msm es and sidbi

We Empower MSME We Empower MSME We Empower MSME We Empower MSME 1

Good Things in life Begin Small

SIDBI


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


An overview of Indian MSME

MSME Sector Contribution to Indian Economy

45% of industrial production 35% share in exports More than 8000 productsOne of the major growth driver of Indian EconomyModel of Socio economic policies of the GoIDevelops appropriate indigenous technology

Second largest sector after agriculture More than 26 million unitsProvides employment to over 59 million


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


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


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


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


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


- 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

MSMEs – Constraint


- Majority Non corporate entities

- Issues of corporate governance

- Financial Discipline

- No transparency.- Lack of professional skills.- No growth strategies.- Marketing- Working Capital

Higher Risk Perception…


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


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


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.


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


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


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


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


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


SIDBI – BackgroundSIDBI – 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.


PRODUCTS & SERVICESPRODUCTS & SERVICES

REFINANCE

WORKING CAPITAL FINANCE

(Fund/ Non-fund)

RECEIVABLE FINANCE

MICRO CREDIT

PROMOTIONAL & DEVELOPMENTAL

ACTIVITIES

TECHNOLOGY UPGRADATION, Energy Efficiency

Clean Environment

RISKCAPITAL

PROJECT FINANCE

Term Loan

SIDBI

One Stop Shop


Indirect FinanceIndirect Finance

Refinance to commercial banks, SFCs, NBFCs, SLIs Refinance to commercial banks, SFCs, NBFCs, SLIs

Bills rediscountingBills rediscounting

Lines of credit to Lines of credit to

State level InstitutionsState level Institutions

Factoring CompaniesFactoring Companies

NBFCsNBFCs

Capacity building of SFCsCapacity building of SFCs

Resource Support to Micro Finance InstitutionsResource Support to Micro Finance Institutions


Direct FinanceDirect Finance

Term Loan / Project loansTerm Loan / Project loans

Working Capital Working Capital

Bills FinanceBills Finance

Non Fund Based FinanceNon Fund Based Finance

Risk CapitalRisk Capital


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

Associated with over 131 MFI partnersAssociated with over 131 MFI partners

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

Extend Capacity Building GrantsExtend Capacity Building Grants

Help transform NGOs/Societies to MFIsHelp transform NGOs/Societies to MFIs

Over 60 lakh beneficiaries Over 60 lakh beneficiaries


DEVELOPMENTAL INITIATIVESDEVELOPMENTAL INITIATIVES

Enterprise PromotionEnterprise Promotion Rural Industries Programme [RIP]Rural Industries Programme [RIP]

Implemented in Implemented in more than 120 districts in 24 more than 120 districts in 24 statesstates

Cumulatively, almost 32,600 units promoted; Cumulatively, almost 32,600 units promoted; Capital formation of over Euro 17 mln and Capital formation of over Euro 17 mln and Employment generation of more than 100 Employment generation of more than 100 thousand persons.thousand persons.

Entrepreneurship Development Programme (EDP)Entrepreneurship Development Programme (EDP) Over 2661 EDPs / Over 66,000 participants Over 2661 EDPs / Over 66,000 participants

trainedtrained

Small Industries Management Programme (SIMAP)Small Industries Management Programme (SIMAP)Non financial services for

MSMEs


DEVELOPMENTAL INITIATIVESDEVELOPMENTAL INITIATIVESEnterprise StrengtheningEnterprise Strengthening Skill-cum-Technology Upgradation Programme Skill-cum-Technology Upgradation Programme

Cluster Development Programme Cluster Development Programme Marketing, technology, permanent exhibition Marketing, technology, permanent exhibition

centres, etc.centres, etc.

North-East Initiative North-East Initiative Micro enterprise loans, MFI activities, Project Micro enterprise loans, MFI activities, Project

profiles and RIPsprofiles and RIPs 10 cluster development programmes have been 10 cluster development programmes have been

sanctioned in the NERsanctioned in the NER Small Loan Scheme for North East at concessional Small Loan Scheme for North East at concessional

rate.rate.Non financial services for

MSMEs


CLUSTER LEVEL INITIATIVESCLUSTER 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..


SIDBI – AssociatesSIDBI – AssociatesCredit Guarantee Fund Trust for Micro and Small Credit Guarantee Fund Trust for Micro and Small

Enterprises (CGTMSE)Enterprises (CGTMSE)

SME Rating Agency of India Ltd. (SMERA)SME Rating Agency of India Ltd. (SMERA)

SIDBI Venture Capital Ltd.SIDBI Venture Capital Ltd. (SVCL) (100% subsidiary)(SVCL) (100% subsidiary)

SIDBI Trusteeship Company Ltd SIDBI Trusteeship Company Ltd (100% subsidiary)(100% subsidiary)

India SME Technology Services Ltd. (ISTSL)India SME Technology Services Ltd. (ISTSL)

India SME Asset Reconstruction Co. Ltd. (ISARC)India SME Asset Reconstruction Co. Ltd. (ISARC)

SFCsSFCs

TCOsTCOs

CO-PROMOTEDCO-PROMOTED – –FACTORING COMPANIESFACTORING COMPANIES- Canbank Factors- Canbank Factors

- SBI Factors- SBI FactorsNorth Eastern Development Finance CorporationNorth Eastern Development Finance CorporationIndian Institute of EntrepreneurshipIndian Institute of EntrepreneurshipSIDBI Conglomerate


Product Innovations

• Working Capital

• Non Fund based Products

• Risk Capital

• Energy Efficiency

• TIFAC


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


Innovative Technology Platforms

• CART

• NTREES

• Working Capital Platform

• MSME Exchange

• MSME Mentors


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


T h a n k Y o u

We Empower MSMEs…

msm es and sidbi

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