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ENTERPRENEURSHIP DEVELOPMENT (18MBA26)

II SEMESTER

UNIT – 3 INSTITUTIONS SUPPORTING ENTREPRENEURS (Syllabus: Institutions Supporting Entrepreneurs: Small industry financing developing countries - A brief overview of financial institutions in India - Central level and state level institutions - SIDBI - NABARD - IDBI - SIDCO - Indian Institute of Entrepreneurship - DIC Single Window - Latest Industrial Policy of Government of India.) Introduction:

Financial sectors play an indispensible role in the overall development of a country. The most important constituents of this sector is the financial institutions which acts as a conduit for the transfer of the resource from the net saver to net borrowers, i.e, from those who spends less than their earnings to those who spend more than their earnings. Financial institutions have traditionally have been the major source of long term funds for the economy. These institutions provides a variety of financial products and services to fulfil the varied needs of the commercial sector. Besides they provide the assistance to the new enterprises, small and medium firms as well as to the industries established in backward areas. Thus, they have helped in reducing regional disparities by inducing widespread industrial development. The government of India in order to provide the adequate supply of credit to the various sectors of the economy has evolved a well developed structure of financial institutions in the country. These financial institutions can be broadly categorised into all India Institutes, State Level Institutions, depending upon the geographical coverage of their operations. Small Industry Financing Developing - An Overview: Small industry is a term usually used for companies operating on relatively smaller establishment. The definition of small scale industries differs from country to country but usually it is based on the index of investment in plant & Machinery. In India, if the investment in plant and machinery is up to 1 crores then it is called small scale industry. The Indian experience is that small scale industry not only helped industrialization faster from the point of capital accumulation it was best suited for the economy. In fact small is beautiful was the saying coined in relation to small scale industries in India. Perhaps for underdeveloped countries and developing countries rapid industrialization should be possible with encouragement to small and medium scale enterprises that require capital affordable & there is ease of administration. Even the experience elsewhere in the World seems to be so. Importance of small scale industries has been realized by one all. They not only help in providing employment opportunities to many, but also help in balanced regional development. They help in development of entrepreneurship, in developing local resources and in decentralization of the industry and hence lead to equitable distribution of income & health. Since small scale industries are usually run by an entrepreneur alone or small group of entrepreneurs and hence availability of finance is a matter of concern for them. These entrepreneurs face the problems of insufficient ownership capital to start up and run a business enterprise. They usually adapt the following measure to overcome the problem of insufficiency of funds: Rent a building, Purchase of second hand machinery, keep inventory level low, seek cash sales, hire machinery, substitute equipments by labour, etc Compiled by Prof. ShivKumar, DOMS, MITM

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Though all the above mentioned methods reduce the requirement of capital but they further create problems in their own unique way. Hence the lack of availability of finance affects the growth & development of small scale industries. In a developing country like India, SSI plays a vital role and hence a prominent place in the five year economic plans. In conformity with the plans, SSI’s have been given the privilege of priority sectors of the economy and have received active encouragement from the government, banks and financial institutions. A Brief Overview of Financial Institutions in India: It is well known that resources are the key inputs of development. Here the input denotes all those that go into running a business enterprise which includes finance, human resource, technical know-how, and infrastructure and so on. Of these, finance plays an important role. Here the finance is termed as “Development Finance” & the institutions that caters to the needs of this vital input is termed as Industrial Development Institutions which besides finance many a time extend professional, promotional & such other assistance of vital need that results in; (i) Rapid growth in outputs, (ii) Change in the structure of the economy, and (iii) Accelerated over all socio-economic growth. Economic development is achieved by increasing the inputs of resources and the productivity of those inputs i.e., resources. Productivity enhances the recycling of resources in an accelerated manner. The Government Of India (GOI) ever since it passed the Industrial Resolution 1956 has made it a point to promote development institutions. While more emphasis was given to agricultural development institutions in the first economic planning, the second five year economic planning laid emphasis on industrial finance institutions. Depending upon the nature of the activity, the entrepreneurs require three types of finance viz., short-term, medium-term and long-term finances. Accordingly financial institutions are developed on those lines. Accordingly they are: (a) Central Level Institutions - SIDBI, NABARD, IDBI, SIDO, IIE, NISIET, EDII, NIESBUD (b) State Level Institutions - SFC, SIDC/SIIC, SSIDC, DI, DIC Central Level Institutes:           

SIDBI NABARD IDBI SIDO IIE NISIET EDII NIESBUD NPC KVIC NSIC

- Small Industries Development Bank of India (SIDBI) - National Bank for Agriculture & Rural Development - Industrial Development Bank of India - Small Industries Development Organization. - Indian Institute if Entrepreneurship - National Institute of Small Industry Extension & Training. - Entrepreneurship Development Institute of India - National Institute of Entrepreneurship and Small Business Development - National Productivity Council - Kadhi and Village Industries Commission - National Small Industries Corporation Ltd.

Compiled by Prof. ShivKumar, DOMS, MITM

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State Level Institutes: - State Finance Corporation  SFC  SIDC/SIIC - State Industrial Development/Investment Corporation  SSIDC - State Small Industrial Development Corporation - Directorate of Industries  DIs  DIC - District Industries Centre Others:  HUDCO -Housing and Urban Development Corporation Ltd.  TCOs -Technical Consultancy Organisations  NGO’s -Non-Governmental Organisations  -Export Promotion Councils  -Scheme of Micro Finance Programme  Industriy Associaltion like – (CII) Confederation of India Industry, (FICCI) Federation of Indian Chambers of Commerce and Industry, (ACCI) Association Chamber of Commerce and Industry of India (ASSOCHAM), PHD Chamber of Commerce and Industry (PHDCCI), Federation of Indian Exporters Organisation (FIEO), World Association for Small & Medium Enterprises (WASME), Federation of Association of Small Industries of India (FASII), Laghu Udyog Bharati (LUB), Indian Council of Small Industries (ICSI), Council of Scientific & Industrial Research ( CSIR), Venture Capital etc. A Brief Overview of Financial Institution in India Central Level Financial Aid Non-Financial Aid SIDBI IIE NABARD NISIET IDBI EDII SIDO NIESBUD

State Level Financial Aid Non-Financial Aid SFCs DIs SIDCs/SIICs DIC SSIDCs AIC HHC Others / Both Central & State NABARD HUDCO, TCO, NGOs

Small Industries Development Bank of India (SIDBI): Many financial institutions provide financial support to small-scale entrepreneurs. But the flow of credit was not to the expected level. To ensure larger flow of financial and non-financial assistance to small- scale sector, the Government of India set up the Small Industries Development Bank of India by an Act of Parliament in October 1989 as a whollyowned subsidiary of the IDBI. SIDBI commenced its operations from April 1990. Its head office is in Lucknow. The authorized capital of SIDBI is Rs.250 crores with a provisional to increase it to Rs.1000 crore.

Compiled by Prof. ShivKumar, DOMS, MITM

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SIDBI is the apex bank at the national level for promotion, financing and development of industries in the small-scale sector. It provides financial assistance to smallscale units directly and through State Financial Corporation, State Industries Development Corporations, Commercial Banks and Regional Rural Banks. Objectives of SIDBI: Following are the objectives of the SIDBI  Promotion,  Financing,  Development of Industry in the small scale sector,  Co-coordinating the functions of other institutions engaged in similar activities, Since its inceptions, SIDBI has been assisting the SSI Sector including the tiny, village and cottage industries through suitable schemes tailored to meet the requirement of setting up of new projects, expansion, diversification, modernization and rehabilitation of existing units. Domain of Service: The small scale industries (SSIs) sector is a vibrant & dynamic sector of Indian economy. The sector presently occupies place and its contribution in terms of generation of employment; output and exports are quite significant. The small sale Industries sector including tiny units comprises the domain of SIDBI’s business. Besides, the projects in services sectors with total cost of Rs 250 million are also taken with in the area of SIDBI’s operation. The bank also finances industrial infrastructure projects for the development of SSI sectors. Type of Assistance / Business Domain of SIDBI : The business domain of SIDBI consists of small-scale industrial units , which contribute significantly to the national economy in terms of production, employment and exports. (Small scale industries are the industrial units in which the investment in plant and machinery does not exceed Rs.1 crore.) SIDBI’s schemes are as follows: A. Schemes of Refinance Assistance 1. Schemes for setting up SSI units – Cost of projects not to exceed Rs. 300 lakhs. 2. Composite loan scheme (Cottage, Tiny and Village industries) – The loan limit not to exceed Rs. 50,000 repayable with in 7-8-1/2 years. 3. Scheme for SC/ST and physically handicapped persons – Loan limit not to exceed Rs. 50,000. This scheme is meant for cottage, tiny and village industries. 4. Schemes for acquisition of: (a) In-house quality control facilities – Loan not to exceed Rs. 7.5 lakh. (b) Diesel generating sets and pollution control equipment – The loan limit is need based. (c) Computers – Loans limit not to exceed Rs. 5 lakhs. (d) For indigenization /import substitution – Loan limit not to exceed Rs. 5 lakhs per annum. (e) For manufacturing and installation of renewable energy/ energy savings Compiled by Prof. ShivKumar, DOMS, MITM

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systems – Loan limit is need based. 5. Equipment refinance scheme – Operated through SFCs /twin function SIDCs. Loan limit is need based. 6. Scheme for Small Road Transport Operations – Loan limit is need based. 7. Scheme for professionals – The cost of the project should not exceed Rs. 10 lakhs and cost of land and building not to exceed 50% of total outlay. 8. Schemes for Marketing Activities: (a) Scheme for marketing organizations – Cost of project not to exceed Rs. 25 lakhs. Down payment of at least 50% of value of goods purchased. (b) Scheme for purchase of mobile sales vans – Loans limit not to exceed Rs. 3 lakhs per vehicle. 9. Scheme for medical profession: (a) Scheme for Hospital / Nursing Homes – Cost of project not to exceed Rs. 45 lakhs. (b) Schemes for acquisition of Electro – medical and other equipment – Cost of equipment not to exceed Rs. 60 lakhs. 10. Schemes for Tourism related activities – Cost of project not to exceed Rs. 45 lakhs. 11. Schemes for hotel and restaurant projects – Cost of project not to exceed Rs. 45 lakhs. 12. Schemes for Infrastructure Development: (a) Scheme for setting up Industrial Estates – Cost of project not to exceed Rs. 300 lakhs. (b) Scheme for development, maintenance and construction of roads – The loan limit is need based. 13. Equity type Assistance schemes: (a) Seed capital scheme – scheme operated through SFCs/ SIDCs. The soft loan limit is 10% of the project cost subject to a maximum of Rs. 15 lakhs. The loan carries a nominal service charge @ 1 % p.a. for the first 5 years and there after interest @ 10%. (b) National Equity Fund Scheme – Cost of the project not to exceed Rs. 10 lakhs. The soft loan limit is up to 15% of the project cost subject to a maximum of Rs. 1.5 lakh per project with service charge @ 1% p.a. 14. Scheme for Women Entrepreneurs (a) Mahila Udyam Nidhi Scheme – Scheme operated through SFCs/ SIDCs. Cost of the project not to exceed Rs. 10 lakhs. The soft loan limit is up to 15% of the project cost subject to a maximum of Rs. 1.5 lakh per project with a service charge @ 1% p.a. (b) Scheme for Women Entrepreneur – For training and extension services support to the women entrepreneurs. 15. Special scheme for assistance to Ex–servicemen – Scheme operated through SFCs/twin function SIDCs. The cost of the project not to exceed Rs. 15 lakhs to meet gap in equity subject to a maximum of Rs. 2.25 lakh per project @ 1% p.a. service charge. 16. Single window scheme – operated through SFCs/ twin function SIDCs/ Scheduled Commercial Banks. – Cost of project not to exceed Rs. 20 lakhs and total working capital requirement not to exceed Rs. 10 lakhs. Compiled by Prof. ShivKumar, DOMS, MITM

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Scheme of Direct Assistance: 1. Scheme for specialized marketing agencies – Cost of project between Rs. 25 lakhs and Rs. 300 lakhs, with a Debt – Equity Ratio of 2:1. Down payment of 7080% of value of goods purchased. 2. Schemes for Ancillary/Sub-contracting units – Cost of the project is need based and proposals for assistances are to be recommended by the Mother unit. 3. Schemes for Development of Industrial Areas for SSI Sector. (a) Eligible borrowers are SIDC’s/ SSIDC’s and cost of project not to exceed Rs. 300 lakhs. (b) For development of village industrial areas / estate for VSI units – Cost of project to need based. Bills Schemes: 1. Bills Rediscounting scheme (Normal) – Minimum down payment 10% and usances of bills are normally 5 years. (usance of bills means : A Bill of Exchange calling for payment at a fixed or determinable future time.) 2. Bills Rediscounting scheme (short term) – Unexpired usance not more than 90 days. Both schemes are operated by scheduled commercial banks. 3. Bills Rediscounting scheme (Normal) - Minimum down payment is 10%. Usance of bills is normally 5 years and minimum transaction value is Rs. 1 lakh.

National Bank for Agriculture & Rural Development (NABARD): National Bank for Agriculture & Rural Development (NABARD) came into Existence th on 12 July 1982 by an act of Parliament. Its objective is providing focused and undivided attention to the development of rural India. NABARD mission statement underscores “to promote sustainable & equitable agricultural & rural prosperity through effective support, related services, institution development and other innovative initiatives.” NABARD at present has 28 regional offices at the state capitals, a sub-office at Port Blair and 376 district development offices. NABARD is an apex institution accredited with all matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas. It is an apex refinancing agency for the institutions providing investment and production credit for promoting the various developmental activities in rural areas. It takes measures towards institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc. It co- ordinates the rural financing activities of all the institutions engaged in developmental work at the field level and maintains liaison with Government of India, State Governments, Reserve Bank of India and other national level institutions concerned with policy formulation. It also prepares, on annual basis, rural credit plans for all districts in the country; these plans form the base for annual credit plans of all rural financial institutions. It further undertakes monitoring and evaluation of projects refinanced by it. It promotes research in the fields of rural banking, agriculture and rural development. In other words, NABARD Was started with an authorized share capital of Rs.500 crores and paid up capital of Rs.100 crores. The Reserve Bank of India (RBI) contributed 50% of the share capital while the remaining 50% was contributed by Government of India Compiled by Prof. ShivKumar, DOMS, MITM

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(GOI). The RBI transferred the National Agricultural Credit (long term operations) Fund to NABARD. In order to use the same for National Rural Credit. The main functions of NABARD are: To provide for the short term medium term and long term credits to state co-operative banks, regional rural banks, land development banks and other financial institutions approved by RBI. (ii) To grant long term loans to the state government for subscribing to the share capital of cooperative societies, (iii) To give loans to the approved institutions to invest in securities or to contribute to share capital of institutions engaged in agricultural and rural development. (iv) To co-ordinate the activities of central and state governments other all India and state level institutions engaged in the development of small scale industry, village industry and rural crafts. (v) To inspect the Co-operative Banks, Regional Rural Banks and Co-operative societies, (vi) To promote research in agriculture and rural development and (vii) To serve as a refinancing agency for the institutions providing finance to rural and agricultural development.

(i)

NABARD has introduced several innovations in the rural credit domain: (a) Self Help Groups: More famously called as SHG are a group of homogeneous members who voluntarily collaborate mainly to overcome financial difficulties. With the modest beginning of just 500 SHGs in 1992, the programme boasts of as many as 6,20,109 groups in the year 2005-06 alone. (b) Rural Infrastructure Development Fund: It is very important to have proper infrastructure for agriculture, industrial and overall economic development. Moreover infrastructure also provides basic amenities that improve the quality of life of people at large. NABARD has sanctioned funds under RIDF for improvement of rural connectivity through road network & bridges, power, development of social sector. (c) Watershed Development: With the entire country facing the problems of water scarcity, NABARD was engaged in perfecting its experiments in creating a sustainable cost effective solution to the water harvesting techniques in rural India. (d) Tribal Development & WADI Approach: With over 8% of the population comprising tribals largely dependent on forests, livestock and agriculture, NABARD found a holistic approach by addressing production, processing and marketing of the produce with WADI as the core of the programme. (e) Attracting youth to rural non-farm sector: NABARD has formulated several schemes like Assistance to Rural Women in Non-Farm Development (ARWIND), Assistance for Marketing of Non-Farm Produc...