Introduction

Small 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.