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Module 04

Small industry financing in developing countries.

Small industry is a term usually used for enterprises on

relatively engaged in smaller scale of output etc. The definition differ from country to country but usually it is based on the index of investment, Plant & Machinery or output. In India any business investment involving investment of 1 crore in Plant & Machinery is small scale industry.

Institutions Helping Entrepreneurs.

Central Government.
Policies & Measures for Entrepreneurial Developments, Extension of infrastructure facility for new Entrepreneurs, Establishment of Advisory board or Council for Entrepreneurial facilities, Formation of a forum at National Level of academicians for timely advise.

Other than Central Government.

(Central &) State Institutions that provide;
Assistance other than Finance, Transportation, Warehousing, Insurance,

Marketing channels, advertising, etc.

Assistance by means of Finance.

Capital, Working Capital, short term, long term, credit, bill discounting & Collecting, factoring etc.

Small Industries Development Bank of India.

It was established on 02.04.1990. Objectives; Promotion of Industry, Financing Industries, Development in small scale sector Co-ordination of other institutions

NABARD Roles & Functions.

I. Credit Functions:
Developmental and Promotional Supervisory Functions, Institutional and Capacity building, Role in Training.


Credit Function.
NABARD credit functions cover planning,

dispensation and monitoring of credit. This activity involves: Framing policy and guidelines for rural financial institutions Providing credit facilities to issuing organizations Preparation of potential-linked credit plans annually for all districts for identification of credit potential Monitoring the flow of ground level rural credit

II. Development & Promotional Function.

Help cooperative banks and Regional Rural Banks to prepare development action plans for themselves Enter into MOU with state governments and cooperative banks specifying their respective obligations to improve the affairs of the banks in a stipulated timeframe Help Regional Rural Banks and the sponsor banks to enter into MOU specifying their respective obligations to improve the affairs of the Regional Rural Banks in a stipulated timeframe,

Development & Promotional Function.

Monitor implementation of development action plans of

banks and fulfillment of obligations under MOU

Provide financial assistance to cooperatives and Regional

Rural Banks for establishment of technical, monitoring and evaluations cells

Development & Promotional Function.

Provide financial support for the training institutes of

cooperative banks Provide training for senior and middle level executives of commercial banks, Regional Rural Banks and cooperative banks Provide financial assistance to cooperative banks for building improved management information system, computerization of operations and development of human resources

III. Supervisory Function.

As part of these functions, it

Undertakes inspection of Regional Rural Banks (RRB) and cooperative banks (other than urban/primary cooperative banks) under the provisions of Banking Regulation Act, 1949. Undertakes inspection of State Cooperative Agriculture and Rural Development Banks (SCARDB) and apex noncredit cooperative societies on a voluntary basis Undertakes portfolio inspections, systems study, besides off-site surveillance of cooperative banks and Regional Rural Banks (RRB)

III. Supervisory Function.

Provides recommendations to Reserve Bank of India on opening of new branches by State Cooperative Banks and Regional Rural Banks (RRB) Help cooperative banks and RRB to prepare development actions plans for themselves Enter into MOU with state governments and cooperative banks specifying their respective obligations to improve the affairs of the banks in a stipulated timeframe

IV. Training.
maintain expert staff to study all problems relating to agriculture and rural development and be available for consultation to the Central Government, the Reserve Bank, the State Governments and the other institutions engaged in the field of rural development. provide facilities for training, for dissemination of information and the promotion of research including the undertaking of studies, researches, techno-economic and other surveys in the field of rural banking, agriculture and rural development.

provide technical, legal, financial, marketing and

administrative assistance to any person engaged in agriculture and rural development activities; may provide consultancy services in the field of agriculture and rural development and other related matters in or outside India, on such terms and against such remuneration, as may be agreed upon;

Industrial Development Bank of India.

It was established on 01.07.1964, Objectives; Supplementing financial resource to other institutions, Providing technical & Admin Assistance, Undertake market & investment research, Planning, Promoting & developing industries of high importance.

It grants short term financial accommodation to industries by accepting and discounting commercial papers of industrial concerns,
It grants direct finance to industrial concerns by way of medium and long term loans & advances, It underwrites the issue of shares and debentures of industrial companies, It subscribes to the shares, bonds and debentures of industrial concerns.

Refinances long term and short term loan granted by

various industrial finance corporations, Refinances commercial & rural banks that have advanced loans & advances to industrial undertakings, Also undertakes industrial research etc.

Small Industry Development Organisation. Established in 1954 on the recommendations of Ford Foundation. It is a department. Objectives; Imparting greater vitality & growth impetus to the small, tiny, village enterprise in terms of output, employment & exports. Instill competitive culture based on technology.
Business Domain; Are as follows:

SIDO was established in October 1973 as a

organization under now Ministry of Trade, Industry and Marketing. Its objective was to develop the small industry sector in Tanzania. It was expected to fulfill a very wide range of functions, from policy formulation to direct support to industries, to hands-on involvement in the establishment of SME in both rural and urban areas.

These programs were strongly supported by the Government and by donors such as the World Bank, and the Governments of the Netherlands, India and Hungary.
In the context of a centrally planned economy, the virtual absence of a private sector, and an initially very low level of industrial activity, SIDO efforts

made a key and well recognized contribution to the development of the country.

Issues addressed by SIDO.

Technology development,
Business development - extension services,

Marketing and information,

Financial services

Business Development Extension Services.

Entrepreneurship and Business Management

Training Food Preservation and Processing Courses Technical Training Courses Capacity Building for Associations Advisory services

Financial Services.
How to obtain finance from SIDO Linkage to Financal Institutions SMEs Credit Guarantee Scheme

Marketing & Information.

Marketing and market linkages
Developing programs that reduce the marketing and

linkage constrains Training on marketing Management Organizing and assisting participation of Small and Medium Entrepreneurs at Exhibitions and Trade Fairs nationally and internationally.

Marketing & Information.

Promoting Tendering Programs
Promoting subcontracting and linkage undertaking Development of Export support promotion programs

and promote cross boarder trade. Providing advisory services on packaging, promotional materials and quality improvement of SME products.

Marketing & Information.

Information and Communication Development of promotional and information programs. Creating database information for the Small and Medium

sector. Publishing of product catalogues for the SME sector. Establishment of a showroom for the SME products. Development and maintenance of websites. Publishing of quarterly newsletter. Dissemination of information about the Small and Medium Enterprises sector. Marketing of the Organisation through media, development of promotional materials etc.

Indian Institute of Entrepreneurship. Established in 1993 at Guwahati. Objectives; Came with a aim to undertake training, development, research & consultancy activities in the small industry sector focusing on entrepreneurship development by Department of Ministry for small scale industries, Government of India. It now identify, design and conduct training programs for existing entrepreneurs,

To prepare, publish literature related to

entrepreneurship and industrial development, To organize seminar, workshop, conference etc for providing a forum for interaction and exchange of views by various agencies and entrepreneurs, To act as catalyst for development of self employment.

District Industries Centre. Established in May 1978. Objectives; Economic investigations in local

resources, Supply of Machinery & Equipments, Provision for raw materials, Consultancy & other services.

Single Window.
With increase thrust on promotion of industry, a number

of steps have been taken by the Government of India from time to time. But however the fact remains that entrepreneurs need to run pillar to post in order to obtain information are clearance from various State & Central Government Authorities. To mitigate this hardship, there is a need to find some ways & means by which this issue is Addressed properly. This has been evolved through a scheme called Single Window. Here guidance, assistance, advice etc are available at one place.

Latest Industrial Policy of GOI.

As a part of the liberalization, a new industrial policy was

announced by the government of India in two parts, the first part on July 24, 1991 followed by the second part on August was 6, 1991. Some of the major aspects of the industrial policy were as follows; Industrial licensing dispensed with except in 18 items, Foreign direct investment up to 51% of equity was allowed in high-priority industries, The threshold of the assets of MRTP companies and dominant undertakings removed, Automatic clearance introduced for import of capital goods, provided foreign exchange requirement for such import are met through foreign equity,

Latest Industrial Policy of GOI.

Automatic permission for foreign technology agreements

in high-priority industries up to a sum of Rs.1 crore granted, Foreign equity proposals need not be accompanied by foreign technology agreement, Existing and new industrial units provided with broadbanding facilities to produce any article so long as no additional investment in plant & machinery is involved. Exemption from licensing will apply to all substantial expansion and existing units. Pre-eminent role of public sector in eight core areas including arms & ammunition, mineral oils, rail transport and mining of coal & mineral to continue,

Latest Industrial Policy of GOI.

Part of governments shareholdings in public sector is

proposed to be disinvested, which will be offered to mutual funds, financial institutions, general public and workers, Chronic loss-making public sector units to be referred to the Board of Industrial and Financial Reconstructions (BIFR) for formulation of revival schemes, A simplified procedure for new projects was introduced to manufacture goods not covered by compulsory licensing. Even a substantial expansion of a project requires submitting a memorandum in the prescribed form to the secretariat for industrial approvals.

Latest Industrial Policy of GOI.

approvals. Decisive contribution was expected from foreign investment including foreign corporate bodies, foreign individuals and non-resident Indians, Industrial policy for the small-scale sector announced in the second part providing a four point scheme to provide financial support to this sector. The New Industrial Policy, 1991 aims to unshackle Indias industrial economy from the cobwebs of unnecessary bureaucratic control.

1991 Resolution -U Turn

Emphasis on rapid Industrialization as against Agriculture, Balanced Industrial Structure, Prevention of concentration of Economic Power, Free hand in International trading, Withdrawal of restriction on industry location & balanced Industrial growth. Simplified industry establishment procedures & Institutional & agencies support for industry.