access to financemyaleap.org/images/ppts/mr. g sampath kumar.pdf · minimum promoter’s...

2/26/2018 1

International Conference on

“INNOVATION, INCUBATION,

INTUSTRIALIZATION”

January 17-19, 2018 : Visakhapatnam

INTERNATIONAL CONFERENCE - 2018

Access to Finance

G Sampath Kumar,

General Manager,

Small Industries Development Bank of India

2/26/2018 2INTERNATIONAL CONFERENCE - 2018

Access to Finance

• Access to finance is the ability of enterprises to obtain

financial services which includes credit, deposit, payment,

insurance and other risk management services.

• Unbanked or underbanked.

• Financial access promotes growth for enterprises through the

provision of credit to both new and existing businesses.

• It benefits the economy in general by accelerating economic

growth, intensifying competition, as well as boosting demand

for labour. It also reduces income inequality and poverty.


Access to Finance• The lack of financial access limits the range of services

and credits for enterprises. Small enterprises need to

rely on its internal resources to invest in businesses,

which limits its full potential and leading to the cycle of

persistent inequality and diminished growth.

• Access to finance varies greatly between countries

and ranges from about 5 percent of the adult

population in Papua New Guinea and Tanzania to 100

percent in the Netherlands.


Overview of MSMEs– MSMEs are the backbone of Indian Economy.

– Constitutes more than 90% of total units (134lakh).

– More than 8000 products.

– MSEs Contribute about 45% of manufacturing.

– Contributes around 40% of direct exports.

– Second largest source of employment, afteragriculture (>340 lakh).

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Indian MSMEs- Opportunities


• Contribution to employment, growth and wealth

distribution

• Provide economies with greater flexibility. Low

fixed cost

• Competitiveness in market place

• Seed bed for entrepreneurial ability and

innovation

• Balanced Regional development

• Effective utilization of local resources

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Indian MSMEs – Constraints


The major issues confronting MSMEs are identified to be:

• Access to Finance• Technology obsolescence • Managerial inadequacies • Delayed Payments • Poor Quality • Incidence of Sickness • Lack of Appropriate Infrastructure and • Lack of Marketing Network• Lack of Capital• Pricing Pressure• High competition • Lack of entrepreneurial knowledge• No R&D initiatives from sector

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

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Access to Finance• MSME financing – What they wish

• Availability of timely and adequate finance

• Reasonable cost

• Simple delivery process

• No collaterals

• Single window for financing requirements

• Awareness of schemes of Banks/FIs

• Support and Handholding services

• NPA cases – Reasonable OTS


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SIDBI - Apex institution for MSME in India


Credit

Indirect Finance

Direct Finance

Micro finance

Credit Plus

Enterprise promotion/ skill development

Management Development

Cluster Development

Marketing Support

Policy advocacy

Credit Advisory

Institutional solutions

SVCL- Venture Capital

SMERA- SME Rating

CGTMSE – Collateral Free Lending

ISTSL-Technology Transfer

ISARC – Asset Reconstruction

MUDRA – Funding the Unfunded

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SIDBI Make in India Soft Loan Fund for Micro Small & Medium Enterprises (SMILE)


Objective To provide soft loan, in the nature of quasi-equity, and term loan on relatively soft terms to MSMEs to meet the required debt-equity ratio for establishment of an MSME as also for pursuing opportunities for growth for existing MSMEs.

Eligibility New enterprises in the manufacturing as well as services sector.Existing enterprises undertaking expansion, modernization,technology upgradation or other projects for growing theirbusiness will also be covered. Loans extended under the schemecannot be used for repayment of earlier loans.

Project Cost All MSMEs as per MSMED Act 2006, with the emphasis onfinancing smaller enterprises within MSME.

Minimum Promoter’s Contribution

15% of project cost for projects up to Rs.1 crore and 20% for therest.

Term Loan 75% for enterprises with total project cost up to Rs.1 crore (forDebt-equity ratio of 3:1) and 2/3rd of the project cost (for Debt-equity ratio of 2:1) for the rest.

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SMILE


Soft Loan 10% of the project cost subject to a maximum of Rs.20 lakh.Up to 15% of the project cost for the enterprises promoted by ScheduledCaste (SC) / Scheduled Tribe (ST) / Persons with Disabilities (PwD) andwomen, subject to a maximum of Rs.30 lakh.Persons belonging to these categories must own controlling stake (i.e. 51% orhigher). On expiry of 3 years from the date of first disbursement, theoutstanding soft loan together with any dues thereon shall be converted intosecured term loan and the entire loan shall carry applicable rate of interest asper internal rating of the borrower.

Upfront fee Upfront fee of 0.5% plus applicable service tax

Minimum Term LoanSize

Rs. 50 lakh for new enterprises and Rs. 25 lakh for existing enterprises going for additional investment.

Repayment Period Not exceeding 7 years inclusive of the moratorium upto 1-1/2 year for term loan and upto 2 years for soft loan. However, the repayment period can be more than 7 years based on the need of the project.

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SMILE


Loan component/ Rating Interest rate (% p a) for initial 3 years

Women/SC/ST/ PwD Others

Soft loan 8.50 8.75

Term loan

C1 7.80

C2 7.90

C3 8.00

C4 8.10

C5 8.25

C6 8.35

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Energy Efficiency / Environment Protection….!


• Indian Economy is growing in recent years

• India has become 5th largest energy consuming country

• Increasing demand of energy

• Huge gap in demand & supply of Power / Energy

• For economic growth at an average rate of 8% over the next 25years– Energy supply should increase by 3-4 times– Power supply should increase by 5-6 times

• Urgent need to save energy for sustainable development

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Assistance for Energy Efficiency Projects - Objective


• The Overall Objective of the Programme is to reduce theemission of greenhouse gases, especially Carbon Dioxide(CO2 ) and thus to contribute towards climate changemitigation.

• Specifically, the programme seeks to

a) increase investments of MSME in energy efficiency and

b) increase the contribution of MSME to ecologicallysustainable economic development

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Assistance for Energy Efficiency Projects - Objective


– ELIGIBILITY CRITERIA FOR UNITS

• Existing MSME units, as per the definition of the MSMED Act, shall beeligible for assistance under the scheme. Greenfield investments are noteligible for investment under the Scheme.

• Units should have satisfactory track record of past performance andsound financial position and should not be in default to institutions /banks.

• Units should have minimum investment grade rating as per extant SIDBIGuidelines.

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Assistance for Energy Efficiency Projects


Sr. No. Parameter Norm

1 Minimum Assistance Generally not less than Rs.10 lakh

2 Minimum promoters

contribution

25% of project cost

3 Debt Equity Ratio As per the extant Operational Guidelines of

the DCS Scheme. At present it is 2:1

4 Interest Rate : The assistance under the scheme will carry :

As per Credit Rating and 0.75% below the

applicable rate

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Need for Risk Capital

Limited promoters’ resources with MSMEs.

External equity (VC/ PE) is not generally available for majority of MSMEs

Main source of funding is bank (secured) loans – restricted by

– Debt Equity Ratio

– Security/ collaterals Bank loans are also usually not available for Intangible investments - Marketing, brand

building, hiring professionals, R&D etc and for Technology & Service sector businesses

(which do not create hard assets)

MSMEs meet these requirements through high cost (18-20%) unsecured loans (2-3

years) with no/ low moratorium on repayments thereby affecting viability of businesses.

There is thus a need for Alternate funding sources/ structures.

Risk Capital Assistance for MSMEs

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WHAT IS THE ALTERNATIVE THEN?

• Risk capital in the form of MEZZANINE PRODUCTS as GROWTH CAPITAL

– Participative/ Convertible Debt

– Subordinated debt (with/ without conversion options)

• The benefits to a Unit are very close to that in Equity viz –– Long term – no immediate repayments (moratorium 3-5 years)– No additional promoters contribution required – Flexible structuring depending on the cash flows. – Collaterals not insisted

• As no Asset Cover to secure the assistance, hence Risk capital pricedhigher (about 2-3% p.a.) than a typical bank’s secured assistance. Muchcheaper to Equity where IRR expectation is generally =>25% p.a..

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Subordinate debt• SIDBI has come out with ‘Sub-ordinated debt’ for MSMEs in India.

• Subordinated in ‘Repayments’ and ‘Security’ to senior lenders.

• With or without conversion option - can be given to partnerships/ prop.concerns

• Maximum amt - 1/3rd of networth of the unit.

• Moratorium – Min 3 years. Max 5 years. Total tenure 7-8 years

• No collaterals insisted. Only residual charge on the business assets isobtained and hence improves credit rating of secured loans. Simplerdocumentation.

• Subordinated in repayments - Cure period concept - SIDBI allows the unit 6months time in the event of temporary liquidity problems by postponing therepayments under Sub-debt by 6 months.

• Accepted as Quasi-equity by SIDBI for DER purposes. Could be usedeffectively to bridge the gap in the means of finance.

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Benefits of Sub-debt/ Participative debt• Faster dispensation,

• Simpler documentation,

• Reasonable returns expectations,

• No day-to-day interference,

• No valuation complexities, exits….. etc.

• For good quality growing companies which need capital to grow but are still not ripe for equity.

• Bridge to bigger VC/PE funding in future.

2020

Direct Risk capital Scheme (DRCS)

• Eligible customers :– Those who have availed/ are availing term loans from SIDBI

(rating SME 4 and above)

– Other Bank customers (rating SME 3 and above)• 5 year existence• 3 year profit track record• 2 year credit track record

– VC/ PE funded customers• Professional management/ promoters • Innovative/scalable business• Not necessarily profitable in past.

TIFAC – SIDBI REVOLVING FUND forTECHNOLOGY INNOVATION PROGRAMME

…Catalyzing development, demonstration, commercialization of innovative technologies

• The collaborative programme of TIFAC & SIDBI launched on November 01, 2010,aims at facilitating

development, demonstration and commercialization of technology innovationprojects pertaining to

• new product or process development to encourage and promote developmentof capabilities in MSMEs to innovate and to bring high-risk innovations to themarket for opening up opportunities for business linked with innovations.

• TIFAC created a Revolving Fund of Rs.30.00 crores for Technology Innovation andplaced it with SIDBI to provide assistance to MSMEs for development, up-scaling,demonstration and commercialization of innovative technology based projects.

• Assistance upto 80% of the project cost

• Interest Rate: 5% p.a.

Parameter Norms

Objective For any tangible or intangible business need such as capex, servicing

new orders, renovation of property/ assets, reimbursement against self

financed assets acquired in last one year, funding of intangibles, brand

building/ marketing, R&D, inorganic business growth, or any other

bonafide business need, etc.

Minimum Amt. Generally ` 1 crore to ` 10 crore.

Maximum Amount

Criteria

i) Cash flow criterion : Gross Cash Accrual Criterion [Borrower]: 60% of

the gross annual cash accruals of the Borrower as per latest annual

audited financial results multiplied with number of years of repayment

proposed.

ii) Rental Criterion: 70% of the available net rentals from the collateral

property [other than owned by the borrower] multiplied with number of

years of lock in period of rental agreement or repayment period

proposed, whichever is lower.

iii) Loan to Value Criteria : 70% of collateral security [in case of residential

property] 60% of collateral security [in case of commercial property].

The amount of loan can be increased, if the unit is externally rated with

top two rating grades.

Secured Business Loan for MSMEs

End to End Energy Efficiency (4E) Solutions

• 4E (End-to-End Energy Efficiency) Solutions product launched by SIDBI.

• 4E would help the MSME unit to adopt energy efficient practices by providingthem handholding support.

• 4E would include the following services:

• Detailed Energy Audit (DEA)

• Support for implementation of EEMs / ECMs including M&V for quantifyingactual savings.

• 4E is expected to benefit 3,000 MSME units in the next three years.

• India SME Technology Services Ltd. (ISTSL), an associate of SIDBI isimplementing the 4E Initiative.

Loan Amount and Tenure

• Upto 90% of the Project cost with minimum loan amount ofRs.10 lakh and maximum loan amount not to exceed Rs.150lakh per eligible borrower under this scheme.

• Eligible loan amount should not exceed one-fifth of the total turn-over of theapplicant unit.

• The repayment period including initial moratorium period of upto 6 months, shallnot be more than 36 months for loans upto Rs.100 lakh and 60 months for loansbeyond Rs.100 lakh.

Promoter’s Contribution :Minimum promoter’s contribution of 10% of the project cost.

Interest Rate: 2.5% below the normal lending rate as per the creditrating (both fixed and floating options shall be available).

Financing End to End Energy Efficiency Investments

in SMEs (4E Financing Scheme)

Green Climate Fund (GCF)SIDBI has been nominated as “National Implementing Entity” byMinistry of Environment, Forest & Climate Change, GoI.

SIDBI has submitted application for accreditation with GCF. At present,application is at Stage-1 in the 3 stage accreditation process of GCF.

Accreditation with GCF would enable Direct Access of funds forimplementing climate change projects.

SIDBI’s financing activities & developmental efforts in the area ofsustainable development of MSMEs can be scaled up.

SIDBI can blend its own resources with the grants and concessionalfunding available from GCF.

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Privileged Customer Scheme (PCS)

• SIDBI’s existing well performing borrowers• Two year satisfactory payment track with atleast one year principal repayment

track record with SIDBI.• Should have earned net profit in last two years of operation and should not be in

default to any bank / FI.• Should not have moved into stress category during the preceding one year from

the date of sanction.

Purpose:

Unforeseen/ emergent and bonafide business expenditure like :

Non project specific expenses like adding/ replacement of machinery, balancingcapital equipment, renovation/ additions to factory building, jigs /fixtures,computer hardware/software, WC margin needs, marketing related expenses,setting up franchise, brand building, execution of bulk orders, deposits forcontracts, temporary shortage of WC, etc.

Stand Up India Scheme

Parameter Norms

Objective To mitigate the delayed payments of MSMEs from larger Companies

Minimum Limit Not below Rs.1 crore

How it

operates

Under the Scheme, annual limits are sanctioned to Purchaser Companies. Bills/invoices

arising out of sale of indigenous components / parts manufactured / job-work done/ services

provided by MSMEs and eligible service providers to Purchaser Companies are discounted

and paid to MSEs

Interest Rate Competitive - as per Internal rating of SIDBI

Asset coverage 1.25

Usance period Upto 90 days

Eligibility

Criteria

3 years growth in Turnover y-on-y, as per audited financial statements of the previous 3 FYs.

Corporate entity with 3 years of net profits out of the last 4 years as per audited financial

statements

Receivable Finance Scheme

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SIDBI as Nodal Agency -GOI Schemes to facilitatemodernisation of select industries

•Credit Linked Capital Subsidy Scheme (CLCSS):. 15% capital subsidy for induction ofproven technologies approved products / sub-sectors. Subsidy will be limited to 15% ofthe purchase price of plant & machinery or Rs 15 lakh whichever is less.

•Technology Upgradation Fund Scheme (TUFS): For modernisation and technologyupgradation in textile and jute industry. The scheme provides for an interest subsidy of5%/4% or upfront capital subsidy of 20%/15%.

•Technology Upgradation for Food Processing Industry (TUFPI) :. The Scheme providesfor capital subsidy of 25% of the cost of plant and machinery and technical civil worksubject to maximum of Rs.50 lakh in general areas and 33% upto Rs.75 lakh in difficultareas.

•Integrated Development of Leather Sector Scheme (IDLSS) : The financial assistancewill be investment grant to the extent of 30% of cost of plant and machinery for SSI and20% of cost of plant and machinery for other units (i.e. non SSI units) subject to a ceilingof Rs. 50 lakh. Under this , loan availment is not mandatory

Micro Finance and P&D activities

• Microfinance

• Enterprise Promotion activities- Rural Industries Programme- Entrepreneurship Development

Programme

Enterprise Strengthening- STUP- SIMAP

Addressing Non Financial Gaps1. Information Dissemination:

www.smallB.in

To handhold and guide new entrepreneurs on how to set up a business, access to finance, avail benefits under government schemes, etc.

The website has been bestowed with International ADFIAP Awards 2014 by ADFIAP, Manila,Philippines under the Technology Development category.

2. MSME Advisory Centres:

KPs at Clusters

3. Poorest State Inclusive Growth (PSIG):

Supported by UK Aid from DFID since April 2012

A seven year programme

Aims at expanding access to a range of financial services for 4 low income states viz., Bihar, Odisha, Madhya Pradesh and Uttar Pradesh

4. MoU with Franchise India

5. MoU with Snapdeal

6. MoU with NASSCOM

http://www.smallb.in/

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Trade Receivables Discounting System (TReDS)


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Name : G Sampath Kumar

Designation : General Manager & Regional Head

Contact address : Small Industries Development Bank of India, #101, Hermitage Office Complex, Saifabad, Hyderabad 500004, Telangana State.

Email : [email protected]: : 040-23230903Mob : 9966656901

Website : www.sidbi.in

Thank You


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