One of the biggest sectors of the Indian economy is the Micro, Small and Medium Enterprise sector of the economy. The government has spent a lot of time and effort in developing and promoting these small and micro industries. The Small Industries Development Bank of India (SIDBI) was set up for the same reasons.
The government established SIDBI under a special Parliament Act as a subsidiary of the IDBI. Now the SIDBI is an independent body of its own that focuses mainly on the financing of the Small, Micro and Medium Enterprise (MSME) Sectors of the economy. It now is responsible for the allocation of the Small Industries Development Fund (which was the responsibility of the IDBI previously).
SIDBI makes use of the current banking network to extend credit facilities to the small business and micro industries sector. It provides direct financial assistance to such banks and institutes which are passed over to the MSME sector. It also provides indirect financial assistance via line of credit, refinancing facilities, bills discounting, etc.
Functions of SIDBI
- When a private bank or institution provides loans or advances to small units for business purposes, the SIDBI will refinance such loans.
- SIDBI has arrangements with banks, government bodies other international agencies, etc. to enable a holistic approach for the development of the MSME sector.
- It will also discount or rediscount bills of such private institutions.
- SIDBI offers small-scale units with additional services like leasing, factoring, etc.
- Ensures the timely flow of credit to make sure these small scale industries always have adequate working capital.
- Provides assistance to the MSME sector to expand its market for their products in both the domestic and the international market.
- It helps the small-scale industries modernize their technology for higher efficiency and better products.
- Especially helps organizations such as Mahila Udyam Nidhi, National Equity fund, etc. with initial capital, soft loans, advances, etc.
- Financially supports other organizations doing similar work. For example, it provides financial assistance to SSI Development Corporations who then pass on the assistance to the small units.
- Besides providing credit, SIDBI also provides these small scale industries with support for development and promotion activities. They educate about entrepreneurial development, responsible financing, environment protection, energy efficiency. This we call as the Credit Plus Approach.
Importance of SIDBI
Firstly the entire institution is designed in a way to especially help the MSME sector, who have their own unique credit needs. And so SIDBI ensures that these businesses get the right funding. These loans are customized to suit the size of the organization and its business environment.
Also, because of the various tie-ups, the bank has with other institutions and government backing it can provide credit and loans at concessional rates. The interest rates are never predatory.
And not only credit facilities SIDBI provides many other kinds of assistance. This has allowed the MSME sector to grow and develop tremendously in the last few decades. And now it is one of the most highly effective sectors of the Indian economy and contributes significantly to our GDP.