An Assignment on

Small Industries Development

Bank of India (SIDBI)

Contents
• SSI as a Sector

• Introduction to SIDBI

• History

• Objectives

• Mission

• Products and Services

SSI as a Sector
It has been said in the past that SSI has outperformed the overall industrial
sector. As per the estimates available in third census of SSIs, the production
in the SSI sector, at current prices is estimated to have increased to
Rs.3,48,059 crore during FY2004 from Rs.3,11,993 crore in the previous year,
thus recording a growth of 11.5 per cent in output at current prices, as
compared to growth of 6.6 per cent registered in the industrial sector and 7.1
per cent growth in the manufacturing sector. Employment in the sector is
estimated at the level of 273.97 lakhs at end-March 2004 as compared with
261.38 lakhs at end-March 2003. SSI exports increased from Rs.71,244 crore
in FY2002 to Rs.86,013 FY2003. The share of SSIs in output was 39 percent
and in exports it was 34 percent during the year.

Small Industries Development Bank of India

(SIDBI)
An Act of Parliament set up SIDBI, as an apex institution for promotion,
financing and development of industries in small-scale sector and for
coordinating the functions of other institutions engaged in similar activities. It
commenced operations on April 2, 1990. SIDBI extends direct/indirect
financial assistance to SSIs, assisting the entire spectrum of small and tiny
sector industries on All India basis.

The range of assistance comprising financing, extension support and

promotional, are made available through appropriate schemes of direct and
indirect assistance for the following purposes:-

• Setting up of new projects

• Expansion, diversification, modernization, technology upgradation,
quality improvement, rehabilitation of existing units
• Strengthening of marketing capabilities of SSI units.
• Development of infrastructure for SSIs and
• Export Promotion.
 8000

7000
1990-91
6000
1991-92
5000 1992-93
1993-94
4000 1994-95
1995-96
3000
1996-97
2000 1997-98

1000

0
Sanction Disbursement

SIDBI's assistance to:

(i) Tiny Units - about 89.2 per cent of the number of projects
assisted under Refinance Scheme during 1996-97 were tiny, receiving
assistance upto Rs. 5 lakh per project. The sanctions for such projects
accounted for 39.6% of the total amount of sanctions in 1996-97 as
against 36.0% during the previous year.
(ii) Women entrepreneurs - under various schemes assistance
amounting to Rs. 19.07 crores was given to 1067 women entrepreneurs
during 1996- 1997
(iii) Backward areas - during 1996-97, projects enanating from backward
areas received assistance to the tune of Rs. 775 crores of sanction, which
accounted for 37% of total assistance under Refinance Scheme of SIDBI.

Subsidiaries
The operations and functions of the subsidiaries of SIDBI viz., SIDBI Venture
Capital Limited, SIDBI Trustee Company Ltd., Technology Bureau for Small
Enterprises and Associate organization, Credit Guarantee Fund Trust for Small
Industries were satisfactory during FY2004. I am also very pleased to inform
our shareholders that the Bank has initiated steps in the direction of setting
up of a Technology Services Bank for the small and medium enterprises sector
and I am hopeful that the same will commence operation during FY2005.
History
Established in April 2,1990

Principal Development Financial Institution for:

-- Promotion
-- Financing and
-- Development of Industries in the small-scale sector and
--Co-ordinating the functions of other institutions engaged in similar
activities.

Provision of Charter
SIDBI was established on April 2, 1990. The Charter establishing it, The Small
Industries Development Bank of India Act, 1989 envisaged SIDBI to be "the
principal financial institution for the promotion, financing and development of
industry in the small scale sector and to co-ordinate the functions of the
institutions engaged in the promotion and financing or developing industry in
the small scale sector and for matters connected therewith or incidental
thereto.

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.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.

SIDBI among Top 30 Banks in India

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.
Objectives
Mandatory Objectives
Four basic objectives are set out in the SIDBI Charter. They are:

• Financing
• Promotion
• Development
• Co-ordination

For orderly growth of industry in the small-scale sector. The Charter has
provided SIDBI considerable flexibility in adopting appropriate operational
strategies to meet these objectives. The activities of SIDBI, as they have
evolved over the period of time, now meet almost all the requirements of
small scale industries which fall into a wide spectrum constituting modern and
technologically superior units at one end and traditional units at the other.

Development Outlook
The major issues confronting SSIs are identified to be:

• Technology obsolescence
• Managerial inadequacies
• Delayed Payments
• Poor Quality
• Incidence of Sickness
• Lack of Appropriate Infrastructure and
• Lack of Marketing Network

There can be many more similar issues hindering the orderly growth of SSIs.

Over the years, SIDBI has put in place financing schemes either through its
direct financing mechanism or through indirect assistance mechanism and
special focus programmes under its P&D initiatives. In its approach, SIDBI has
struck a good balance between financing and providing other support services.
Co-ordination and Understanding
As an apex institution, SIDBI makes use of the network of the banks and state
level financial institutions, which have retail outlets. SIDBI supplements the
efforts of existing institutions through its direct assistance schemes to reach
financial assistance to the ultimate borrowers in the small-scale sector.
Refinancing, bills rediscounting, lines of credit and resource support
mechanisms have evolved over the period of time to route SIDBI's assistance
through the network of other retail institutions in the financial system.

Improved levels of co-ordination for development of the small scale sector is

also achieved through a system of dialogue and obtaining feedback from the
representatives of institutions of small scale industries who are on the SIDBI's
National Advisory Committee and Regional Advisory Committees.

MOU
SIDBI has entered into Memoranda of Understanding with many banks,
governmental agencies, international agencies, research & development
institutions and industry associations to facilitate a co-ordinated approach in
dealing with the issues for development of small-scale industries.

SIDBI's MOUs
Banks-(18)
Swiss Agency for Development and Co-operation
Small Industries Development Organization
Auto Components Manufactures Association
Asia and Pacific Centre for Transfer of Technology
Council for Scientific and Industrial Research
United Nations Industrial Development Organization
Confederation of Indian Industry
National Research Development Organization
Government of India for channelising TREAD assistance

Small Enterprise Assistance Funds (SEAF)

For setting up of SEAF India SME Equity Fund and for other
capacity building initiatives for SMEs
Mission
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.

Operation Emphasis
SIDBI, in its operational strategy, emphasizes:

• Enhancement in the flow of financial assistance to SSIs

• 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

Future challenges
The coming years would be crucial for SIDBI mainly on account of the
accelerated pace of deregulation of financial sector, softer interest rate and
expected decline in availment of refinance by banks which, hitherto formed
major part of the Bank's business. SIDBI is aware of the challenges and has
been taking steps to address these issues. Direct financing to the SME (small
and medium enterprises) and service sector would be a major focus area for
the Bank. The support infrastructure like industrial areas, power, roads,
telecommunications, etc. are essential for growth and smooth functioning of
each and every economic activity. As such the Bank would also give thrust on
financing of infrastructure, which will directly or indirectly benefit the sector as
also marketing and technology upgradation related activities undertaken in
the sector. Containment of NPAs and monitoring the health of SFCs (State
Financing Corporations) are the other areas receiving our attention
Products and Services
Main Schemes of SIDBI:
A brief summary of the Schemes available with SIDBI.
• National Equity Fund Scheme, which provides equity
support to small entrepreneurs setting up projects in Tiny Sector.
• Technology Development & Modernization Fund Scheme
for providing finance to existing SSI units for technology
upgradation/modernization.
• Single Window Scheme to provide both term loans for fixed
assets and loan for working capital through the same agency.
• Composite Loan Scheme for equipment and/or working
capital and also for work sheds to artisans, village and cottage
industries in Tiny Sector.
• Mahila Udyam Nidhi (MUN) Scheme provides equity support
to women entrepreneurs for setting up projects in Tiny Sector.
• Scheme for financing activities relating to marketing of SSI
products which provides assistance for undertaking various marketing
related activities such as marketing research, R&D, product
upgradation, participation in trade fairs and exhibitions, advertising
branding, establishing distribution networks including show room, retail
outlet, wears-housing facility, etc.
• Equipment Finance Scheme for acquisition of
machinery/equipment including Diesel Generator Sets, which are not
related to any specific project.
• Venture Capital Scheme to encourage SSI ventures/sub-
contracting units to acquire capital equipment, as also requisite
technology for building up of export capabilities/import substitution
including cost of total quality management and acquisition of ISO-9000
certification and for expansion of capacity.
• ISO 9000 Scheme to meet the expenses on consultancy,
documentation, audit, certification fee, equipment and calibrating
instruments required for obtaining ISO 9000 certification.
• Micro Credit Scheme to meet the requirement of well
managed Voluntary Agencies that are in existence for at least 5 years;
have a good track record and have established network and experience
in small savings-cum-credit programmes with Self Help Groups (SHGs)
individuals.
New Schemes
(i) To enhance the export capabilities of SSI units.

(ii) Scheme for Marketing Assistance.

(iii) Infrastructure Development Scheme.
(iv) Scheme for acquisition of ISO 9000 certification.
(v) Factoring Services
(vi) Bills Re-discounting Scheme against inland supply bills of SSIs.

Major schemes
Technology Development & Modernization Fund
SIDBI has set up Technology Development & Modernization Fund (TDMF)
scheme for direct assistance of small sale industries to encourage existing
industrial units in the sector, to modernize their production facilities and adopt
improved and updated technology so as to strengthen their export
capabilities. Assistance under the scheme is available for meeting the
expenditure on purchase of capital equipment acquisition of technical know-
how, upgradation of process technology and products with thrust on quality
improvement, improvement in packaging and cost of TQM and acquisition of
ISO-9000 series certification.

SIDBI in July 1996 had permitted SFCs and promotional banks to grant loans
for modernization projects costing upto Rs. 50 lakhs. The Coverage of the
TDMF scheme has been enlarged w.e.f. 1.9.1997. Non-exporting units and
units which are graduating out of SSI sector are now eligible to avail
assistance under this scheme.
National Equity Fund
National Equity Fund (NEF) under Small Industries Development Bank of India
(SIDBI) provides equity type assistance to SSI units, tiny units at one per
cent service charges. The scope of this scheme was widened in 1995-96 to
cover all areas excepting Metropolitan areas, raising the limit of loan from Rs.
1.5 lakhs to Rs. 2.5 lakhs and covering both existing as well as new units:

(a) The following are eligible for assistance under the scheme:-

i. New projects in tiny and small-scale sectors for manufacture,

preservation or processing of goods irrespective of the location (except for
the units in Metropolitan areas).
ii. Existing tiny and small-scale industrial units and service enterprises as
mentioned above (including those which have availed of NEF assistance
 earlier), undertaking expansion, modernization, technology upgradation
and diversification irrespective of location (except in Metropolitan areas).
iii. Sick units in the tiny and small-scale sectors including service
enterprises as mentioned above, which are considered potentially viable,
irrespective of the location of the units (except for the units in Metropolitan
areas).
iv. All industrial activities and service activities (except Road Transport
Operators).

(b) Project cost (including margin money for working capital) should not
exceed Rs. 10 lakhs in the case of new projects in the case of existing units
and service enterprises, the outlay on expansion/modernization/technology
upgradation or diversification or rehabilitation should not exceed Rs. 10
lakh per project.

(c) There is no change in the existing level of promoters' contribution at

10% of the project cost. However, the ceiling on soft loan assistance under
the Scheme has been enhanced from the present level of 15% lakh per
project to 25% of the project cost subject to a maximum of Rs. 2.5 lakh
per project.
Case Study
Why is design important? The case of a toy maker

The Indian Toy Industry is dominated by SMEs and micro enterprises even
though toy majors such as Fun School and Mattel are also present. The
domestic industry has been in existence for over 50 years and has
considerable reach through an extensive distribution network. Innovation in
the form of IP creation has, however, been extremely poor. With generational
change occurring in the industry, businesses have started becoming open to
new ideas.

With the liberalization of the economy, since the late 1980s there was a
sudden increase in the number of automobiles being offered to Indian
consumers. This, in turn, inspired some toy manufacturers to start producing
plastic miniatures of automobiles being introduced in the market. Much like
MatchBox Cars, these manufacturers faithfully reproduced the shape of every
new car they saw on the road. Over the years a large number of models
became available and coupled with extensive reach their miniatures were soon
available across the length and breadth of the country.

Keeping in mind the low awareness of IP related issues amongst the SME
Sector in the country, the Small Industry Development Organization (SIDO) -
the SME Development Agency of the country - working under the Ministry of
Small Scale Industries had embarked upon a series of workshops and
sensitization programmes on IPR for SMEs. One such workshop was devoted
exclusively to the toy industry. One of the prominent manufacturers of these
miniature cars happened to attend this workshop.

After the workshop, he met some of the Resource Persons and confessed that
it was the first time that he understood the implications of IP to his business.
He understood that if a design was protected then he, as an entrepreneur,
could not escape liability for passing off through the defense of
miniaturization. He also understood that he could legally copy the design of
certain automobiles by doing so intelligently. For instance, he could do a
design search at the design office and determine which designs were over 15
years old and hence no longer protected. He could now also assess which
were the designs where the company in question beyond the initial 10 years
or such cases had not extended protection where a foreign company had
never obtained design protection in India. This, itself, gave him a substantial
number of models to miniaturize.

In addition, as a canny entrepreneur, he approached one of the car

manufacturers and presented 10 pieces of the miniature cars to a senior
executive with the suggestion that whenever any potential customer of the
car comes for a test drive to the car showroom, his miniature could be offered
to the potential customer as a memento from the automobile company. The
automobile company thought it was a good idea and today offers this toy
miniature to all its potential customers opting for a test drive. In the process,
even though the design of the automobile is protected, the fact that the
automobile has acquiesced in the reproduction of its registered design
protects the SME entrepreneur.