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‘CGTMSE best Scheme for Entrepreneurs’

Adi Singh

The small industries development bank of India popularly known as SIDBI is the principal financial institution for the promotion, financing and development of MSMEs in our country. Set up in 1990 as an act of Parliament its paramount for SMEs to understand its activities and more importantly evaluate schemes they can benefit from.
In a chat with ViS the Chief General Manager-Business head, West & South India Mr Ram Nath, shares information on the functioning of SIDBI and how entrepreneurs can take advantage of it.

For a better understanding for all our readers could you please elaborate on how SIDBI lends to the MSMEs. In the sense what is the method followed.
SIDBI was set up on April 2, 1990 under an Act of Indian Parliament and functions as the Principal Financial Institution for the Promotion, Financing and Development of the Micro, Small and Medium Enterprise (MSME) sector and Co-ordination of the functions of the institutions engaged in similar activities. Financial support is provided by way of (a) refinance to eligible Primary Lending Institutions (PLIs) such as banks, State Financial Corporations (SFCs), State Industrial Development Corporations (SIDCs), Micro Finance Institutions (MFIs) etc. for onward lending to MSMEs and (b) direct assistance to MSMEs reaching out to more than 600 MSME clusters.

 What are SIDBIs flagship products and what constitutes the bulk of your lending?
SIDBI is primarily a Refinancing Institution. It provides refinance to augment the resource position of Primary Lending Institutions (PLIs) so as to enable them to provide greater flow of credit to MSME sector. SIDBI also provides direct finance to supplement the efforts of banks / SFCs etc. for higher credit dispensation to MSMEs.
Over the years, SIDBI has launched several innovative and customised products and services designed as per the needs and aspirations of the MSMEs. SIDBI is also the micro finance “Institutional Answer” to the huge unmet demand of the disadvantaged sections of society.
The credit operations of SIDBI are supplemented with Promotional & Developmental (P&D) activities, which are designed to support enterprise creation in the MSME sector and strengthening of the existing MSMEs to overcome the emerging challenges of intense competition and increasing internationalisation. SIDBI has consistently been attending to requirements of cluster centric MSME development.
SIDBI extends Nodal Agency services to the Govt of India for schemes sponsored by various Ministries for encouraging implementation of modernisation and technology up gradation by manufacturing units in the MSME sector. SIDBI is implementing a multi activity, multi-agency MSME Financing and Development Project (MSMEFDP) aimed at making MSME lending an attractive and viable financing option and also to facilitate increased turnover and employment in the MSME sector.
The objective of the Project is to attend to demand and supply side issues of MSME sector through financial and nonfinancial services.  With the objective of all-round development of MSME sector, SIDBI coordinates with a number of accredited technical and management institutions to synergise their services to MSME sector. SIDBI has also been constantly working on building various institutional mechanisms to cater to the emerging needs of the MSME sector and has set-up various subsidiaries / associates which include SIDBI Venture Capital Ltd. (SVCL) for venture capital, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) for collateral free loans , SME Rating Agency of India Ltd. (SMERA) for credit rating, India SME Technology Services Limited (ISTSL) for technology transfer and India SME Asset Reconstruction Company Ltd. (ISARC) for asset reconstruction. SIDBI has been playing a significant role in attending to key policy issues that are critical in establishing a facilitating framework that promotes Indian MSME sector.

One of the most talked about and contentious issues has been lending under the CGTMSE. How does SIDBI ensure that good ideas and genuine entrepreneurs seeking credit under CGTMSE are not turned down by the banks?
Credit to micro and small enterprises sector is generally perceived as high risk lending, more so in absence of any collateral. In order to encourage banks to lend more to this sector, Government of India (GoI) and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) in July, 2000 to provide credit guarantee support to collateral free /third-party guarantee free loans up to Rs. 100 lakh extended by banks and lending institutions for micro and small enterprise. This is the only credit guarantee institution in the country exclusively set up for the benefit of small / tiny enterprises in the country. The corpus of CGTMSE is contributed by Government of India and SIDBI in the ratio of 4:1.
To answer your question CGTMSE has already achieved many milestones. It is important to note that the CGS has facilitated greater flow of credit to micro enterprises as almost 99% of CGS coverage was for loans up to Rs. 25 lakh. Similarly, amount-wise, the coverage was 83%. The CGS operations have had a positive impact on the economy in terms of turnover, exports and employment of guaranteed MSE units. SIDBI plays an important role in disseminating the information and creating awareness about CGS amongst banks.

From a bank perspective some advocate that the Process of acceptance of loan disbursement needs to be changed i.e. the loan application from the applicant should come to the bank once approved by SIDBI. Your thoughts
SIDBI is not the regulating authority for banks and hence advocacy will not work. Moreover banks are well versed will the processes for sanctions and disbursements.

Another pertinent issue that the banks raise is the 18 month period wherein if the account becomes an NPA within that time frame the bank cannot claim reimbursement. Bankers recommend a reduction of this period to 6 months. Your thoughts.
The banks statement is not correct. There is no such policy.

What does SIDBI’s loan portfolio comprise of in the South and West of India?
More than fifty percent of SIDBI’s portfolio comes from West and South.

What roles does SIDBI attribute itself in development of AP and South on a whole?
The Bank accords priority to the development of MSME through its activities under micro finance, rural industrialisation, handicraft cluster development, entrepreneurship development, marketing support, etc.  With the objective of all-round development of MSME sector, SIDBI coordinates with a number of accredited technical and management institutions to synergise their services to MSME sector. Under its P&D initiatives, SIDBI has on-going collaborations with NGOs, Consultancy Organisations, Industry Associations and other national level organisations. The Bank also co-ordinates with various Ministries of Government of India, Government Committees, Planning Commission, Reserve Bank of India, Industry Associations, etc.

What suggestions/recommendation would you give young entrepreneurs looking to avail credit from SIDBI?
Those entrepreneurs particularly desirous of setting up of their ventures/enterprises and do not have collaterals and third party guarantee, CGTMSE is the best scheme which would help them to start their enterprises.

Does SIDBI have frequent marketing programmes that help entrepreneurs and other prospective loan seekers get a chance to interact and know more about its products?
SIDBI keeps on organising various workshops/seminars/webinars across the country in order to create awareness about various products being offered by SIDBI besides sponsoring many programmes through on-going collaborations with NGOs, Consultancy Organisations, Industry Associations and other national level organisations.
Visit to view M.r Ram Nath speak exclusively to ViS on SIDBIs various schemes.

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