Small Industries Development Bank of India (SIDBI)

• What is SIDBI and what is its role in the Indian financial system?

 

Small Industries Development Bank of India (SIDBI) is the apex regulatory body for overall licensing and regulation of micro, small and medium enterprise finance companies in India. It is under the jurisdiction of Ministry of Finance , Government of India headquartered at Lucknow and having its offices all over the country.The SIDBI was established on April 2, 1990, by Government of India, as a wholly owned subsidiary of IDBI Bank . It was delinked from IDBI w.e.f. March 27, 2000. Its purpose is to provide refinance facilities to banks and financial institutions and engage in term lending and working capital finance to industries, and serves as the principal financial institution in the Micro, Small and Medium Enterprises (MSME) sector. SIDBI also coordinates the functions of institutions engaged in similar activities. It was established in 1989, through an Act of Parliament.

Here are the roles and functions of SIDBI:

 

• Refinancing: One of the primary functions of SIDBI is to provide refinancing facilities to banks and financial institutions that lend to small and medium-sized enterprises (SMEs). This helps to reduce the cost of borrowing for SMEs and ensures that they have access to affordable credit.

 

• Direct Lending: SIDBI also provides direct lending to SMEs in various sectors, such as manufacturing, services, and agribusiness. It offers various types of loans, such as working capital loans, term loans, and equipment finance, to help small businesses meet their financial requirements.

 

• Microfinance: SIDBI has a dedicated Microfinance Vertical that provides financial and non-financial support to micro-enterprises and small entrepreneurs who do not have access to formal credit channels. This helps to promote financial inclusion and improve the livelihoods of small entrepreneurs.

 

• Equity and Quasi-Equity: SIDBI also provides equity and quasi-equity support to SMEs by investing in their share capital or providing risk capital through various schemes. This helps to bridge the equity gap faced by SMEs and promotes their growth and expansion.

 

• Guarantee Schemes: SIDBI offers various guarantee schemes to SMEs to help them secure credit from banks and financial institutions. This includes credit guarantees, performance guarantees, and collateral-free loans, which help to reduce the credit risk faced by banks and encourage them to lend to SMEs.

 

• Technical Assistance: SIDBI also provides technical assistance to SMEs in various areas, such as marketing, technology upgradation, and quality improvement. This helps to improve the competitiveness of small businesses and enhances their ability to access new markets.

 

• Capacity Building: SIDBI also focuses on capacity building of various stakeholders in the SME ecosystem, such as banks, financial institutions, and SME entrepreneurs. It conducts various training and development programs to enhance the skills and knowledge of these stakeholders and promote the growth of SMEs.

 

In summary, SIDBI plays a crucial role in supporting and promoting the growth of small businesses in India. Its various functions, such as refinancing, direct lending, microfinance, equity support, guarantee schemes, technical assistance, and capacity building, help to address the various challenges faced by SMEs and promote their development and expansion.