SIDBI launches ‘SMILE’ scheme to benefit MSMEs
A typical Monday morning…
Caller: “Good morning, Sir! I’m calling from BEST BANK INDIA, Sir! Sir, we have an offer just for you that you cannot say no to, Sir!”
Receiving end: “No, thank you. I’m busy.”
Caller: “Sir, Sir! We can offer you excellent terms for your business! You will not find a better rate anywhere in the market! Sir, just hear me out, Sir!”
Receiving end: “Okay, what are the terms you can offer?”
Caller: “Sir, what has been your turnover for the last 3 years, Sir?”
Receiving end: “I set up my business 7 months ago”
Caller: “Oh. Sorry, Sir. We won’t be able to help you out.”
In times when the eco-system seems so very start-up-friendly, how often have the start-ups in our country had this conversation? Too often. For the most part, we see start-ups seeking out private equities and venture capitalists to fund their enterprise. But Micro, Small and Medium Enterprises (MSMEs) may not have the exposure required to seek such financing. The Small Industries Development Bank of India (SIDBI) has launched a scheme to address this.
September 25, 2014, Prime minister Narendra Modi launched the ‘Make in India’ initiative with the objective of creating jobs and enhancing skills in multiple sectors. It is aimed towards making India a global manufacturing hub, by promoting both domestic and multinational companies to manufacture their products within the country. It focuses on 25 sectors of the economy, ranging from Information Technology to Pharmaceuticals. Further details on this is available on www.makeinindia.com
In order to take this initiative forward, the late Mr. Jaitley launched the SIDBI Make in India Loan for Enterprises (SMILE). This scheme will provide ‘soft loans’ to MSMEs, which will be in the nature of quasi-equity and term loan on relatively soft terms to meet the required debt-equity ratio, for both establishment of MSMEs and growth of existing MSMEs. Such terms will be a relatively longer repayment period of up to 10 years and a moratorium of up to 36 months. The required promoter contribution has also been set at 15%, which is subject to a maximum debt equity ratio of 3:1.
Now comes the important question of when a business qualifies for such funding. The scheme will fund new enterprises in the manufacturing and services sector, with an emphasis on financing smaller enterprises with MSMEs. Expansion, modernization, technology upgradation and other such projects being undertaken by existing businesses will also be eligible for this scheme. The minimum loan amount for equipment finance has been set at INR 10 lakhs and at INR 25 lakhs for other purposes.
With this, MSMEs now have easier access to funding. The scheme will focus on the identified sectors with emphasis on funding smaller businesses within the MSME sector. Such a scheme is expected to benefit about 13,000 businesses and provide employment to about 2 lakh people!