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Role of SIDBI

SIDBI is the primary financial institution for the promotion, development and financing of the MSME (Micro, Small and Medium Enterprises) sectors. Get the details of Role of SIDBI in the article.
authorImagePriyanka Dahima10 Jun, 2024
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Role of SIDBI

Role of SIDBI: The Small Industries Development Bank of India was established by an Act of Parliament in 1990. SIDBI was mandated to act as the leading financial institution in implementing the triple program of promotion, financing, and development of the MSME sector and coordinating the activities of the SMME -sector for various institutions engaged in similar activities.

Role of SIDBI

SIDBI - Headed by Shri Sivasubramanian Raman as Chairman and Managing Director. SIDBI was tasked with managing the Small Industries Development Fund and the Public Equity Fund, which IDBI earlier managed. SIDBI is the premier financial institution for promoting, developing, and financing the MSME (Micro, Small and Medium Enterprises) sector. Besides focusing on cleaner production and energy efficiency, SIDBI promotes the development of the micro, small, and medium enterprise sectors. SIDBI helps MSME get the funding they need to expand, commercialize, develop and commercialize their innovative products and technologies. The bank offers various programs as well as financial services and products for the needs of individuals and companies.

Functions of SIDBI

  • Small Industries Development Bank of India refinances loans given by PLIs to small-scale industrial units and also provides resources to them.
  • SIDBI reduces and recalculates the invoices.
  • It will also help to widen the marketing channels of SSI (Small Scale Industries) sector products in both domestic and international markets.
  • It offers services such as factoring, leasing, etc. to small businesses.
  • It promotes employment-oriented industries, especially in semi-urban areas, to create job opportunities and thereby check the migration of people to urban areas.
  • It also initiates steps for modernization and technological upgrading of existing units.
  • It also enables the timely delivery of working capital credits and term loans to Small Scale Industries in collaboration with commercial banks.
  • It also promotes national-level hedge funds.

Finance Services Provided by SIDBI

SIDBI's Financial Services are tailored to support the diverse and evolving needs of India's small-scale industries. Here we have provided a brief overview of the Finance options offered by SIDBI:

1. Term Loans

Export credit is a type of loan specially designed to support small businesses to export their products and services. It can be used to finance the production of export goods, the distribution and promotion of goods abroad, and the shipment of goods to foreign buyers. The repayment period for export credit is usually 6-12 months.

2. Working Capital Loans

Working capital loans are short-term loans used to finance day-to-day operating expenses such as inventory, accounts receivable, and accounts payable. They can be used to respond to seasonal fluctuations in demand or finance growth. The repayment period of the working capital loan is usually 6-12 months.

3. Export credit

Export credit is a type of loan specifically designed to support small businesses to export their products and services. It can be used to finance the production of export goods, the distribution and promotion of goods abroad, and the shipment of goods to foreign buyers. The repayment period for export credit is usually 6-12 months.

4. Loans for Technological Innovations

Loans for Technological Innovations are offered to help small businesses adopt new technologies to improve their productivity and competitiveness. These loans can be used to finance the purchase of new machinery, equipment, and software. Repayment periods for technology upgrade loans are typically 3-5 years.

5. Infrastructure Development Loans

Infrastructure Development Loans are given to small-scale industries to help them develop essential infrastructure such as roads, electricity, water supply, and sanitation. These loans can also be used to finance the construction of factory buildings, warehouses, and other facilities. The repayment period for infrastructure loans is usually 5-10 years.

6. Skills Development and Training Loans

Skills development and training loans are designed to help small businesses improve the skills and qualifications of their employees. These loans can be used to finance employee training in new technologies, management practices, and other areas. The repayment period for a skills and training loan is usually 2-3 years.

7. Energy Efficiency and Environmental Protection Loans

energy efficiency and environmental protection loans are offered to help small businesses adopt energy-efficient technologies and practices to protect the environment. These loans can be used to finance the purchase of energy-efficient equipment, the installation of renewable energy systems, and the implementation of waste management systems. The repayment period for energy efficiency and environmental protection loans is usually 3-5 years. 8. Cluster Development Loans Cluster Development Loans are offered to help small businesses form and develop industrial clusters. These loans can be used to finance the construction of common infrastructure facilities, the development of marketing and brand strategies, and the promotion of exports. The repayment of the loan for cluster development is usually 5-10 years.

9. Loans for Women Entrepreneurs

Loans for Women Entrepreneurs are specifically designed to empower women entrepreneurs by providing them access to financing. These loans can be used to finance the business of any woman entrepreneur. The repayment term of loans for women entrepreneurs is usually 3-5 years.

10. Linkage and Advancement Loans

Growth and advancement loans are provided to small-scale industries to help them establish linkages with other industries. These loans can be used to finance the purchase of production inputs from other industries, the sale of products to other industries, and the joint development of new products and services. The repayment period for reverse and term loans is usually 3-5 years.

11. Micro and Small Business Loans

Micro and Small Business Loans are specially designed to encourage the growth of micro and small businesses. These loans can be used to finance any micro or small business. The repayment period for micro and small business loans is usually 2-3 years. Apart from these financial arrangements, SIDBI also offers several other products and services to support the MSME sector such as equity investments, venture capital financing, and credit guarantee schemes.

Benefits of SIDBI

SIDBI's impact on the MSME sector in India has been significant. It has helped create millions of jobs, increased exports, and promoted inclusive growth. SIDBI is a true partner of SMEs and is committed to realizing their full potential.

1. Reasonably Priced Interest Rates

SIDBI's collaboration with several domestic and international banks enables us to offer loans at competitive interest rates. This is crucial for SMEs because lower interest rates can significantly reduce borrowing costs and help businesses invest more in growth and expansion.

2. Loans Without Guarantees

One of the important obstacles in accessing financing for SMEs is the lack of guarantees. SIDBI addresses this by offering unsecured loans up to Rs. 1 crore on certain schemes. This will encourage more SMEs to use financial services without fear of risking their assets.

3. Sustainable and Innovative

By promoting the adoption of new technologies and modern practices, SIDBI helps SMEs increase productivity and maintain competitiveness. This approach not only supports business growth but also ensures that businesses are resilient and ready for future challenges.

4. Encourages Business Ownership

SIDBI provides financing without taking equity in the company. This means that entrepreneurs can maintain full ownership of their businesses and still receive the funds they need to grow.

5. Transparent Loan Procedure

Transparency is crucial in financial matters. SIDBI's clear and simple loan procedures with no hidden charges increase the trust and credibility of MSMEs.

6. Risk Sharing

Through various risk sharing mechanisms and credit guarantee systems, SIDBI reduces the financial risks associated with lending to MSMEs. This encourages banks and other financial institutions to extend credit to small businesses that they otherwise consider too risky.

Role of SIDBI FAQs

Q1. What is the Role of SIDBI?

Ans. SIDBI is the primary financial institution for the promotion, development and financing of the MSME (Micro, Small and Medium Enterprises) sectors.

Q2. What is the full form of SIDBI?

Ans. SIDBI stands for Small Industries Development Bank of India.

Q3. What are functions of SIDBI?

Ans. The functions of SIDBI are - Small Industries Development Bank of India refinances loans given by PLIs to small-scale industrial units and also provides resources to them. SIDBI reduces and recalculates the invoices. It will also help to widen the marketing channels of SSI (Small Scale Industries) sector products in both domestic and international markets. It offers services such as factoring, leasing, etc. to small businesses.

Q4. Where is the SIDBI headquarters located?

Ans. The SIDBI is headquartered at Lucknow, Uttar Pradesh.
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