IntroductionSmall Industries Development Bank of India (SIDBI) was established in

April 1990 under an Act of Indian Parliament as the principal financial institution for:

Promotion Financing Development of industry in the small scale sector Co-ordinating the functions of other institutions engaged in similar

activities

SIDBI has completed 12 years of service to the small-scale sector. Consequent upon, amendment in the SIDBI Act, the Bank has been delinked from SIDBI with effect from March 27, 2000. The SIDBI (Amendment) Act, 2000 has changed the provisions relating to capital structure, share holding pattern, management, business, borrowings, etc.The authorized capital of the Bank has been increased from Rs.4.5 billion To Rs.10 billion, divided into 750 million equity shares of Rs.10/- each and Rs.250 million redeemable preference shares of Rs.10/- each. The amended Act provides for divesting of 51% of the equity share capital of Rs.4.5 billion Subscribed and held by IDBI in favour of Life Insurance Corporation of India, General Insurance Corporation of India, Public Sector Banks and other Institutions owned or controlled by the Government of India. Presently, shares of the Bank are held by 36 such Institutions. While IDBI continues to be the single largest shareholder of SIDBI, the State Bank of India and Life Insurance Corporation of India follow as the next two large shareholders in that order.

Since its inception, SIDBI has been assisting the entire spectrum of 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.

SIDBI among Top 30 Development Banks of the World

SIDBI retained its position in the top 30 Development Banks of the World in the latest ranking of The Banker, London. As per the

May 2001 issue of The Banker, London SIDBI ranked 25th both in terms of Capital and Assets.

Domain of Service

The Small Scale Industries (SSIs) sector is a vibrant and dynamic sector of the Indian economy. The sector presently occupies an important place and its contribution in terms of generation of employment, output and exports is quite significant. For the purpose of defining an SSI unit in India, the original purchase value of the plant and machinery installed in a unit has been adopted as the sole criterion. The ceiling on investment in plant and machinery has undergone periodical change from time to time since after the introduction of this concept. For a unit to be considered as SSI unit, the current ceiling on investment in plant and machinery is Rs. 10 million (effective December 24, 1999). For a tiny unit, the said ceiling is Rs. 2.5 million. The limit in select sub-sectors, such as, knitwear, hosiery and hand-tools is Rs.50 million. The Small Scale Industries sector including tiny units comprises the domain of SIDBI's business. Besides, the projects in the services sector with total cost upto Rs.250 million are also taken within the area of SIDBI's operations. The Bank also finances industrial infrastructure projects for the development of SSI sector.

Business Domain

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.10 million. About 3.1 million such units, employing 17.2 million persons account for a share of 36 per cent of India's exports and 40 per cent of industrial manufacture. In addition, SIDBI's assistance flows to the transport, health care and tourism sectors and also to the professional and self-employed persons setting up small-sized professional ventures.

Mission

SIDBI’S COMMITMENT

SIDBI is committed to developing a strong, vibrant and responsive small scale sector. This commitment is to be achieved through a variety of means. Principal amongst them is finance. Alongside finance, SIDBI provides appropriate support in the form of promotional and developmental services. SIDBI has been built up as a financially sound, vibrant, forward looking and technically oriented institution and, it intends to sustain this orientation in future. SIDBI intends to provide quality services to its clients, devoid of any systemic and procedural difficulties.

OPERATIONAL EMPHASIS

SIDBI, in its operational strategy, emphasizes:

Enhancement in the flow of financial assistance to SSIs and Enhancement in the capabilities of SSIs at all levels, with focus on

adoption of improved and modern technology.

The small industries sector in India is dominated by a large number of small units. These micro-enterprises require special nurturing. SIDBI has been operating schemes like:

Single Window Scheme and Composite Loan Scheme

To ensure that financial assistance is made available to such units on easy terms and with hassle-free procedures.

It has been a matter of policy in SIDBI to identify the areas of gaps in credit delivery system and fill them through devising appropriate new schemes and implementing them. In the last 9 years, 26 new schemes have been introduced.

SIDBI's assistance now covers:

Equity Term loan (domestic and foreign currency) Working capital

o For inventory o For raw material o Through finance against bills receivables and for intangibles.

The purposes for which SIDBI's assistance is provided include new projects, expansion, diversification, technology upgradation, modernization, quality improvement, environmental management, marketing (domestic and international) and rehabilitation of sick SSIs.

PROMOTIONAL ORIENTATION

Besides financing, SIDBI provides developmental and support services to SSIs under its Promotional and Developmental (P&D) schemes. The focus of such assistance is to ensure:

Enterprise Promotion Human Resource Development Technology Upgradation Environmental and quality management Information Dissemination and Market Promotion

The P&D initiatives of SIDBI have crystallized over the years and are now oriented to serve rural entrepreneurs and youth, particularly women through

programmes to empower them and motivate them to undertake entrepreneurial ventures.

  CHANNELS OF ASSISTANCE

SIDBI's financial assistance to small-scale sector has three major dimensions:

Indirect assistance to Primary Lending Institutions (PLIs);

1.      Direct assistance to small units; and

2.      Development and Services.

1. INDIRECT ASSISTANCE

SIDBI's Schemes of indirect assistance envisages credit to SSIs through a large network of 913 PLIs spread across the country with a network of over 65000 branches. The assistance is provided by way of refinance, bills rediscounting, and resource support in the form of short-term loans/Line of Credit (LoC) in lieu of refinance, etc.

Refinances

     The main objective of SIDBI's refinance schemes is enhancement of flow of credit to the SSI sector and augmenting the resources of PLIs. The Bank provides refinance to PLIs against the term loan granted by them for:

        Setting up of new SSI projects and for expansion, technology upgradation, modernization, quality promotion, diversification by existing units and rehabilitation of sick SSI units.

    Small road transport operators, qualified professionals for self employment, small hospitals and nursing homes, cyber-cafes, marketing, industrial infrastructure to promote hotels and tourism-related activities.

     SIDBI extends Financial Support (Short Term Loans) to scheduled banks in respect of their outstanding portfolio relating to SSI sector

against which no financial support has been availed of from other institutions.

Rediscounting

     In order to help the machinery manufacturers in the SSI sector and to maximize their sales by offering deferred payment credit to the prospective purchaser-users, the Bank operates a Bills Rediscounting Scheme where bills arising out of sale/purchase of machinery discounted by the scheduled commercial banks are rediscounted by SIDBI. Facilities under the scheme are also extended to cover purchases of machinery by Small Scale Industries.

The objective behind SIDBI's direct assistance schemes has been to supplement the efforts of PLIs by identifying the gaps in the existing credit delivery mechanism for Small Scale Industries. Direct assistance is provided under several tailor made schemes through SIDBI's 41 Regional/Branch offices spread across the country.

2. DIRECT ASSISTANCE

Assistance is provided directly for:

Setting up of new SSI units, small hotels, hospitals/nursing homes Technology upgradation and modernization, expansion,

diversification Quality Upgradation/acquiring of ISO - 9000 Series Certification Development of markets for SSI products Development infrastructure of SSI sector Pre-shipment and Post-shipment credit and Export Bill Finance

    Discounting of Bills of manufacturer-seller in SSI sector, selling either equipment or components

Factoring Services.

Products and services

Direct finances:

SIDBI had been providing refinance to State Level Finance Corporations / State Industrial Development Corporations / Banks etc., against their loans granted to small-scale units. Since the formation of SIDBI in April 1990 a need was felt/ representations were made that SIDBI being the principal financial institution for the small sector, should take up the financing of SSI projects directly on a selective basis. It was felt that banks etc., had confined themselves to financing of rather traditional/conventional projects and at times projects with advanced technology/ projects with slightly higher investment outlay etc., were not being supported to the extent required.

Direct credit scheme:

It provides Assistance for various purposes, such as,

     Setting up of a new SSI unit/ service sector unit. Expansion / Diversification/ modernization/ technology upgradation/

quality certification. Any other activity considered relevant to the project. Acquisition of additional machinery / equipment    Meeting working capital requirements including gap in MPBF or

margin on selective basis.  All activities covered under erstwhile marketing assistance scheme for

SSIs.

Technology upgradation fund for textile industries(TUFS):

TUFS has been launched with a view to sustaining as well as improving the competitiveness and overall long-term viability of the textile sector. The scheme intends to provide timely and adequate capital at internationally comparable rates of interest in order to upgrade the textile industry's technology level. Amount of term loan shall be need based but not below

Rs. 10 lakh. For SSI units graduating out of the sector, the amount of loan shall be decided on a case-to-case basis.

Fast tracking financing:

To meet financial requirements of existing clients on a fast track basis for purpose(s) such as acquisition of additional machinery, equipment, miscellaneous fixed assets, undertaking various marketing related activities, quality upgradation and modernization measures, meeting working capital requirements including gap in MPBF or margin or any other purpose considered relevant.

ISO 9000:

To meet the expenses on consultancy, documentation, audit, and certification fee, equipment and calibrating instruments required for obtaining ISO 9000 certification. Existing industrial concerns in the SSI sector having a good record of past performance and sound financial position are eligible for ISO 9000. The objective is to promote quality / management systems in SSI units with a view to strengthening their marketing and export capabilities.

  Development of industrial development infrastructure:

It helps in strengthening of existing industrial clusters / estates by providing increased amenities for smooth working of the industrial units and setting up of warehousing facilities for SSI products / units. Providing support services viz., common utility centres such as convention halls, trade centres, raw material depots, warehousing, tool rooms / testing centres, housing for industrial workers, etc.

Credit linked capital subsidy:

The objective of the scheme is to facilitate technology upgradation of tiny and SSI units in the specified products / sub-sectors as by providing 12% capital subsidy for induction of proven technologies approved under the scheme, viz., leather and leather products including footwear and garments; food processing (including Ice-cream manufacturing);Information and Technology (Hardware); drugs and pharmaceuticals; auto parts and components; electronic industry particularly relating to design and measuring; glass and ceramic items including tiles; dyes and intermediaries;

toys; tyres; hand tools; bicycle parts; foundries - ferrous and cast iron; and stone industry(including Marble Mining Industry).

Bills finance

Receivable financing scheme:

To enable SSI / SME / Eligible Service sector units (including construction / small road transport operators) selling components, parts, sub-assemblies, services Medium & Large scale units realize their sale proceeds quickly.

Direct discounting equipment:

To enable manufacturers - sellers in SSI sector / service sector including construction / selling agents to offer deferred payment terms for credit sales and realize sale proceeds by discounting bills of exchange / promissory notes, arising out of such sales.

Bills rediscounting equipment:

For sale / acquisition of machinery on deferred payment terms for setting up of new SSI units as also for expansion, diversification, modernization, replacement, addition of balancing equipment etc.

Bills rediscounting inland supply bill:

To encourage bills culture as a method of working capital financing so as to ensure timely payment. Trade bills arising out of supply of goods by SSI units and discounted with commercial banks either by the drawer (seller) or the drawee (buyer) are rediscounted by the banks with SIDBI.

Refinance:

General refinance:

For setting up new small scale units or expansion, modernization, diversification etc. of existing units and for all activities eligible for

assistance under the scheme including professional practice/consultancy venture and service sector units such as tourism related activities / hospitals / nursing homes / polyclinics / hotels / restaurants / marketing and industrial infrastructural projects.

National equity fund:

To meet gap in prescribed minimum promoters' contribution and/or in equity small entrepreneurs for setting up new projects in tiny / small-scale sector and rehabilitation of potentially viable sick SSI units irrespective of the location. Existing tiny and small-scale industrial units and service enterprises undertaking expansion, modernization, technology upgradation and diversification can also be considered irrespective of the location.

Mahila Udyan Nidhi:

To meet gap in equity, Women entrepreneurs for setting up new projects in tiny / small-scale sector and rehabilitation of viable sick SSI units. Existing tiny and small scale industrial units & service enterprises [tiny enterprises would include all industrial units and service industries (except Road Transport Operators) satisfying the investment ceiling prescribed for tiny enterprises] undertaking expansion, modernization technology upgradation & diversification can also be considered.

Refinance scheme for textile industries under technology upgradation fund:

To provide encouragement to textile industrial units (including units in the Cotton Ginning and Pressing sectors) in the small scale sector for taking up technology upgradation and to modernize their production facilities. The scheme foresees interest incentive of 5 percentage points on the loans availed by small-scale units from eligible Primary Lending Institutions (PLIs) for undertaking technology upgradation / modernization.

Refinance scheme for acquisition of ISO series certification by SSI units:

Expenses on consultancy, documentation, audit, certification fees, equipment and calibrating instruments required would be taken into account for determining the loan requirement.

Credit linked capital subsidy scheme:

The objective of the scheme is to facilitate technology upgradation of tiny and SSI units in the specified products / sub-sectors as indicated below by providing 12% capital subsidy for induction of proven technologies approved under the scheme, viz., leather and leather products including footwear and garments; food processing (including Ice-cream manufacturing);Information and Technology (Hardware); drugs and pharmaceuticals; auto parts and components; electronic industry particularly relating to design and measuring; glass and ceramic items including tiles, dyes and intermediaries, toys, tyres, hand tools, bicycle parts, foundries - ferrous and cast iron; and stone industry   (including Marble Mining Industry).

  Composite loan scheme:

Assistance is provided for equipment and working capital as also for work Sheds Artisans, village and cottage industries and small industries in tiny sector.

Self-employed for ex servicemen scheme:

Helps in setting up small industrial projects including service industries and specified transport activities, which are eligible for finance as per SSI norms. Ex–servicemen(including widows of ex-servicemen) sponsored by Director General (Resettlement), Ministry of Defence, Government of India.

Single window scheme:

To provide both term loan for fixed assets and loan for working capital through the same agency. The total working capital requirement of such units inclusive of all fund-based facilities may be taken into account for determining the working capital facility eligible for refinance.

Refinance scheme for rehabilitation of sick industrial units:

It helps in providing assistance for rehabilitation of potentially viable sick units. Potentially viable SSI units including units in cottage and village industries and in tiny sector, conforming to definition of sick SSI unit as prescribed in RBI guidelines. The assistance is meant for sick SSI units for which proper rehabilitation packages have been drawn up. Units eligible for rehabilitation assistance should be capable of being restored to normal health within a reasonable time.

International finance scheme:

There are various schemes under it like post shipment finance, pre-shipment finance, foreign currency term loan, opening of foreign letters of credit, line of credit foreign currency, booking of forward contract. The main objective of the various International Finance schemes is to enable small-scale industries to raise finance at internationally competitive rates to fulfil their export commitments.

The financial assistance is being offered in USD and Euro currencies. Assistance in Rupees is also considered, independent of foreign currency limits. SIDBI has a license to deal in foreign exchange as a "restricted" Authorized Dealer (i.e. SIDBI confines its foreign exchange activities only to its own exposures and to exposures for its customers. The Mumbai Head Office (MHO) of SIDBI operates as a Category 'A' branch that maintains foreign currency positions, nostro account with foreign correspondent banks and provides cover to other branches (Category 'B' branches) that carry out forex business. It has a Dealing Room at Mumbai that acts as a central service provider to all branches.

Marketing finance:

Marketing fund for women : The assistance under the Fund is available to women entrepreneurs and organizations involved in marketing of products manufactured by women entrepreneurs to increase their reach, both in domestic and international markets.

  Marketing of SSI products:

        To provide financial assistance to SSI units to undertake various activities necessary to increase their sales turnover in the domestic and export markets. Assistance under the scheme may be availed of for undertaking various marketing related activities such as:

1.      Marketing research.

2.      R & D, product upgradation and standardization.

3.      Preparation of strategic marketing plan

4.      Advertising, branding, catalogue preparation, production of audio-visual aids, etc.

5.      Participation in trade fairs and exhibitions, undertaking sales promotion tours, etc.

6.      Establishing distribution network including showrooms/retail outlets and warehousing facilities.

7.      Training of personnel in activities relevant to marketing etc.

For setting up new showrooms and/or renovation of existing showrooms for marketing predominantly small scale, cottage and village industry products. Such showrooms could be set up within the country or abroad.

Development of infrastructure like permanent exhibition centres, industrial parks e.g. garment and software parks, marketing emporia, design and fashion forecasting studios, auction houses (say for

floriculture products), container depots and container freight stations and trade centres (within India and abroad) Such infrastructural projects should largely benefit the small scale, cottage and village industries.

Setting up of facilities for providing marketing support to SSI units, e.g. data bank, libraries, internet services, etc.

Any other activity directed towards promoting the marketing of SSI products in domestic or international markets.

Micro credit:

SIDBI, an apex financial institution for promotion, financing and development of small-scale industries in India, has launched a major project christened "SIDBI Foundation for Micro Credit" (SFMC) as a proactive step to facilitate accelerated and orderly growth of the micro finance sector in India. SFMC is envisaged to emerge as the apex wholesaler for micro finance in India providing a complete range of financial and non-financial services such as loan funds, grant support, equity and institution building support to the retailing Micro Finance Institutions (MFIs) so as to facilitate their development into financially sustainable entities, besides developing a network of service providers for the sector. SFMC is also poised to play a significant role in advocating appropriate policies and regulations and to act as a platform for exchange of information across the sector. Operations of SFMC in the next few years are expected to contribute significantly towards development of a more formal, extensive and effective micro finance sector serving the poor in India.

Promotional activities:

Mahila Vikas Nidhi (MVN):

Mahila Vikas Nidhi (MVN) is SIDBI’s specially designed Fund for economic development of women, especially the rural poor, by providing them avenues for training and employment opportunities.

Rural industries programme:

Development of viable and self-sustaining tiny / small enterprises in rural and semi urban India by harnessing local entrepreneurial talent. The Programme attempts to address the problems such as rural unemployment, urban migration and under-utilization of local skills and resources, and is designed as a comprehensive Business Development Services programme. The Rural Industries Programme (RIP) of the Bank provides a cohesive and integrated package of basic inputs like information, motivation, training and credit, backed by appropriate technology and market linkages for the purpose of enterprise promotion.

Entrepreneurship Development Programme:

EDPs aim at training various target groups in entrepreneurial traits so that they obtain adequate information, motivation and guidance in setting up their own enterprises. In order to maintain a homogeneous nature of participating groups, EDPs focus on rural entrepreneurs, women, SC/ST, etc.

SIDBI report on small scale industries-2001

The Small Scale Industries sector, over the years, has grown steadily and occupied an important place in the economy. Contribution of the sector in terms of generation of employment, output and exports is quite significant. The number of registered units in the SSI sector has increased from 0.42 million as at end-March 1974 to 3.37 million at end-March 2001. These numbers are exclusive of the units in the unregistered sector.

The importance of the SSI sector is well recognized from its significant contribution to the socio-economic objectives of growth in generation of employment, output, exports and fostering entrepreneurship. Currently, the sector accounts for around 95 per cent of the industrial units in the country contributing 40 per cent of the manufacturing sector output and approximately one-third of the nation's exports. At the end of March 2001, there were 3.37 million modern SSI units providing direct employment to around 1.86 million persons.

Despite the important role played by SSI sector in the Indian economy, it is rather difficult to obtain authentic and comprehensive information on various facets of the sector from single source. In order to fill the void in information base, SIDBI, the apex financial institution for SSI sector in India, took initiative in bringing out a series of publication viz. 'SIDBI Report on Small Scale Industries Sector' on an annual basis. First two issues of the Report released at the hands of Hon'ble Union Finance Minister has been received well both within the country and at international level. The SIDBI Report on Small Scale Industries Sector 2001 is third issue in the series.

The process of liberalisation and globalization has opened up new vistas for various sectors of the economy as also posed certain challenges. While on the one hand, it expands the scope of cross-border transactions, on the other, the new order holds different perception about protection and safeguards that a global trading system should provide to its members. Both these aspects have significant implications for the Indian economy as a whole and the SSI sector in particular.

With an objective of establishing continuum, the current issue presents updated information on the broad format of previous two issues and adds many new features, including the following important ones:

 

         WTO and SSIs in India

New Policy Package for the SSI sector and Tiny sector Recommendations of Government of India Study Group Report on

Development of Small Enterprises New Package for Khadi and Village Industries Outcome of the Fourth Economic Census conducted by CSO Women Enterprises Prospects and outlook of the SSI sector in India.