1. 2011
Manasvi Mohan
1PI10MBA79
[SIDBI-A SUCCESSFUL FINANCIAL
INSTITUTION IN SME
FINANCING]
[Type the abstract of the document here. The abstract is typically a short summary of the contents
of the document. Type the abstract of the document here. The abstract is typically a short summary
of the contents of the document.]

2. INTRODUCTION
Small and medium enterprises (SMEs) play a catalytic role in the development of any
country. They are the engines of growth in developing and transition economies. In India they
account for a significant proportion in manufacturing, exports and employment, and are
major contributors to GDP. The Importance of SMEs in any economy cannot be overlooked
as they form a major chunk in the economic activity of nations. They play a key role in
industrialization of a developing country like India.
India has been witnessing the transformation from a centrally planned and highly directed
economy to a market friendly economy. But the growth – oriented structural changes
engineered through the economic reform agenda are yet to cover the SMEs. Although SMEs
are today recognized as a priority in almost all countries, It is estimated that half to two -third
of businesses, all over the world are SMEs .They comprise a widely divergent spectrum of
establishments, engaged in economic activities ranging from engaged in economic from
micro and rural enterprise to modern industrial units using sophisticated technologies.. Due to
their contribution to their respective national economies, the importance and emphasis on
SMEs has been accentuated in the minds of policy makers, planners and the industry in the
recent past. This is a consequence of the recognition that the shift from agrarian to industrial
and to post industrial knowledge based societies shall not be through the large industrial
houses but through individual and small initiatives by visionaries the SMEs.
There are some leading financial institutions such as Small Industrial Bank of India (SIDBI)
has been started with the aim of contributing to industries that have the ability to grow and
contribute towards GDP, till now SIDBI has satisfactorily contributed in credit disbursement
to small and medium enterprises in India. In fact, it owns the major chunk of pie in the graph
of overall SME financing in India.
OBJECTIVES:
To study the assistance provided by SIDBI for the growth small and medium
enterprises (SMEs) in India.
To study the Sanctions and Disbursements with respect to Refinance Assistance, Bills
Financing, Project Financing of SIDBI.
METHODOLOGY:
Based on the objectives of this topic, information was gathered about various financing
activities and other services rendered by SIDBI. This study is mainly based on secondary
data. A study of assistance provided by SIDBI to the SMEs was done with the help of various
articles published in journals and various news papers. Required data was collected
regarding financing activities of SIDBI over the past years and a comparative analysis was
done. The data has been depicted with the help of charts.

3. THE GROWTH OF SMES IN INDIA
SMEs may be defined in different ways by different countries .Most countries have adopted
the benchmarks of employment. Some define them in terms of assets, a few in terms of sales
and yet others, in terms of shareholders fund. In India, the term SSI (Small Scale Industries)
is used far more often than SME and is based upon investment in assets. Although definition
differ across countries, they have one thing in common; the vast majority of SMEs are
relatively small and over 95% of SMEs in Asia employs less than 100 people. Such
enterprises exist in the form of factories, workshops, trading and service organizations.
Ownership patterns range from proprietorship and partnership to companies and co-
operatives.
CHARACTERISTICS OF SMES
Born out of individual initiatives &skills
Greater operational flexibility
Low cost of production
High propensity to adapt technology
High capacity to innovate & export
High employment orientation
Utilization of locally available human & material resources
The SMEs sector plays a pivotal role in the overall industrial economy of India. It is
estimated that in terms of value, the sector accounts for about 39% of the manufacturing
output and around 33% of the total export of the country. Further, in recent years the SMEs
sector has consistently registered higher growth rate compared to the overall industrial sector.
The major advantage of the sector is its employment potential at low capital cost. As per
available statistics, this sector employs an estimated 31 million persons spread over 12.8
million enterprises and the labour intensity in the SMEs sector is estimated to be almost 4
times higher than the large enterprises.
SMEs are expected to contribute 22 per cent to India's Gross Domestic Product (GDP) by
2012, up from about 17 per cent at present, according to a survey by ASSOCHAM. The
survey states that the projected increase in this contribution of SMEs to the country’s GDP
would be on account of increased production due to technological up gradation.
A survey said that SMEs' contribution to GDP is projected to go up by a minimum of 5 per
cent and touch 22 per cent by 2012, since over 60 per cent of them are aggressively
upgrading themselves technologically.
It was also pointed out in the study that liberalisation and deregulation in the industry would
also contribute to the SME sector's growth, and that the sector could go on to register a 40 per
cent growth in the next five years, from 35 per cent in the last two years.

4. SIDBI
SIDBI began as a refinancing agency to banks and state level financial institutions for their
credit to small industries; it has expanded its activities, including direct credit to the SME
through its several branches in all major industrial clusters in India. It has been playing the
development role in several ways.
It is an apex body and nodal agency for formulating, coordination and monitoring the policies
and programme for promotion and development of small scale industries. Small Industries
Development Bank of India is an independent financial institution aimed to aid the growth
and development of micro, small and medium-scale enterprises in India. Set up on April 2,
1990 through an act of parliament, it was incorporated initially as a wholly owned subsidiary
of Industrial Development Bank of India. Current shareholding is widely spread among
various state-owned banks, insurance companies and financial institutions. Beginning as a
refinancing agency to banks and state level financial institutions for their credit to small
industries, it has expanded its activities, including direct credit to the SME through 100
branches in all major industrial clusters in India. Besides, it has been playing the development
role in several ways such as support to micro-finance institutions for capacity building and on
lending. Recently it has opened seven branches christened as Micro Finance branches, aimed
especially at dispensing loans up to Rs. 5.00 lakh.
SIDBI was established with the purpose to boost up small scale industries. small scale
industries were getting destroyed in lack of proper economic resources whereas this was best
option for the livelihood of middle class people living in small cities and towns. SIDBI
provided these economic resources to small scale industries. Today, SIDBI is helping not
only tiny, small and middle industry rather this bank is also progressing by leaps and bounds.
If we consider the statistics, then we can come to know that there was a significant growth of
22% in the financial year 2009-2010 and it was Rs. 2,540 crore after provisions. As a result
of this, its profit also increased by 41% to Rs. 421 crore. Also, earning per share increased to
Rs. 9.36. Bank has declared higher equity dividend of 25% for the financial year 2009-2010.
SIDBI retained its position in the top 30 Development Banks of the World in the latest
ranking of The Banker, London. As per the May 2001 issue of The Banker, London, SIDBI
was ranked 25th both in terms of Capital and assets.
SIDBI provides financial assistance to units in the small-scale sector. SIDBI provides
refinance against term loans granted by banks to SSIs, equity assistance, bills financing,
project financing and resource support to institutions that are engaged in the development of
SSIs. It also provides assistance to wide-range of industrial sectors including transport, health
care, hotel and tourism and infrastructure. It also provides funds to the professional and self-
employed persons setting up small-sized professional ventures.

5. THE MAIN FUNCTIONS OF SIDBI ARE:
*Source: SIDBI
SIDBI has 6 product divisions, namely direct financing, bills financing, Refinancing,
international finance, micro finance and fixed deposit. SIDBI’s objective was to help the
masses and the industry that is the base of all development, i.e. small scale industries. Thus
came up the idea of financing these industries directly and on selective basis. So it was
decided to introduce direct assistance schemes to supplement the other available channels of
credit flow to the small industries sector. Since then, SIDBI has evolved itself into a supplier
of a range of products and services to the Small & Medium Enterprises [SME] sector.
Considering the level of competition in banking business due to globalized environment,
SIDBI has now started spreading its wings either by way of diversifying its product portfolio
or entering into the strategic alliance with other leading private sector banks, public sector
banks and Non Banking Financial Institutions in order to achieve market development of its
existing portfolio of services. It aims to provide all the services a Small and Medium
Enterprise needs under one roof. Secondly, with the adoption of cluster development as the
key strategy to develop manufacturing sector’s competitiveness, SIDBI has an intention to
adopt the cluster financing method to assist SMEs.

6. OPERATIONS
Any bank’s operational excellence is measured by aggregate sanctions, subsequent
disbursement of the sanctioned amount, the amount of revenue generated from the difference
in spread over the loan taken and advances granted, higher amount of fee based income and
the last and the most important timely recovery of dues. In addition, the bank’s assistance
towards promotional and developmental efforts in the form of loans and advances for project
financing as well as its overall utilization of available resources lying with the bank under
study is another significant indicator of operational effectiveness.
OVERALL SANCTIONS AND DISBURSEMENTS OF SIDBI
SIDBI has booked the highest ever loan sanctions and disbursements by the end of financial
year 2009-10. It recorded loan disbursals of Rs. 31,918 crore and loan sanctions at Rs. 35,521
crore.
SANCTIONS (in crore)
Figure 1
40000
35521
35000
29188
30000
25000
20000
16164
15000
11102
10000
5000 2410
0
1991 2007 2008 2009 2010
*Source : SIDBI Annual Report

7. DISBURSEMENT (in crore)
Figure 2
35000
31918
30000 28298
25000
20000
15087
15000
10225
10000
5000
1839
0
1991 2007 2008 2009 2010
*Source: SIDBI Annual Report
From figure 1 and 2 we can observe that there has been in the steady increase in the total
sanctions and disbursements of sidbi over the years. This is the result of the extra efforts in
policy making and aggressive help provided by the bank for the overall welfare of the small
scale industries.

8. INCOME & PROFIT (in crore)
Figure 3
3000
2540
2500
2082
2000
1638
1500
1187
1000
425 421
500 298 299
198
36
0
1991 2007 2008 2009 2010
Income Profit
*Source : SIDBI Annual Report
Figure3 shows the income and profit of SIDBI over the years. Profits for SIDBI over the
years have been fluctuating as seen in the above, but we can observe that in the year 2010 the
profits have doubled.
REFINANCE ACTIVITY
SIDBI has remained the premier refinancing institute for the promotion and development of
small and medium enterprises. The mechanism used by SIDBI is it lends to Primary Lending
Institutions (PLIs) and they deliver the credit facility to existing entrepreneurs and first
generation entrepreneurs. This figure reveals the total sanctions and disbursement under
refinancing assistance
The main objective of introducing Refinance scheme was to facilitate the flow of funds to
industrial units in the micro and small enterprises sector through eligible PLIs, comprising
scheduled banks, State Financial Corporation’s (SFCs) State Industrial Development
Corporations(SIDCs), etc., SIDBI grants refinance against term loans granted by the eligible
PLIs to eligible industrial concerns for setting up industrial projects in the micro and small
enterprise sector and for their expansion / modernisation / diversification

9. REFINANCE ASSISTANCE (IN CRORE)
Figure 4
19400 19260.
98 20500
19926.0
19200 9
20000
19000
19500
18800
18534. 19000
18600 24 18584.8
2
18400 18500
18200 18000
18000 17500
sanction disbursement Sanction Disbursement
2008-2009 2009-10
*Source : SIDBI Annual Report
Figure 4 shows the refinancing details of SIDBI for the year 2008-09 and 2009-10. It shows
the net growth of increase in 3.45% in Sanctions and not so impressively increases in
disbursement of 0.25%. This is the result of the extra efforts in policy making and aggressive
help provided by the bank for the overall welfare of the small scale industries.
MICRO FINANCE
SIDBI is the apex lending body for microfinance institutions in India. Through its Foundation
for Micro Credit (SFMC), SIDBI channelizes funds to the sector and provides a wide range
of financial and non-financial services such as loan funds, grant support, equity and
institution building support to the retailing microfinance institutions.
Small Industries Development Bank of India has now opened a seven specialised micro-
finance branches in various centres across the country at Lucknow, Hyderabad, Chennai,
Bangalore, Kolkata, Bhubaneswar and Guwahati. It has a network of 120 partner micro-
finance institutions

10. MICRO FINANCE (IN CRORE)
Figure 5
1950 3000 2972.35
1920.73
2950
1900
2900
2850
1850
2800
1800 2750
2700 2671.61
1746.19
1750
2650
2600
1700
2550
1650 2500
sanction disbursement Sanction Disbursement
2008 -2009 2009-10
*Source : SIDBI Annual Report
The above figure 5 shows that the overall sanctions for micro financing by SIDBI has shown
the growth in FY 2009-10 from total sanctions amount of Rs. 1920.73 crore in the financial
year 2008-09 to Rs. 2972.35 crore in the FY 2009-10 which is almost 55% higher in than the
previous year.
BILL FINANCING
Bills financing have been another feather in the cap for SIDBI’s portfolio of financing for
assistance of the SME’s. The objective of the scheme is to mitigate the problem of delayed
payments to SSI units. The schemes operating under Bills financing are Bills Re-discounting,
Bills direct discounting, receivables financing scheme. This is for short term purposes and
entrepreneurs in need of such short term requirements for working capital have favoured this
scheme along with their financing options.
The main objective of SIDBI Bills Finance Scheme involves provision of medium and short-
term finance for the benefit of the small-scale sector. Bills Finance seeks to provide finance,
to manufacturers of indigenous machinery, capital equipment, components sub-assemblies
etc, based on compliance to the various eligibility criteria, norms etc as applicable to the
respective schemes.

11. BILL FINANCING (IN CRORE)
Figure 6
6560 11000
6549.48 10485.3
6550 9
10500
6540
10000
6530
6520 9500
6510 9003.37
6504.48
9000
6500
8500
6490
6480 8000
sanctios disbursement sanctios disbursement
2008-2009 2009-2010
*as per sidbi annual report
Total sanctions and disbursements for the FY 2009 and FY 2010 can be seen from figure 6
where the sanctions have increased by 60% in the year 2010 and disbursements have
increased by 38.42% in the year 2010 which shows that the sanctions and disbursements are
not at par with the target of SME’s being able to attain the credit available.

12. CONCLUSION:
The Importance of Small and Medium Enterprises in any economy cannot be overlooked as
they form a major chunk in the economic activity of nations. The singular contribution of
SMEs is on account of their unique characteristics .Their role in economic activity is been
benefited in both tangible and intangible ways., it is pertinent to mention that Small Industrial
Development Bank of India has achieved landmark results in the domain of small and
medium enterprise financing and fulfilling their credit requirements time to time in various
forms such as long term project finance, working capital finance, bill discounting etc.
However considering the level of appetite for credit facilities of Indian small and medium
enterprises, private and public sector banks in India need to work out an unique and
innovative model of financing to this vital sector (SME) of Indian Economy.
Bibliography
www.sidbi.com
www.ibef.org/artdisplay.aspx
www.rupeeindia.com
www.franchiseindia.com
www.iipmthinktank.com - case on SME financing by Tarak Shah &
Anshu Khedkar Indian sme’s and their uniqueness in the country- Dr. A.P.Pandey and
Shivesh