A note on Institutional Finance to Entrepreneur.

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Ans:   1.      Industrial Development Bank of India:

The IDBI was established on July 1, 1964 by the Government of India under an Act of Parliament as the principal financial institution in the country.

Main Functions of IDBI

(a)     The IDB1 provides assistance to the small scale sector through its scheme of refinance and bills rediscounting scheme.

(b)     The financial assistance has been indirect in the form of refinancing of loans and the State Financial Corporations (SFCs).

(c)     In order to assist the small scale sector, the IDBI has set up Small Industries Development Fund (SIDF) in May 1986. This fund basically aims at providing a focal point to co-ordinate financial and non-financial inputs required for growth of small industries sector.

(d)     In association with Government of India, IDB1 has constituted National Equity Fund (NEF) to prevail equity type of support to tiny and small scale units which are engaged in manufacturing activities. The scheme is administered by IDB1 through nationalised banks.

(e)     The IDBI has also introduced the single window assistance ‘scheme for grant of term loans and working capital assistance to tiny, small and medium scale enterprises.

(f)      The IDB1 has also set up a Voluntary Executive Corporation Cell (VECC) to use the services of experts, professionals for counselling small units and for providing consultancy support in specified areas.

2.      Industrial Finance Corporation of India Ltd.:

The Industrial Finance Corporation of India was set up by the Government of India under IFC1 Act in July 1948. It is an important financial institution which gives financial assistance to the entrepreneurs through rupee and foreign currency loans, underwriting, direct subscriptions to shares, debentures and guarantees. It also extends other financial facilities like equipment procurement, equipment finance, buyer’s and supplier’s credit, equipment leasing and finance to leasing and hire-purchase companies.

The IFCI has devised new promotional schemes such as

(a)     Consultancy fees, subsidy schemes for assisting small scale entrepreneurs in marketing sector.

(b)     Interest subsidy schemes for women entrepreneurs.

(c)     Pollution control in small and medium scale enterprises.

(d)     Encouraging the modernisation of tiny, small and medium scale industries

3.      Industrial Credit and Investment Corporation of India Ltd. (ICICI):

The ICICI was established by the Government of India under the Companies Act 1956, with the objective of providing financial assistance to the small and medium scale sectors. The main functions of ICIC1 are as follows

(a)     Financial assistance is extended by way of rupee and foreign currency loans, underwriting and direct subscriptions to shares, debentures and guarantees.

(b)     Financial facilities such as deferred credit, leasing credit, instalment sale, asset credit and venture capital are given by ICICI.

(c)     It also guarantees loans from other private investment sources, small scale units are the major beneficiary of the ICICI assistance.

4.      Life Insurance Corporation of India (LIC):

The LIC was established under the L1C Act in 1956. It offers many insurance policies to give social security to various segments of society. As per its investment policy, LIC invests 75% and above in Central and State Government’s securities including government-guaranteed marketable securities and in the socially-oriented sector. The LIC gives loans for activities like housing, rural electrification, modernisation of industry, expansion, diversification of industrial ventures, water supply and sanitation etc.

5.      Unit Trust of India (UTI):

The UTI was set up by the Government of India in 1964 under an Act of Parliament. The chief objectives of UTI are to mobilise savings of small investors through sale of units and to channelise these savings towards corporate investment. The UTI has introduced many schemes which aimed at common investors. These schemes are mainly Primary Equity Fund, Retirement Benefit Plan, Grihalaxmi Unit Plan, Unit Scheme 1995 and Columbus India Fund. The UTI also provides financial assistance to corporate sector in the form of term loans and underwriting direct subscriptions to shares and debentures.

6.      Small Industries Development Bank of India (SIDBI):

SIDBI was established in 1989 as a subsidiary of IDBI under a Special Act. The main functions of SIDBI are the promotion and development of small scale industries by way of financing. It commenced its operations from 2 April, 1980 with its head office at Lucknow. The initial authorised capital of SIDBI was 25 crore, which can be .extended upto 1,000 crores.

The functions of SIDBI are as follows :

(a)     To promote small scale industries in semi-urban areas to create more employment opportunities.

(b)     To undertake technological upgradation and modernisation of existing small scale industries.

(c)     To expand the channels for marketing the products of SSI sector on both domestic and international markets.

(d)     To extend seed capital or soft loan assistance under National Equity Fund Scheme / Mahila Udyam Nidhi Scheme.

(e)     To great direct assistance and refinance for exports of small scale sector.

(f)      To provide financial assistance to SFCs, SIDCs, Commercial Banks, RRBs through existing credit delivery system.

(g)     To provide factoring and leasing service.

(h)     To provide financial assistance to the institutes, organisations for undertaking EDPs.

(i)      Special emphasis and the new schemes of assistance for marketing support to the small scale sector.

7.      Industrial Reconstruction Bank of India (IRBI):

The IRCI was set up in 1971 under the Companies Act to act as an agency to rehabilitate the sick units. But, in the year 1984, the Government of India renamed the IRCI as Industrial Reconstruction Bank of India (IRBI) by an Act of Parliament. Thereafter, it acts as a reconstruction agency to revive, reconstruct and rehabilitate the sick industrial concerns. IRBI plays a significant role in promoting entrepreneurial and industrial development in the country by performing the following functions

(1)     It provides financial assistance to industrial concerns.

(2)     It acts as an agency of State Government, Union Government and other financial institutions as per the authorisation of the Government.

(3)     It provides consultancy and merchant banking services for reconstruction and development of industrial units.

(4)     It also helps in providing infrastructural facilities, raw materials, machineries and other tools on the basis of hire-purchase and lease schemes.

8.      State Financial Corporations (SFCs):

IFCI provides financial assistance only to large sized industrial undertakings. In order to cater to the needs of the small scale units, the Government of India passed the State Financial Corporations Act in 1951 under which the State Financial Corporations (SFCs) were set up. The first SFC was set up in Punjab in 1953. Today, there are 18 SFCs functioning in the country. State Financial Corporations are managed by a Managing Director, Board of Directors and the Executive Committee is headed by a chairman.

The functions of SFCs are as follows

(a)     To advance term loans to small scale and medium scale industrial units.

(b)     It underwrites the issue of stocks, shares, debentures and bonds of industrial units.

(c)     It grants loans to the industrial concerns which is repayable within a period not more than 20 years.

(d)     It subscribes to debentures floated by industrial concerns.

(e)     It provides financial assistance to small road transport operators, tour operators, hoteliers, hospitals, nursing homes, etc.

9.      National Bank for Agriculture and Rural Development (NABARD) is an apex development bank in India for all rural credit having headquarters based in Mumbai (Maharashtra) and other branches are all over the country. The Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD), set up by the Reserve Bank of India (RBI) under the Chairmanship of Shri B. Sivaraman, conceived and recommended the establishment of the National Bank for Agriculture and Rural Development (NABARD). It was established on 12 July 1982 by a special act by the parliament and its main focus was to uplift rural India by increasing the credit flow for elevation of agriculture & rural non farm sector and completed its 25 years on 12 July 2007. It has been accredited with “matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas in India”. RBI sold its stake in NABARD to the Government of India, which now holds 99% stake. It is active in developing financial inclusion policy and is a member of the Alliance for Financial Inclusion.

         Objectives of NABARD

NABARD was established in terms of the Preamble to the Act, “for providing credit for the promotion of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities in rural areas with a view to promoting IRDP and securing prosperity of rural areas and for matters connected therewith in incidental thereto”.

The main objectives of the NABARD as stated in the statement of objectives while placing the bill before the Lok Sabha were categorized as under

(1)     The National Bank will be an apex organisation in respect of all matters relating to policy, planning operational aspects in the field of credit for promotion of Agriculture, Small Scale Industries, Cottage and Village Industries, Handicrafts and other rural crafts and other allied economic activities in rural areas.

(2)     The Bank will serve as a refinancing institution for institutional credit such as long-term, short-term for the promotion of activities in the rural areas.

(3)     The Bank will also provide direct lending to any institution as may be approved by the Central Government.

(4)     The Bank will have organic links with the Reserve Bank and maintain a close link with in.

         Role and Functions of NABARD

NABARD is the apex institution in the country which looks after the development of the cottage industry, small industry and village industry, and other rural industries. NABARD also reaches out to allied economies and supports and promotes integrated development. And to help NABARD discharge its duty, it has been given certain roles as follows:

(1)     Serves as an apex financing agency for the institutions providing investment and production credit for promoting the various developmental activities in rural areas

(2)     Takes measures towards institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc.

(3)     Co-ordinates the rural financing activities of all institutions engaged in developmental work at the field level and maintains liaison with Government of India, State Governments, Reserve Bank of India (RBI) and other national level institutions concerned with policy formulation

(4)     Undertakes monitoring and evaluation of projects refinanced by it.

(5)     NABARD refinances the financial institutions which finances the rural sector.

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217 Comments
  1. rinisha 2 years ago

    thank you ,
    very helpful and easily accessible

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