Financial assistance refers to the funds and monetary support required by an entrepreneur for carrying out the various activities relating to business organization. Financial aid is important at every phase of business cycle. For instance, while starting a business, financial aid is required for acquiring fixed assets such as land, setting up a plant and machinery. It is also essential for meeting the day-to-day expenses in the form of payment of wages and salaries, purchasing raw materials etc. In order to successfully operate and expand the business, funds are necessary for promoting and marketing the product and distributing it to prospective consumers. In today's competitive market funds are essential for modernizing and upgrading industrial units. Obtaining finance is a major problem faced by SSI in India. Considering this fact, Government of India has set up various schemes and financial institutions. The financial system in India operates through a network of financial markets and institutions, which are broadly categorized into money market and capital market. The money market deals in short-term funds, while the capital deals in long-term funds. According to Securities Contract Regulation Act, companies with minimum capital equity of 3 crores could access capital fund. Due to which Small and Medium scale industries stayed away from them. The major constituents of the Indian financial system are banks, financial institutions, non-banking financial companies and venture capital companies. Banks are the most important source of institutional credit in India and consist of nationalized banks, regional rural banks, co-operative banks, private sector banks including foreign banks. A wide variety of financial institutions have been set up both at the national and the State level, which cater to the diverse financial requirements of the industry. They include all-India development banks, specialized financial institutions, investment institutions, State financial corporations as well as State industrial development corporations. Besides, the non-banking financial companies are a group of institutions which perform financial intermediation in various forms, like accepting deposits, making loans and advances, leasing, hire purchase, etc. Venture capital is an important source of funding for the formation of small and medium enterprises in their early stages of development. The Government Institutes that offer financial aid are:
Small Industries Development Bank of India (SIDBI)
National Small Industries Corporation (NSIC)
Maharashtra Small Scale Industries Development Corporation (MSSIDC)
District Industries Centre (DIC)
SIDBI and NSIC are national institutes i.e. they are set up by Government of India. MSSIDC is set up by Maharashtra State Government. The schemes set up by State Government are executed by DIC and State Directorate of Industries.
The Small Industries Development Bank of India:
SIDBI is an independent financial institute set up in April 1990. It was set up through an act of parliament, as a wholly owned subsidiary of Industrial Development Bank of India. To provide operational flexibility, SIDBI was de-linked from IDBI. Since then its shareholding have grown among financial institutions, state owned banks and insurance companies. It mainly aims at:
Promoting, financing and development of industries in small scale sector
Coordinating functions of other institutes engaged in similar activities.
SIDBI business domain includes small scale industrial units, which contribute largely to the Indian economy in terms of production, employment and exports. 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. SIDBI's also assists transport, health care and tourism sectors and self-employed persons setting up small-sized professional ventures.
Channels of Assistance:
SIDBI provides financial assistance through mainly three modes of operation:
Indirect assistance through Primary Lending Institutions
Direct assistance to SME
Development and support services
SIDBI provides indirect assistance to SSI units through a large network of Primary Lending Institutes (PLI) set up across more than 50000 branches in India. It provides financial assistance by Refinance, Bills Rediscounting, Resource support to PLI in form of Short Term Loans and Line of Credit.
Refinance scheme: This scheme is introduced for catering to the need of funds of Primary Lending Institutes for financing small scale units. SIDBI grants refinance against term loans granted by the eligible PLI to industrial concerns for setting up industrial projects in the small scale sector as also for their expansion / modernization / diversification. It also provides funds to qualified professionals for self employment, small hospitals and nursing homes, cyber café, marketing related activities, industrial infrastructure, hotels and tourism related activities.
Bill Rediscounting Scheme: This scheme allows manufacturer or purchaser to defer credit payment for setting up, expansion or modernization of SSI units. This scheme is operated through scheduled commercial banks. The duration of bill payment varies from 2-5 years.
Direct Assistance:
SIDBI provides direct funding to SSI units through schemes like Term Loan Application which provides financial assistance for setting up new SSI units, hospitals, nursing homes etc. It also provides funds for modernization and upgradation of technology and development of infrastructure. The Receivable Financing Scheme deals with problems of delayed payments to SME sector by large purchasing companies. The short term bills are discounted by SIDBI and payment is directly effected.
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National Small Industries corporation Ltd. (NSIC):
The National Small Industries Corporation (ISO 9001 certified) was set up in 1955 by Government of India for promoting, aiding and fostering growth of small scale industries. NSIC operates through more than 120 offices, supported by a team of over 500 professionals spread across the country. NSIC offers tailor made schemes to SSI units to provide them an advantage over competitive market. These schemes mainly facilitate equipment finance, raw material assistance and marketing assistance. NSIC helps SSI units to register as supplier to Government as it is one of biggest buyers in Indian economy. Under Government Purchase Programme, NSIC operates Point Registration Scheme. Obtaining financial assistance form NSIC has advantage as it offers financial assistance for purchasing equipments, raw materials as well as marketing the final product. The Equipment Financing Schemes are available as Hire-Purchase Scheme or Term Loans. Marketing assistance is in form of Raw Material Assistance, Internet Marketing, Exports and Bill Discounting.
Single point Registration for Government Purchase:
In this scheme the registered SSI units get purchase preference in Government purchase programme, exemption from payment of Earnest Money Deposit, Issue of tender sets free of cost, Advance intimation of tenders issued which helps SSI units compete with bigger suppliers.
Exhibitions and Technology Fairs:
NSIC participates in National and International Exhibitions and Trade Fairs to help SSI units market and promote their product globally as well as find potential buyers on a larger platform. NSIC facilitates the participation of the small enterprises by providing concessions in rental etc. Participation in these events also exposes SSI units to international practices and enhances their business prowess.
Buyer-Seller meets:
Such programmes are aimed at vendor development from SSI units for the bulk manufacturers such as the Railways, Defence, Communication departments and large companies. Bulk manufacturers are invited to participate in buyer-seller meets to aware SSI units regarding terms and conditions, quality standards, etc required by the buyer.
Equipment Finance:
Hire-Purchase Scheme:
This scheme is available to Women Entrepreneurs, Backward areas and Scheduled castes/Scheduled Tribes category of entrepreneurs. An entrepreneur registered with District Industries Centre as SSI can also apply for this scheme. Through this scheme, SSI units can approach NSIC for financial assistance to purchase indigenous and imported machinery for setting up a new unit or upgrade an existing one.
Term Loans:
Term Loans are available to SSI units to avail equipment finance.
Raw Material Assistance Scheme:
This scheme helps SSI unit finance raw materials which allow entrepreneur focus on manufacturing quality products. In this scheme financial assistance for procurement of raw material is up to 90 days. SSI units are benefited by bulk purchase, cash discounts offered under this scheme. NSIC takes care of all the procedures, documentation & issue of Letter of Credit in case of imported raw material.
The Italian Lone of Credit:
The Italian Ministry and Government of India have together established scheme for development of Small and Medium Enterprise. The Italian Government has made a soft loan available to Indian Government for extending line of credit to NSIC. Through this line of credit Small and Medium Enterprise can import Italian machinery and services. Sectors like Mechanical, Automobile Component, Leather, Electronics, Plastic, Textile and Food Processing can benefit from this scheme.
Maharashtra Small Scale Industries Development Corporation (MSSIDC):
MSSIDC was set up in 1962 for accelerating Industrial development in Maharashtra by providing financial assistance for raw material and marketing to SSI units. MSSIDC provides services and financial assistance for marketing, raw material and ware-housing facilities, handicraft promotion, industrial exhibitions and work related to Maharashtra State Handicapped Finance and Development Corporation.
Financial Assistance under Marketing Scheme:
Under marketing scheme, MSSIDC allots tenders raised by various departments of Government and distributes amongst SSI units registered with them; thus generating marketing opportunity to SSI units in Government and semi-government organizations. On completion of order, 80 percent of payments are immediately made by respective Government organization to SSI.
