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SIDBI addressing SME challenges through new business model

Taslima Khan     April 4, 2013
N.K. Maini is the Deputy Managing Director of the Small Industries Development Bank of India (SIDBI). Recently, he spoke to Taslima Khan on what SIDBI is doing to help small businesses in India.

What differentiates SIDBI from other banks in the country?
Being the apex institution for MSMEs (micro, small and medium enterprises), SIDBI's role has been that of a mentor with an emphasis on solving the sector's problems and meeting its needs. We, at SIDBI, have re-oriented our business strategy to cater to the specific needs of Indian MSMEs that are not fulfilled through traditional sources.

Our strategy is to analyse the problems faced by MSMEs and come out with tailormade solutions. We have carved out niche areas in MSME financing. This is very evident from our initiatives, including loans for energy efficiency and cleaner production technologies, delayed payment or receivable related issues, service sector financing etc. We also work towards imparting financial literacy to MSME entrepreneurs. Launching of the portal has been a step forward in this direction.  Through our Credit Advisory and Loan Facilitation Services, we are handholding entrepreneurs in getting adequate and timely credit.

How many SME clusters in the country does SIDBI cover?
We have covered around 600 MSME clusters, through a pan-India network of 85 branches, 50 Credit Advisory Centres, and partnerships with cluster-level industry associations.

What have you achieved so far in promoting small business funding in the country?
SIDBI has taken numerous steps for the promotion of MSME funding in the country. Some of those initiatives are credit advisories through credit advisory centres, loan facilitation, loan syndication services, and capacity building of smaller banks (RRBs / UCBs / DCCBs).

In order to enable these smaller banks to provide adequate and timely credit to MSMEs, SIDBI is extending capacity building support to these institutions to handle micro enterprise loans. The assistance will also be towards free access to software on 'Downscaling Methodology' developed for lending to micro enterprises., mentioned earlier, is also a step to address the information gap in the sector.

SIDBI has 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. These include: SIDBI Venture Capital Limited for venture capital; Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to provide credit guarantee support to collateral-free or third-party guarantee-free loans; SME Rating Agency of India Ltd, a dedicated third-party rating agency to provide comprehensive, transparent and reliable ratings and risk profiling; India SME Technology Services Ltd for transfer of technology and acquisition of modern technologies; and India SME Asset Reconstruction Company Ltd for speedier resolution of non-performing assets (NPA) by unlocking idle NPAs for productive purposes, facilitating greater and easier flow of credit from the banking sector to MSMEs.

What are the different models SIDBI uses to work with other banks?
SIDBI, through its refinance assistance to banks, reaches out to Indian MSMEs. Commercial banks in India have a sound, pan-India presence with over 80,000 branches. In addition, we are also making an effort to make banks our partners in providing risk capital to MSMEs.

What has been the performance of CGTMSE and other leading schemes like factoring or SmallB, where SIDBI is the lead player?
As on January 31, 2013, CGTMSE coverage in terms of numbers is about 1 million with guarantee covers for an aggregate loan amount of over Rs 48,000 crore. CGTMSE has been the game-changer for MSMEs. It will go a long way in bringing more and more innovation to Indian MSMEs by helping innovative minds to convert their ideas into reality.

The Union Budget 2013/14 announcement on setting up of Credit Guarantee Fund for factoring with a Rs 500 crore corpus will further pave the way for orderly growth of factoring services in the country. SIDBI will accordingly take this agenda forward in the next few months. is SIDBI's attempt to inspire all enterprising Indian individuals to look at business opportunities all around and tries to demystify and simplify the process of establishing a business in the country. is a unique initiative for those enterprising individuals who are thinking of starting a business. It helps in preparing a business plan, understand policies and regulations, fund a business and manage it in the context of the environment and sector, plan exports, and have access to various resources.

What are the major issues as far as bank financing for the SME sector is concerned?
Access to finance is one of the prime areas of concern for Indian MSMEs. We are trying to address the concern along with banks and other financial institutions.

SMEs face severe constraints as far as bank credit is concerned, forcing them to tap alternative financing sources, especially trade credit. However, alternative financing typically involves higher transaction costs as well as interest costs as compared to bank finance.

Since SMEs are the engine of growth of our economy, the issue of credit constraint in both, formal (bank) and alternative (e.g. trade credit) financing, becomes an issue of vital importance. A recent survey of SMEs by the Confederation of Indian Industry (CII) had identified "delay in realisation of receivables" as the most important challenge being faced by our SMEs. Apart from this, the constraints faced by MSMEs are non-availability of adequate and timely credit, high cost of credit, lack of availability of venture or risk capital and non-availability of adequate forex loans. I am happy to say that SIDBI is addressing these issues through its new business model.

Do we have benchmarks from other countries/banks that have done very well as far as lending to the SME sector is concerned?
Establishing a benchmark is possible when there is homogeneity in the sector. MSMEs all over the world display heterogeneous characteristics, the definition of "what constitutes an MSME" is also varied. Yet, it has been the endeavor of SIDBI to adopt and adapt the best practices prevalent across the globe. Keeping in view the expertise developed by SIDBI and its associates, many developing countries have evinced interest in SIDBIs International Consultancy Services. This, to some extent, reflects the pre-eminent position of SIDBI in the world in its specialized area. We have recently set up a specialised vertical to offer such a consultancy.

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