the overall production cost of MSMEs hence an urgent need to increase the Energy Efficiency (EE) levels to ensure the sustenance of MSMEs

This would not only contribute towards reduction in production cost, but would also improve the quality and productivity of MSME products.

For small scale, cluster based approach can demonstrate energy efficient technologies and practices

35 3535

Scheme for Financing Energy Eff iciency projects in MSME Sector

Parameter Norms

Purpose Investment in energy saving capital equipments / production processes improvements/technologies.

Minimum Assistance Generally not less than Rs.10 lakh

Overall DER 2 : 1

Interest Rate As per Credit Rating and 0.75% below the Normal Lending Rate.

Asset coverage Minimum 1.3 for manufacturing units / 1.75 for service sector units.

Repayment period Need based. Normally, should not exceed 7 years.

Eligibility Criteria 1. New / Existing MSME unit2. Have a satisfactory track record of past performance and sound financial

position; and 3. Score above the minimum investment grade raring as per SIDBI’s Extant

Loan Policy

Any other incentive TEQUP/CLCSS/TUFS or any other Government Scheme benefit shall be available, if eligible.

Small B - A one stop website for budding entreprenuersSmall B - A one stop website for budding entreprenuers .. This is a new initiative of SIDBI to facilitate This is a new initiative of SIDBI to facilitate

educated youth to become entreprenuers.educated youth to become entreprenuers.

Employment generation is not adequate to Employment generation is not adequate to provide livelihood for the growing youth provide livelihood for the growing youth population of the country.population of the country.

Need for the hour is to nurture and promote Need for the hour is to nurture and promote entreprenuership.entreprenuership.

The ecosystem for starting and running new The ecosystem for starting and running new business has many gaps.business has many gaps.

Make setting up enterprise easier…Make setting up enterprise easier… Demystify Business Startup ProcessDemystify Business Startup Process

Generate Business and evaluates businessGenerate Business and evaluates business

identify Business Opportunitiesidentify Business Opportunities

choose Right Businesschoose Right Business

Business Planning ProcessBusiness Planning Process

Tools and Techniques at one placeTools and Techniques at one place

No running around for forms and documentsNo running around for forms and documents

Mentoring/handholdingMentoring/handholding

Support …Internet has it all… but Support …Internet has it all… but

Where to look ?Where to look ? Is the information current ?Is the information current ? Is it user friendly ?Is it user friendly ? Is it Easy to Find?Is it Easy to Find? Is it Understandable?Is it Understandable? Information Asymmetry does existsInformation Asymmetry does exists…..…..

Now support at the click..Now support at the click..

SIDBI now proposes to plug in an important gap SIDBI now proposes to plug in an important gap

in the MSME ecosystem through an informative in the MSME ecosystem through an informative

and interactive web site :and interactive web site :

smallB.insmallB.in

New Init iatives New Init iatives - - Credit Advisory Centres (CAC)Credit Advisory Centres (CAC)

The objective of the CAC is to provide consultancy and advisory services to eligible and viable MSME entrepreneurs

To address several challenges faced by MSMEs in obtaining credit viz. Financial literacy, formulation of good business plan and forecast, familiarity with lender’s need for structured information.

Towards creating an enabling ecosystem for MSMEs, SIDBI has set up Credit Advisory Centres (CAC) to have a focussed approach to address the challenges faced by the MSMEs with.

New Init iatives – CAC ..New Init iatives – CAC .. contdcontdServices of CAC Guide new / existing entrepreneurs regarding

availability of schemes of SIDBI / commercial banks; inform MSMEs of Government subsidies /benefits; provide borrowers with debt counselling; facilitate response to queries raised by banks etc.; Also similar support could be extended in the area of

rehabilitation of viable units / capacity building of bankers etc.

THANK YOU