INSTITUTIONAL FRAMEWORK FOR SSIs

Government has recognized the important role of entrepreneurs in the industrial development of the country, especially through the small scale industries (SSIs). employment generation foreign exchange earnings share in industrial output contribution to national income. The new entrepreneurs face a number of problems on account of inadequate finances, infrastructure facilities and other support services. In order to accelerate the small industries development Government at the Central and State levels have set up a number of development agencies / institutions. The institutions providing assistance can be divided into Financial Institutions & Non-Financial Institutions. FINANCIAL INSTITUTIONS- Of all the elements that go into a business, credit is perhaps the most crucial. SSIs need credit support not only for running the enterprise & operational requirements but also for diversification, modernisation/ upgradation of facilities, capacity expansion etc. In respect of SSIs, the problem of credit becomes all the more critical when ever any episodic event occurs such as a large order, rejection of consignment, inordinate delay in payment etc. In general, SSIs operate on tight budgets, often financed through owner's own contribution, loans from friends and relatives and some bank credit. GoI recognised the need for a focused credit policy for SSIs in the early days of promotion of SSIs and RBI has been instrumental in devising a multi-stage approach/financial system for credit dispensation to different sectors of the economy, for example, agriculture, industry, exports, SSIs etc. Their main objective is to make direct & indirect financial assistance to the industrial undertakings: Credit requirement of SSIs is of two types long term loans and working capital. Direct financial support by way long term loans (rupee as well as foreign currency) to industrial units for undertaking new projects, expansion, modernisation, diversification etc.; and working capital. Indirecto Subscription and Underwriting of public issues of shares and debentures.

o Guaranteeing of loans & deferred payment.

o Finance to leasing & hire-purchase companies.

o Re-finance of loans granted by banks & SFCs o Re-discounting of bills to banks & SFCs against loans granted by them. Specialo Equipment Leasing

o Merchant banking o Venture Capital

o Mutual Fund NATIONAL LEVEL INSTITUTIONS- They include 1. All India development banks provide institutional credit to not only large and medium enterprises but also help in promotion and development of small scale industrial units. They are IFCI Ltd, ICICI Ltd, IDBI, SIDBI, EXIM, IIBI, NABARD, NHB 2. Specialised financial institutions are the institutions which have been set up to serve the increasing financial needs of commerce and trade in the area of venture capital, credit rating and leasing, etc. They are IVCF, TFCI, ICICI Venture Funds Ltd, IDBI Capiatal 3. Investment institutions are the most popular form of financial intermediaries, which particularly caters to the needs of small savers and investors. They are LIC, UTI, GIC, etc. STATE LEVEL INSTITUTIONS- They include State Financial Corporations (SFCs) & State Industrial Development Corporations (SIDCs) SCHEDULED COMMERCIAL BANKS (SCBS)1. All-India Development Banks- provide institutional credit to not only large and medium enterprises

but also help in promotion and development of small scale industrial units. i. Industrial Finance Corporation Of India Ltd (IFCI)- Indias first development bank established by GoI, under IFCI Act in July 1948 and was converted into a joint-stock company in 1994. It floated institutions such as IFCI Venture Capital Funds Ltd (IVCF) - investing in technology-oriented projects Tourism Finance Corporation of India Ltd. (TFCI) for promoting tourist industry. Apart from conventional tourism projects, it provides financial assistance for non-conventional tourism projects like amusement parks, ropeways, car rental services, ferries for inland water transport, etc.
ii. Industrial Credit And Investment Corporation Of India Ltd. (ICICI Ltd)- was set up in Jan 1955

as a private company under Indian Companies Act, with a view to provide support to small & medium industry especially the private sector. During Sept 1998 it changed its name to ICICI Ltd. It floated a number of institutions successfully which include ICICI Asset Management Company Ltd (June 1993)- ICICI Mutual Fund ICICI Banking Corporation (Jan 1994) CRISIL- Credit rating agency ICICI Venture Funds Ltd- a technology venture finance company set up to sanction project finance for new technology ventures. The industrial units assisted by it are in the fields of computer, chemicals/polymers, drugs, diagnostics and vaccines, biotechnology, environmental engineering, etc. iii. Industrial Development Bank Of India (IDBI) - is the apex institution, to coordinate the functions of various financial institutions. It was established under the IDBI Act (as a wholly owned subsidiary of RBI) on July 01, 1964. In feb 1976, the IDBI was made an autonomous institution and its ownership was passed from RBI to GoI. It undertook the responsibility of promoting and financing the small and cottage industries and the import-export trade of the country until separate bodies namely Small Industries Development Bank of India (SIDBI) and EXIM Bank were set up. It floated a number of institutions successfully which include

 IDBI Bank IDBI Capital Market Services Limited (ICMS)- Broking and Distribution company in 1993. IDBI Intech Ltd- to undertake the IT related activities of the Bank in 2000. IDBI Asset Management Limited (IAML)- Asset mgt services to IDBI Mutual Fund in 2010. IDBI MF Trustee Company Limited (IMTCL)- acts as the Trustee of IDBI Mutual Fund in 2010. IDBI Capital- venture capital funding. iv. Small Industries Development Bank Of India (SIDBI)- was established under SIDBI Act in 1989, as a wholly- owned subsidiary of IDBI, with a view of ensuring larger flow of financial and non-financial assistance to small scale industries. Its operations commenced wef April 02, 1990, with its head quarters in Lucknow and branches all over the country. The SIDBIs financial assistance to SSIs is channelized through the existing delivery system comprising SFCs, SIDCs, Commercial Banks and Regional Rural Banks. New Initiatives of SIDBI: SIDBI Venture Capital Limited SIDBI Trustee Company Limited- to oversee Venture Capital. Technology Bureau for Small Enterprise- to oversee Technology Transfer, Match making Services, Finance Syndication and facilitating Joint Ventures. SIDBI Foundation for Micro Credit- to provide financial assistance to the poor and to meet emerging needs of the micro finance sector especially in rural areas. v. Export Import Bank Of India (EXIM Bank)- was established on Jan 01, 1982 (and started functioning wef March 01, 1982) under Export Import Bank of India Act 1982, which took over the export finance activities of IDBI. It is apex institution for co-ordinating the working of institutions in India engaged in financing exports and import of goods and services. Functions: Direct finance to export and import of goods (including machinery & equipment on lease basis) and services; for overseas joint ventures.

Finance for deferred payment facility Issue of guarantees Refinance to commercial banks in India Export bills re-discounting

vi. Industrial Investment Bank Of India (IIBI formerly IRBI)- IIBI was initially set up as Industrial

Reconstruction Corporation of India Limited in April 1971 under the Indian Companies Act mainly to provide financial assistance for reconstruction and rehabilitation (revival) of sick industrial units. Later in August 1984, GoI passed IRBI Act converting the IRCI into the Industrial Reconstruction bank of India (IRBI). During 1997 the bank was converted to a joint stock company by naming it Industrial Investment Bank of India.
vii. National Bank For Agriculture And Rural Development (NABARD) - an apex development bank,

established on July 12, 1982 under NABARD Act, with its main office in Mumbai, by merging the

Agriculture Credit Deptt and Rural Planning and Credit Cell of RBI and took over the entire functions of Agriculture Refinance and Development Corporation (ARDC). Its credit functions include providing credit to agriculture; small, village and cottage industries through banks by way of refinance facilities to commercial banks, Regional rural banks, Coop Banks, Land Development Banks and other Financial Institutions like KVIC. Its developmental functions are co-ordination of various institutions, acting as agent of Govt. and RBI, providing training and research facilities. The regulatory functions include inspection of RRBs and Coop Banks, receipt of returns and making of recommendations for opening new branches.
viii. National Housing Bank (NHB) - the apex bank for Housing, was established on July 09, 1988 under

NHB Act, as a wholly owned subsidiary of RBI with head quarters in New Delhi. The bank was set up with the main purpose of setting up of an institution to operate as a principal agency to promote housing finance institutions and to provide financial and other support to these institutions.
2. Investment Institutions- are the most popular form of financial intermediaries, which particularly

caters to the needs of small savers and investors.

a. Life Insurance Corporation Of India (LIC)- LIC was established under the LIC Act in 1956, as a

wholly owned corporation of GoI. Main objective is to spread life insurance more widely and in particular to the rural area. It extends resource support to other financial institutions through subscription to their shares and bonds. It provides loans for development of infrastructure facilities like housing, water supply, rural electrification, sewerage etc. It provides assistance to corporate sector (including other Financial Institutions) by way of Term Loans, Underwriting and Direct subscription to shares and debentures.
b. Unit Trust Of India (UTI)- UTI was established under the UTI Act, 1963. Main function is to encourage savings amongst the middle and low income groups, mobilize savings

of small investors through sale of units and channelizes them into corporate investments. It provides Direct financing/ loans to industrial undertakings to finance their new projects, expansion/ diversification, modernisation; working capital etc. UTI also provides assistance to corporate sector by way of Term Loans, Underwriting and Direct subscription to shares and debentures.
c. GENERAL INSURANCE CORPORATION OF INDIA (GIC) - GIC was established under the

General Insurance Business (Nationalisation) Act, 1972 (GIBNA ), for the purpose of controlling and carrying on the business of general insurance or non-life insurance. Initially, GIC had four subsidiary branches, namely, National Insurance Company Ltd ,The New India Assurance Company Ltd , The Oriental Insurance Company Ltd and United India Insurance Company Ltd . But these branches were delinked from GIC in 2000 to form an association known as 'GIPSA' (General Insurance Public Sector Association).

STATE LEVEL INSTITUTIONS- They include State Financial Corporations (SFCs) & State Industrial Development Corporations (SIDCs) 1. State Financial Corporations (SFCS)- IFCI was set up in 1948 to provide financial assistance to only large- sized industrial undertaking. In order to cater the financial requirements of small-scale units, the State Financial Corporations (SFCs) were set up, under the State Financial Corporation Act passed by the parliament on Sept 28, 1951. Today, an SFC exists in every State & Union Territory. Eg. Uttar Pradesh Financial Corporation (UPFC), Delhi Financial Corporation (DFC). Their main functions are: They provide Direct financing/ loans to industrial undertakings to finance their new projects, expansion/ diversification, modernisation; working capital etc. They also provide assistance by way of Term Loans (repayable within a period not exceeding 20 years), underwriting and direct subscription to shares/ debentures, guarantees, discounting of bills of exchange and seed/ special capital, etc. They also grant financial assistance to to newer types of business activities like floriculture, tissue culture, poultry farming, commercial complexes, small road transport operators, hotels, tourismrelated activities, hospitals and nursing homes, services related to engineering, marketing, etc. They undertake the issue of stock, shares, bonds or debentures of industrial concerns.
2. State Industrial Development Corporations (SIDCs)- SIDCs have been established (one in each

state) under the Companies Act, in 60s early 70s, as wholly-owned undertakings of State Governments. eg. Uttar Pradesh State Industrial Development Corporation. Main functions: Provide financial assistance in form of term loans, underwriting, direct subscription to shares/ debentures and guarantees. Implement Seed Capital Scheme (Risk Capital) of IDBI in state. Undertake a variety of promotional activities such as preparation of feasibility reports; conducting industrial potential surveys; entrepreneurship training and development programmes; as well as developing industrial areas/estates, procurement & distribution of scarce raw material. Offer developmental services such as technical guidance, assistance in plant locations and coordination with other agencies. Some may diversify into fields of equipment leasing, merchant banking, venture capital and mutual funds. SCHEDULED COMMERCIAL BANKS (SCBS)- Assistance to SSIs initiated by SBI, followed by other banks, but in a greater way only after nationalisation of banks in 1969. Commercial banks with their extensive network of branches operating nationwide are primary channel for working capital requirement. Lead Bank Scheme under which each district has been allotted to one scheduled commercial bank, known as Lead Bank, for intensive development of banking facilities. SCB comprises of (300 plus): Public sector banks including State Bank of India (SBI) & associates and Nationalised Banks (19) Private Sector Banks- ING Vysya Bank Ltd, Axis Bank Ltd, Indusind Bank Ltd, ICICI Bank Ltd, HDFC Bank Ltd, Centurion Bank Ltd, Bank of Punjab Ltd, IDBI Bank Ltd Foreign Banks- American Express Bank Ltd, ANZ Gridlays Bank, Bank of America, Bank of Tokyo Ltd, Citi Bank, Deutsche Bank, Hongkong and Shanghai Banking Corporation (HSBC), Standard Chartered Bank. Cooperative Banks Regional Rural Banks

Banks are required to compulsory ensure that defined percentage (currently 40%) of their overall lending is made to priority sectors as classified by RBI. These sectors include agriculture, small industries, export etc.

NON- FINANCIAL INSTITUTIONS

All India (Central Government) Institutions o Small Scale Industries Board o Ministry of Small Scale Industries o SIDO o NSIC o KVIC o National Institute of Small Industry Extension Training (NISIET), Hyderabad o Indian Institute for Entrepreneurship (IIE), Guwahati o National Institute for Entrepreneurship and Small Business Development (NIESBUD), N Delhi State Level Institutions o SDI o DICs (district level) o SISI o TCO o Industrial Estates
Non- Government Institutions- ICSI, FICCI, ASCII, PHDCCI, CII, FIEO, LUB, FASH, WASME

ALL INDIA LEVEL INSTITUTIONS Small Scale Industries Board (SSIB)- also known as central small industries board. It is the apex advisory institution. It is a non-statutory body, first constituted by the GoI in 1954. Its term is for 2 yrs. Industries minister is chairman of SSIB. Main function is to give advice to the Government on all issues pertaining to the SSI sector and facilitate co-operation & linkage between various ministries & institutions. Ministry Of Small Scale Industries (now Ministry of Micro, Small and Medium EnterprisesMSME)- Set up in 1999. Its main function is to implement policies/ programmes/ schemes for providing infrastructure & support services to SSIs, through Its attached office, Small Industries Development Organisation- SIDO (now MSME-DO) Statutory bodies/other organisations likeo National Small Industries Corporation (NSIC) o Khadi and Village Industries Commission (KVIC) o Coir Board

 Three training institutes-

o National Institute for Entrepreneurship and Small Business Development (NIESBUD), New Delhi. o National Institute of Small Industry Extension Training (NISIET), Hyderabad. o Indian Institute for Entrepreneurship (IIE) Small Industry Development Organization- SIDO now DC MSME office- established in 1954, it is the office of the Development Commissioner (SSI/ MSME). It has over 60 offices and 21 autonomous bodies under its management, including: Small Industries Service Institutes- SISI (now Micro, Small & Medium Enterprise- Development Institute MSME-DI)- operational one in each state, provide technical support; consultancy services; training services, conduct EDPs, export promotion, quality control, energy conservation and liaison activities. Regional Testing Centre (RTC)- provide testing facilities for product quality upgradation. Tool Rooms/Tool Design Institutes (TRs/TDI)- assist SSIs in technical upgradation, provide good quality tools. Product-cum-Process Development Centres (PPDCs)- look into their specific problems and render technical service. Sub-Contract Exchanges for Ancillary Development (SCXs)- to register and create database of spare manufacturing capacity and match it with requirements; arrange buyer- seller meets; organise vendor exhibitions, seminar, workshops etc. National Small Industries Corporation (NSIC)- set up in 1955 in New Delhi. NSIC implements its various programmes/ schemes throughout the country to assist the SSIs. Khadi and Village Industries Commission (KVIC)- is a statutory body created by a Special Act of Parliament in April 1957. It is supposed to do the planning, promotion, organisation and implementation of programmes for the development of Khadi and other village industries in the rural areas in coordination with other agencies engaged in rural development. The aim was to preserve & promote handicraft, khadi, village and cottage industry by providing them financial assistance, marketing assistance etc. Coir Board- is a statutory body established by the Government of India under a legislation enacted by the Parliament namely Coir Industry Act 1953, for the promotion and development of Coir Industry in India as a whole. Three National Level Training Institutes a) National Institute of Small Industry Extension Training (NISIET), Hyderabad undertakes
operations ranging from training- national and international level, consultancy, research and education, to extension and information services. b) National Institute for Entrepreneurship and Small Business Development (NIESBUD), New

Delhi conducts national & international training programmes in different fields. c) Indian Institute of Entrepreneurship (IIE), Guwahati- was established to act as a channel for entrepreneurship development with its focus on the North East. STATE LEVEL INSTITUTIONS

Execute different promotional and developmental projects/schemes and provide a number of supporting incentives for development and promotion of small scale sector in their respective States. State Directorate of Industries (SDIs)- Under the constitution of India, promotion and development of SSIs is a State subject. Therefore, the primary responsibility for implementation of policies and programmes of assistance rests with the Directorate of Industries in each State. It acts under the overall guidance of SIDO and concerned Central institutions. It performs both regulatory and developmental functions. It functions through a network of District Industries Centres (DICs) under them to implement Central/State Level schemes. The main functions of Directorate of Industries are as follows: a) It conducts surveys to know industrial potential of a district keeping in view the availability of raw material, human skills, infrastructure, demand, etc. b) It prepares an action plan for industrial development. c) Identification of new entrepreneurs & Selection of new projects d) Registration of small scale units e) Providing financial assistance f) Distribute scare and indigenous raw materials to industrial units & Grant essentiality certificates for import of raw material g) It guides and assists entrepreneurs in buying appropriate machinery and equipment and raw material. h) It suggests appropriate marketing strategies to entrepreneurs. i) It conducts artisans training programmes. j) Establishing industrial estates and industrial co-operatives & Developing industrial infrastructure k) Arranging concessions and incentives for industries. l) It has been assigned operation responsibility for special schemes to provide self-employment to educated unemployed youths. m) Overall administration of village and small scale industries. n) Maintaining liaison with other agencies for industrial development. District Industries Centres (DICs)- The DICs programme was launched in 1978 for effective promotion of cottage and small scale industries widely dispersed in rural areas and small towns. These centers are the focal points providing all the services and support required by small scale and village entrepreneurs under one roof. These serves as an integrated administrative framework at the district level for industrial development. Small Industries Service Institutes (SISIs)- One in each state. They provide consultancy & training to small entrepreneurs. Main functions are: Interface between central & state Govt. Render technical support services. Conduct E.D.P's. Initiate Promotional Programmes. Provide Trade and market information. Technical Consultancy Organisations (TCOs) are established by state govt with the primary objective to furnish Industrial and technical consultancy to the entrepreneurs.

GLOSSARY Statutory corporation- is a corporation created by statute. Statute- is a formal written enactment of a legislative authority that governs a state, city, or county. Refinance- Replacing an older loan with a new loan. Discounting of Bills- When you sell on credit, you have to wait to get the money from the buyer for some time. If you need money in the meantime, you can approach a bank and they will pay the amount less their commission. They will collect from the buyer in time. Rediscounting of Bills- This bank which has 'discounted' the bills may require getting it 'rediscounted' with some other banks to tide over their fund position. In India: RBI, NABARD. SIDBI etc. allow the banks to rediscount such bill with them and provide the fund. Subscription of Shares- the purchaser of shares applies to acquire them directly from the issuer. Underwriting of Shares- is a contact between company and second party (called underwriter). Underwriter can be a financial Co (Bank, Investment Co) that promises to sell all/ minimum number of the shares of company to public (underwrites). For this service they receive a commission of 5%. Hire Purchase- After all payments have been made, the business customer becomes the owner of the equipment. For tax purposes, the customer is treated as the owner from the very beginning. Leasing- Ownership never passes to customer. Term Loan- A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate. Term loans almost always mature between 1 and 10 years. Floating interest rate- also known as a variable rate or adjustable rate, refers to any type of debt instrument, such as a loan, bond, mortgage, or credit, that does not have a fixed rate of interest over the life of the instrument. Micro Finance- Small borrowers still depend on the local moneylenders whose interest rates are normally very high. They do not approach banks despite their needs as they are illiterate and do not understand the intricacies involved in formal lending. With the help of NGOs, individuals can be organised under Self Help Groups (SHGs) for the purpose of lending from financial institutions. Defferred- suspended/ postponed Soft Loans- Loans with lower interest rates than conventional bank loans, long repayment periods or interest holidays. Merchant bank- is a financial institution which provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to. Mutual fund- is a type of professionally-managed collective investment scheme that pools money from many investors. Scheduled Banks in India- constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. Industrial estates- are specific areas zoned for industrial activity in which infrastructure such as roads, power, and other utility services is provided to facilitate the growth of industries. The infrastructure may include effluent treatment; solid and toxic waste collection, treatment, and disposal; air pollution and effluent monitoring; technical services on pollution prevention; quality management (quality assurance and control); and laboratory services.