SIDBI, or Small Industries Development Bank of India, is an entity whose primary objective is to strengthen the country's micro, small and medium enterprises (MSMEs) sector. It is a subsidiary of the Industrial Development Bank of India (IDBI) which began its operations on April 2, 1990. Initially, IDBI was responsible for the Small Industries Development Fund and the National Equity Fund. Later, SIDBI became responsible for handling these two funds. Besides providing financial support to the MSME sector, SIDBI also plays a role in preventing climate change by promoting cleaner practices in production and efficient use of energy.
Did you know?
The Small Industries Development Bank of India or SIDBI is a statutory body established under the Act of the Parliament,1988. Like other financial institutions such as the National Housing Bank (NHB), EXIM Bank and National Bank for Agriculture and Rural Development (NABARD), SIDBI is also regulated by the Reserve Bank of India.
A Complete Guide on SIDBI: Schemes, Functions, Full Form,
Steps to Apply for Loan
What is SIDBI About?
SIDBI, or Small Industries Development Bank of India, is the principal financial institution responsible for providing financial support and aid in developing the MSME sector. It also coordinates with other similar institutions to strengthen the country's micro, small and medium enterprises. The institution fulfils its agenda through indirect lending and direct lending. SIDBI offers to refinance primary lending institutions such as banks with branches across the country, to have a larger reach to support the MSME sector. Through direct lending, SIDBI aims to fill the credit gaps within the sector for the smooth running of the businesses. The Fund of Funds channel of SIDBI promotes entrepreneurship by supporting startup companies in the country. The institution also acts as a facilitator for various government schemes related to this sector.
Mission and Vision of SIDBI
The mission of SIDBI is to facilitate and improve the flow of credit to small and medium-sized businesses. It helps fill financial and developmental gaps in the MSME ecosystem. It aims to become a one-stop solution for meeting the financial and developmental needs of the MSME sector in India. By doing so, it wants to make this sector strong and globally competitive. It also wants to position itself as a customer-friendly institution that customers and shareholders alike prefer.
Objectives of SIDBI
The Small Industries Development Bank of India has the following objectives for MSMEs in the country -
- Provide financial aid to micro, small and medium-sized businesses.
- Provide easy reach to a large population through indirect lending to banks and other financial institutions.
- Help in the modernisation of small-scale industry and upgrade technology for improved efficiency.
- Promote products of the small-scale industry through better marketing strategies.
- Support national plans on climate change.
Benefits of SIDBI
1. Customised Loans
Startups and small-scale industries often find it difficult to arrange sufficient capital for the business. SIDBI offers several loan schemes to their customers. But if someone has a special requirement, the institution provides customised loans as per the requirement of the business. This tailored approach helps small-scale businesses acquire loans and credit as per their needs.
2. Attractive Rate of Interest
High-interest rates make things difficult for the MSME sector. SIDBI makes it easy for enterprises to avail of loans by offering an affordable interest rate. SIDBI can keep their interest rate low because they have tie-ups with several national and international financial institutions like the Japan International Cooperation Agency and the World Bank.
3. Collateral-free Loans
Banks usually provide loans against collateral. SIDBI, on the other hand, provides security-free loans to its customers, and MSMEs can take a loan of up to ₹1 crore without the compulsion of providing collateral.
4. Government Subsidies
When the government decides to provide a subsidy for MSMEs, SIDBI offers such subsidy loans and schemes to business owners at a lower interest rate than usual and with easy terms and conditions.
5. No Tempering of Company Ownership
Business owners sometimes have to give away part ownership of the company to acquire capital for their business. SIDBI safeguards the interest of business owners by providing them credit and loans without affecting their ownership of the company.
6. Transparent Procedure
Applying for a loan with SIDBI and its sanction procedure is very clear, with no hidden charges. The interest rates and other charges are mentioned to lenders beforehand to maintain a high level of transparency in the loan process.
7. Special Assistance
SIDBI bank provides loans to MSMEs through different SIDBI schemes and assists startup companies and entrepreneurs by providing valuable insights and guidance related to the business. Their relationship managers help business owners make the right decisions during the loan process.
Functions of SIDBI
SIDBI coordinates with various institutions in the country to financially assist and develop small-scale industries. Financial institutions like commercial cooperative banks, regional rural banks, industrial development corporations, etc., work along with SIDBI to strengthen the MSME ecosystem in India. Now let us look at the various functions of the Small Industries Development Bank of India.
- Refinancing commercial banks and other financial institutions to grant loans to small scale industries and promote borrowings by small business units.
- Discounting bills of small business units and rediscounting further to help the businesses.
- Assisting small-scale units that export their products to other countries. SIDBI helps display products of such exporters in international exhibitions and bears involved expenditures.
- Providing seed capital to promising entrepreneurs and soft loans for sustaining the business. A soft loan has a very low-interest rate and is repayable in a long span of 15-20 years.
- Conducting surveys in specific geographic locations to figure out the potential of developing MSMEs in the area. SIDBI also offers non-financial assistance by helping procure raw materials for business owners.
- Offering hires purchase financing to help small-scale business owners acquire expensive machinery.
- Providing factoring services, leasing, etc., to the small-scale sector.
Schemes Offered by SIDBI
1. Loan Schemes under Direct Financing
SMILE (SIDBI Make in India Soft Loan Fund for MSME) provides capital to new businesses in the service or manufacturing sector.
Loan Tenure: 10 years
Loan Amount: ₹10 lakhs to ₹25 lakhs
2. STFS (SIDBI Trader Finance Scheme)
This scheme is for wholesalers, retailers and traders who have been running their businesses for at least three years.
Loan Tenure: Depends on the cash flow of the business
Loan Amount: ₹10 lakhs to ₹1 crore
3. SEF (SMILE Equipment Finance)
This finance scheme helps MSMEs interested in purchasing new equipment.
Loan Tenure: 72 months
Loan Amount: Minimum ₹10 lakhs
4. TULIP (Top-Up Loan for Immediate Purposes)
Business owners with existing loans can top up their loans through this finance scheme in 7 days.
Loan Tenure: Maximum 5 years
Loan Amount: 20% of net sales or 30% of existing exposure
5. SPEED (Loan for Purchase of Equipment for Enterprise's Development)
This scheme entertains both new and existing customers. The only requirement is that the business is operational for at least three years.
Loan Tenure: 5 years and a moratorium of 6 months
Loan Amount: Up to ₹1crore for new customers and up to ₹2 crores for existing customers
6. Loans under Partnership with OEM (Original Equipment Manufacturer)
Small scale industries can purchase machinery and equipment directly through the manufacturers under this scheme.
Loan Tenure: 5 years with an eligible moratorium
Loan Amount: Up to ₹1 crore
7. Working Capital (Cash Credit)
Businesses can apply for a flexible loan. With instant approval, this financial product is a great option to meet the immediate needs of the business.
Loan Tenure: As per the terms and conditions of the scheme
Loan Amount: As per the financial status of the borrower
Also Read: Meaning and Need for a Cancelled Cheque
Other Finance Schemes of SIDBI
Microlending: Businessmen and women entrepreneurs can take advantage of the microlending offered by SIDBI.
1. Indirect Financing
SIDBI provides indirect financing to other financial institutions which provide financial assistance to small-scale industries.
2. Venture Capital
The SIDBI Venture Capital Ltd, a subsidiary of SIDBI, offers capital to small-scale industries through venture capital funds such as Aspire Funds, Funds of Funds, etc.
SIDBI has made it extremely easy for customers to apply for loans and other financial assistance. A business owner can apply for a loan through the online application process in just a few steps. First, a person has to register with a username and password on the official website of SIDBI and then select the scheme and the desired loan amount. Lastly, one has to add personal details to complete the application process. After reviewing the application and completing the formalities, SIDBI officials grant loans to MSMEs. The credit and loans provided by this financial institution play an important role in supporting the growth and development of this sector in the country.