INSTITUTIONAL FINANCE TO ENTREPRENEURS

  

 

Institutions of Govt. of India:-

A number of support institutions set up by central and state governments help the entrepreneurial activities in various ways. The activities cover a wide range of services like financing, technical guidance, equipment support, training, marketing and providing subsidy and grants. The following institutions are available for providing the above mentioned benefits.

Financial Institutions:-

• Industrial Development Bank of India (IDBI)
• Industrial Finance Corporation of India (IFCI)
• Small Industries Development Bank of India (SIDBI)
• National Small Industries Corporation Ltd (NSIC)
• State Small Industries Corporation (SSIC)
• Regional Rural Banks (RRBs)
• State Financial Corporation’s (SFCs)
• State Industrial Development Corporations (SIDCs)
• Cooperative Banks and Gramin Banks

Institutions for technical guidance:-

• Small Industries Development Organisation (SIDO)
• District Industries Centres (DICs)
• Technical Consultancy Organisations (TCOs)
• Small Industries Service Institutes (SISIs)
• State Small Industries Development Corporations (SSIDCs)
• Industrial Development Corporation (IDCo)
• Agricultural Promotion and Investment Corporation of Orissa Limited (APICOI)

Training Institutions:-

• National Institute for Entrepreneurship and Small Business Development (NIESBUD)
• Entrepreneurship Development Institute of India (EDII)
• Small Industries Service Institute (SISI)
• National Bank for Agriculture and Rural Development (NABARD)
• Council for Advancement of Peoples Action and Rural Technology (CAPART)
• District Industries Centre (DIC)

Financial Institutions:

Industrial Development Bank of India (IDBI)

The IDBI was established on July 1, 1964 by the Government of India under an Act of Parliament as the principal financial institution in the country. Main Functions of IDBI:-

• The IDB1 provides assistance to the small scale sector through its scheme of refinance and bills rediscounting scheme.
• The financial assistance has been indirect in the form of refinancing of loans and the State Financial Corporation’s (SFCs).
• In order to assist the small scale sector, the IDBI has set up Small Industries Development Fund (SIDF) in May 1986. This fund basically aims at providing a focal point to co-ordinate financial and non-financial inputs required for growth of small industries sector.
• In association with Government of India, IDB1 has constituted National Equity Fund (NEF) to prevail equity type of support to tiny and small scale units which are engaged in manufacturing activities. The scheme is administered by IDBI through nationalized banks.
• The IDBI has also introduced the single window assistance ‘scheme for grant of term loans and working capital assistance to tiny, small and medium scale enterprises.
• The IDBI has also set up a Voluntary Executive Corporation Cell (VECC) to use the services of experts, professionals for counseling small units and for providing consultancy support in specified areas.

Formation of Industrial Development Bank of India (IDBI):-

The Industrial Development Bank of India (IDBI) was established in 1964 under an Act of Parliament as a wholly owned subsidiary of the Reserve Bank of India. In 1976, the ownership of IDBI was transferred to the Government of India and it was made the principal financial institution for coordinating the activities of institutions engaged in financing, promoting and developing industry in India. IDBI provided financial assistance, both in rupee and foreign currencies, for green-field projects as also for expansion, modernization and diversification purposes. In the wake of financial sector reforms unveiled by the government since 1992, IDBI also provided indirect financial assistance by way of refinancing of loans extended by State-level financial institutions and banks and by way of rediscounting of bills of exchange arising out of sale of indigenous machinery on deferred payment terms. After the public issue of IDBI in July 1995, the Government shareholding in the Bank came down from 100% to 75%. IDBI played a pioneering role, particularly in the pre-reform era (1964–91), in catalyzing broad based industrial development in India in keeping with its Government-ordained ‘development banking’ charter. Some of the institutions built with the support of IDBI are the Securities and Exchange Board of India (SEBI), National Stock Exchange of India (NSE), the National Securities Depository Limited (NSDL), the Stock Holding Corporation of India Limited (SHCIL), the Credit Analysis & Research Ltd, the Exim Bank (India), the Small Industries Development Bank of India (SIDBI) and the Entrepreneurship Development Institute of India.

Conversion of IDBI into a commercial bank:-

A committee formed by RBI under chairmanship of S.H.Khan recommended the development financial institution (IDBI) to diversify its activity and harmonies the role of development financing and banking activities by getting away from the conventional distinction between commercial banking and developmental banking. To keep up with reforms in financial sector, IDBI reshaped its role from a development finance institution to a commercial institution. With the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003, IDBI attained the status of a limited company viz., IDBI Ltd. Subsequently, in September 2004, the Reserve Bank of India incorporated IDBI as a 'scheduled bank' under the RBI Act, 1934. Consequently, IDBI, formally entered the portals of banking business as IDBI Ltd. from 1 October 2004. The commercial banking arm, IDBI BANK, was merged into IDBI in 2005.

Acquisition of United Western Bank:- In 2006, IDBI Bank acquired United Western Bank Satara in a rescue. By acquiring UWB, IDBI Bank more than doubled the number of its branches from 195 to 425. Listings and shareholding IDBI Bank's equity shares are listed on Bombay Stock Exchange and the National Stock Exchange of India. As on 31 March 2014, Government of India held 76.72% shares in IDBI Bank. Over 4 lakh public shareholders owned 8.75% of its shares. Insurance companies held approx. 12.32% of the shares while remaining 7.21% shares were held by others.

Employees:- As on 31 March 2013, the bank had 15,465 employees, out of which 197 were employees with disabilities the average age of bank employees on the same date was 33 years. The bank reported business of INR 25.64 crores per employee and net profit of INR 12.17 lakhs per employee during the FY 2012-13.The Company incurred INR 1,538 crores towards employee benefit expenses during the same financial year. Awards and recognition:-

• IDBI Bank was ranked #1197 in the Forbes Global 2000 in May 2013.
• It received the 'Overall Best Bank' and 'Best Public Sector Bank' awards in the Dun & Bradstreet Banking Awards, 2011.
• In 2011, it received Banking Technology awards for best use of Business Intelligence and the best Risk Management from Indian Banks Association.

Industrial Finance Corporation of India Ltd (IFCI):

The Industrial Finance Corporation of India was set up by the Government of India under IFCI Act in July 1948. It is an important financial institution which gives financial assistance to the entrepreneurs through rupee and foreign currency loans, underwriting, direct subscriptions to shares, debentures and guarantees. It also extends other financial facilities like equipment procurement, equipment finance, buyer’s and supplier’s credit, equipment leasing and finance to leasing and hire-purchase companies.

The IFCI has devised new promotional schemes such as:-

• Consultancy fees, subsidy schemes for assisting small scale entrepreneurs in marketing sector.
• Interest subsidy schemes for women entrepreneurs.
• Pollution control in small and medium scale enterprises.
• Encouraging the modernization of tiny, small and medium scale industries

Small Industries Development Bank of India (SIDBI):

SIDBI was set up in April 1990 as a wholly owned subsidiary of IDBI (Industrial Development Bank of India) to provide financial assistance to the entrepreneurs under an Act of the Parliament, namely Small Industries Development Bank of India Act 1989. The Bank has been delinked from IDBI with effect from March 27, 2002. The Bank caters all SSIs –tiny, village and cottage—through its Head Official at Lucknow.

Channels of SIDBI’s Assistance:

Indirect Finance:

By way of refinance and bills discounting through more than 901 primary lending institutions having over 65000 outlets across the country.

Direct Finance:

Direct finance is given through SIDBI’s own 38 offices by means of several tailor-made schemes to reach assistance to specific target groups.

Promotional and Development Activities:

Involving accredited Non-Government organizations voluntary organizations, Scientific and Research Institutions, Technology Institutions, Management Institutions, etc. Thus SIDBI is the principle financial institution for promotion, financing and development of small scale industries in India. It co-ordinates functions of existing institutions engaged in similar activities. Accordingly, SIDBI has taken over the responsibility of administering Small industries Development Fund and nation Equity fund which were earlier administered by IDBI.

Functions of SIDBI:

• To initiate steps for technological up-gradation and modernization of existing units.
• To expand the cannels for marketing the products of SSI sector in domestic and international markets.
• To promote employment oriented industries especially in semi- urban areas to create employment opportunities and thereby checking migration of people to urban areas.
• To refinance loans and advances extended by the primary lending institutions to SSI units and also provides resources to them.
• To discount and rediscount bills arising from sale of machinery to or manufactured by industrial units in the SSI sector.
• To provide services like leasing, factoring etc. to industrial concerns in the SSI sector
• To expand financial support to State Small Industries Development Corporation for providing scare raw-materials to industrial units in SSI sector.
• To grant loan and advances to any person engaged in exporting or executing any turnkey project abroad.
• To subscribe to or purchasing stocks and shares, bonds and debentures of any state /financial Corporations.

Scope of SIDBI:

The SIDBI covers all industrial undertakings like any concern engaged in business activities and which is regarded as a small scale undertaking under Section 11-B of the Industrial Development and Regulation Act, 1951. The following business activities undertaken by small scale sector are covered under the scope of SIDBI:

• The manufacturing preservation or processing of goods;
• Shipping industry;
• Mining industry;
• Hotel industry
• Transport of passengers or goods by road/water/air;
• Generation or distribution of electricity or any other form of power;
• Maintenance, repair, testing or servicing of machinery of any description or vehicle or vessels or motor boats or trailers or tractors;
• Assembling, repairing or packing any article with the aid of machinery or power;
• The development of any contiguous area of land as an Industrial Estate;
• Fishing or providing stores facilities for fishing or maintenance thereof;
• Providing special or technical knowledge or other services for the promotion of industrial growth; or
• The research and development of any process or product in relation to any of the matters aforesaid.
• The financial assistance of SIDBI is channelized through the existing credit delivery system comprising SFC, State Industrial Development Corporation, Commercial Banks and DRRBs.

National Small Industries Corporation Ltd (NSIC)

National Small Industries Corporation Limited (NSIC) is a PSU established by the Government of India in 1955. It falls under Ministry of Micro, Small & Medium Enterprises of India. It was established in 1955 to promote and develop micro and smalls scale industries and enterprises in the country. It was originally founded as a Government of India agency later made into a fully owned government corporation. It is an ISO 9001-2008 certified Government of India Enterprise under Ministry of Micro, Small and Medium Enterprises (MSME). NSIC operates through countrywide network of offices and Technical Centres in the Country. To manage operations in African countries, NSIC operates from its office in Johannesburg, South Africa. In addition, NSIC has set up Training cum Incubation Centre & with a large professional manpower; NSIC provides a package of services as per the needs of MSME sector. Functions of National Small Industries Corporation Ltd. (NSIC) The Head office of NSIC is situated at New Delhi with four regional offices at New Delhi, Mumbai, Kolkata and Chennai and eleven branch offices at important cities spread over the entire country.

They provide a wide range of services mostly promotional in character to small scale industries. The important functions NSIC performs are grouped as under:

• Provides financial assistance by way of hire-purchase scheme for purchase of machinery and equipment, required for the setting up industries.
• Provides various equipments on lease basis.
• Assists in marketing of the products of SSIs.
• Helps in exporting the product of SSIs.
• Provides training to workers of SSIs in various trades.
• Helps in the development and up gradation of technology and modernization of the industries.
• Undertakes construction of industrial estates.
• Purchases huge quantity of important raw materials and distribute the same to SSIs at reasonable rates.
• Develops prototype machines and equipments to pass on to SSIs for commercial production.
• Sets up small scale industries in other developing countries on turn-key basis. So in the above way NSIC plays a prominent role for the development of entrepreneurship as well as industrialization, in the country.

Regional Rural Banks (RRBS)

Regional Rural Banks are local level banking organizations operating in different States of India. They have been created with a view to serve primarily the rural areas of India with basic banking and financial services. However, RRB's may have branches set up for urban operations and their area of operation may include urban areas too. Regional Rural Banks were established under the provisions of an Ordinance passed on 26 September 1975 and the RRB Act. 1976 to provide sufficient banking and credit facility for agriculture and other rural sectors. These were set up on the recommendations of the Narasimham Working Group during the tenure of Indira Gandhi's government with a view to include rural areas into economic mainstream since that time about 70% of the Indian Population was of Rural Orientation. The development process of RRBs started on 2 October 1975 with the forming of the first RRB, the Prathama Bank. Also on 2 October 1976 five regional rural banks were set up with a total authorised capital of Rs. 100 crore ($10 Million) which later augmented to 500 crore ($50 Million).

Structure and Organisation of the RRB:

The authorised capital of an RRB is fixed at Rs. 1 crore and its issued capital at Rs. 2 lakhs. Of the issued capital, 50 per cent is to be subscribed by the Central Government, 15 per cent by the concerned State Government and the rest 35 per cent by the sponsoring bank. The working and affairs of the RRB are directed and managed by a Board of Directors consists of a Chairman, three directors to be nominated by the Central Government, and not more than two directors to be nominated by the State Government concerned, and not more than 3 directors to be nominated by the sponsoring bank. The chairman is appointed by the Central Government and his term of office does not exceed five years.

Functions of the RRB:

• Granting of loans and advances to small and marginal farmers and agricultural labourers, whether individually or in groups, and to co-operative societies, agricultural processing societies, co-operative farming societies, primarily for agricultural purposes or for agricultural operations and other related purposes;
• Granting of loans and advances to artisans, small entrepreneurs and persons of small means engaged in trade, commerce and industry or other productive activities within its area of co-operation; and
• Accepting deposits.

State Financial Corporations (SFCS):

IFCI provides financial assistance only to large sized industrial undertakings. In order to cater to the needs of the small scale units, the Government of India passed the State Financial Corporations Act in 1951 under which the State Financial Corporation’s (SFCs) were set up. The first SFC was set up in Punjab in 1953. Today, there are 18 SFCs functioning in the country. State Financial Corporations are managed by a Managing Director, Board of Directors and the Executive Committee is headed by a chairman. The functions of SFCs are as follows

• To advance term loans to small scale and medium scale industrial units.
• It underwrites the issue of stocks, shares, debentures and bonds of industrial units.
• It grants loans to the industrial concerns which is repayable within a period not more than 20 years.
• It subscribes to debentures floated by industrial concerns.
• It provides financial assistance to small road transport operators, tour operators, hoteliers, hospitals, nursing homes, etc.

State Industrial Development Corporations (SIDCS)

The State Industrial Development Corporations have been set up by the State Governments as companies wholly owned by them. At present, 22 such SIDCs are functioning in India. SIDCs are not merely financing agencies, but are intended to act as instruments for accelerating the pace of industrialization in the respective States. Besides providing financial assistance to industrial concerns by way of loans, guarantees and underwriting of or direct subscriptions to shares and debentures, the SIDCs undertake various promotional activities such as conducting techno-economic surveys, project identification, preparation of feasibility studies, selection and training of entrepreneurs. They also promote joint sector projects in association with private promoters. In such projects SIDCs take 26% private co-promoter takes 25% of the equity and the rest are offered to the investing public. SIDCs also undertake the development of industrial areas, construction of sheds and provision of infrastructural facilities .and also the development of new growth centers. They also administer various State Government incentive schemes.

The IDBI grants refinance to SIDCs also against the term loans provided by them. SIDCs also borrow by way of bonds and from the Government and ac¬cept deposits to augment their resources.

Small Industries Development Organization (SIDO) is a subordinate office of the Department of SSI & Auxiliary and Rural Industry (ARI). It is an apex body and nodal agency for formulating, coordinating and monitoring the policies and programmes for promotion and development of small-scale industries.

Development Commissioner is the head of the SIDO. He is assisted by various directors and advisers in evolving and implementing various programmes of training and management, consultancy, industrial investigation, possibilities for development of different types of small-scale industries, industrial estates, etc.

The main functions of the SIDO are classified into:

(i) Co-ordination,

(ii) Industrial development, and

(iii) Extension.

These functions are performed through a national network of institutions and associated agencies created for specific functions. At present, the SIDO functions through 27 offices, 31 Small Industries Service Institutes (SISI), 37 Extension Centres, 3 Product-cum -Process Development Centres, and 4 Production Centres.

All small-scale industries except those falling within the specialized boards and agencies like Khadi and Village Industries (KVI), Coir Boards, Central Silk Board, etc., fall under the purview of the SIDO.

The main functions performed by the SIDO in each of its three categories of functions are:

Functions Relating to Co-ordination:

a. To evolve a national policy for the development of small-scale industries,

b. To co-ordinate the policies and programmes of various State Governments,

c. To maintain a proper liaison with the related Central Ministries, Planning Commission, State Governments, Financial Institutions etc., and

d. To co-ordinate the programmes for the development of industrial estates.

Functions Relating to Industrial Development:

a. To reserve items for production by small-scale industries,

b. To collect data on consumer items imported and then, encourage the setting of industrial units to produce these items by giving coordinated assistance,

c. To render required support for the development of ancillary units, and

d. To encourage small-scale industries to actively participate in Government Stores Purchase Program by giving them necessary guidance, market advice, and assistance.

Function Relating to Extension:

a. To make provision to technical services for improving technical process, production planning, selecting appropriate machinery, and preparing factory lay-out and design,

b. To provide consultancy and training services to strengthen the competitive ability of small-scale industries.

c. To render marketing assistance to small-scale industries to effectively sell their products, and

d. To provide assistance in economic investigation and information to small- scale industries.

Small Industries Service Institute (SISI)

At the heart of all agencies dealing with development of small industry is small industries development organization, SIDO. It was originally know as central small industries organization (CSIO). Attached to the ministry, SIDO administers small industries service institute (SISI’s).

The small industries service institutes (SISI’s) are set-up one in each state to provide consultancy and training to small and prospective entrepreneurs. The activities of SISs are co-ordinate by the industrial management training division of the DC, SSI office (New Delhi). In all there are 28 SISI’s and 30 Branch SISI’s set up in state capitals and other places all over the country. SISI has wide spectrum of technological, management and administrative tasks to perform. Functions of SISI:-

• To assist existing and prospective entrepreneurs through technical and managerial counseling such as help in selecting the appropriate machinery and equipment, adoption of recognized standards of testing, quality performance etc;
• Conducting EDPs all over the country;
• To advise the Central and State governments on policy matters relating to small industry development;
• To assist in testing of raw materials and products of SSIs, their inspection and quality control;
• To provide market information to the SISI’s;
• To recommend SSI’s for financial assistance from financial institutions;
• To enlist entrepreneurs for partition in Government stores purchase programme;
• Conduct economic and technical surveys and prepare techno- economic feasible reports for selected areas and industries.
• Identify the potential for ancillary development through sub-contract exchange
• Organize seminars, Workshops and Industries Clinics for the benefit of entrepreneurs.