Financial Agencies


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Financial Agencies

  1. 1. Govt. Agencies Assisting in Financing Jacob John Panicker
  2. 2. Types of Institutional Finance Financial assistance offered to entrepreneurs by the institutional agencies belongs to the following types. i. Participation in Equity Capital. ii. Granting of Terms Loans for the acquisition of fixed assets. iii. Working capital.
  3. 3. Equity Capital ‘Equity Capital’, otherwise known as ‘Base capital’ or ‘Risk Capital” is formed by the investment of the entrepreneur himself. Since this capital forms the base amount on which the efficient and initial working of the enterprise depends, the adequacy of this capital is inevitable to the very existence of the enterprise.
  4. 4. Granting of Terms Loans Granting of terms loans is aimed at enabling new entrepreneurs to acquire fixed assets, such as land and building for their enterprises. Usually, these loans are utilized to purchase plots of land in areas set apart for this purpose (industrial areas) or plots or sheds in industrial estates.
  5. 5. Working Capital A number or credit institutions which provide finance to entrepreneurs for the acquisition of fixed assets and for meeting the working capital requirements of the existing and newly incorporated enterprises.
  6. 6. Commercial Banks • Commercial banks in India, play a vital role in providing institutional finance to new and existing entrepreneurs for construction of factory buildings and purchase of machinery and equipment. • The usual rate of interest varies from 11-16% per annum. Units established in recognized backward areas enjoy a managerial reduction in the rate of interest. • The loans are repayable I periodic quarterly or half year installments, extending from 3-5 years.
  7. 7. Commercial Banks The following are some of the major leading commercial banks in doing entrepreneurial development programs and assistance in India. 1. State bank of India: In 1978, the State Bank of India launched entrepreneurial development programmes in order to accelerate development od backward areas by monitoring potential entrepreneurs to take up new ventures. 1. Initiation phase for creating awareness about entrepreneurial opportunities. 2. Development phase through training programmes in developing motivation and managerial skills; and 3. Support phase makes counselling, encouragement and infra-structural support for establishing and running an enterprise. 2. Canara bank 3. Punjab National Bank
  8. 8. Industrial Development Bank of India (IDBI) The IDBI offers concessional terms that cover any or expansion project proposed to be located in areas which are declared backward by the govt. The IDBI provides re-financing facilities to medium and small scale industries through SFCs and Commercial Banks. The IDBI charges interest rate of 8% (5-Years) on its financial assistance as against the normal interest rate of 10.5% (3-Years) charged by other financial institutions.
  9. 9. Functions of IDBI • The IDBI provides assistance to the small scale sector through its scheme of refinance and bills rediscounting scheme. • The financial assistance has been indirect in the form of refinancing of loam granted by the commercial banks and the State Financial Corporations (SFCs). • In order to assist the small scale sector. IDBI has set up Small Industries Development Fund (SIDF) in May. 1986. This fund basically turn at providing a focal point to co-ordinate financial and non-financial inputs required for growth of small industries sector. • In association with Government of India, IDBI has constructed National Equity Fund (NEF) to provide equity type of support to tiny and small scale units which are engaged in manufacturing activities. The scheme is administered by IDBI through nationalized banks • The IDBI has also introduced the Single Window Assistance Scheme for grant of term loans and working capital assistance to small, tiny and medium scale enterprises.
  10. 10. The Industrial Finance Corporation of India (IFCI) The IFCI was established in 1948 under an Act of Parliament with the basic object of providing industrial finance (medium and long-term credit) to industrial concerns especially to small scale industries in India. This institution was transformed into a corporation from 21st May, 1993 with a view to provide greater flexibility to respond to the needs of the rapidly changing financial system of India. Activities • As against the normal interest rate of 11.25% on rupee loans and 11.5% on foreign currency loans (with a rebate of 1 % per year for punctual payments), the IFCI charges a lower interest rate of 9.5% and 10.5% (with a rebate of 1%) respectively. • The IFCI allows a grace period of 5 years, as against the normal 3 year for the first repayment of the principal amount.
  11. 11. Promotional Schemes of IFCI • Consultancy fees, subsidy schemes for assisting small scale entrepreneurs in marketing sector, • Interest subsidy schemes for women entrepreneurs. • Pollution control in Small and Medium scale Enterprises (SMEs), • Encouraging the modernization of tiny, small and medium scale! industries.
  12. 12. The Industrial Credit and Investment Corporation of India (ICICI) This corporation was established in 1955, as a private sector Development Bank with the primary objective to provide development finance to enterprises in the private sector. The main purpose for which financial assistance s extended by ICICI is the purchase of capital assets such as land building and machinery. Any company with a limited liability, any sole proprietary concern, partnership firm or any co-operative society may approach the corporation for assistance in financing a sound proposal for the establishment, expansion or modernization of an industrial enterprise. The ICICI gives special consideration to projects promoted by new entrepreneurs who desire to setup their ventures in backward areas.
  13. 13. Functions of ICICI • Financial assistance is extended by way of rupee and foreign currency, loans, underwriting and direct subscription to shares, debentures and guarantees. • Financial facilities such as deferred credit, leasing credit, instalment sale, asset credit and venture capital are extended by ICICI. • It also guarantees loans from other private investment sources scale units are the major beneficiary of the ICICI assistance.
  14. 14. Small Industries Development Bank of India (SIDBI) As a harbinger to the setting up of a much needed apex level national institution in response to the long standing demand from the small scale sector, a fund known as the “Small Industries Development Fund” was created by the ‘Industrial Development Bank of India’ in the year 1986, Backed by a special statute awarded by the Small Industries Development Bank of India Act of 1989, the SIDBI came into existence in March 1990 with a capital base of Rs. 450 crore. Making the base of the institution stronger, the IDBI transferred the fund created by it (Rs. 4,200 crore) to the new born institution. The availability of experienced man power endowed with 'development tanking skills’ carved out of IDBI’s professional staff and ready availability of a vast network of institutional infrastructure and enduring financial linkages with SFCs, Commercial Banks and other leading financial Institutions, all these contributed well for the growth of this new institution.
  15. 15. Modus Operandi of SIDBI • Speeding up of the flow of credit to the enterprises in the small scale sector through direct and indirect financing mechanisms and ensuring the quick disbursement are the main principles that invigorate the operational strategy of the SIDBI. • The new schemes designed and implemented by the bank were mostly directed at filling the gaps in the existing credit delivery system on target groups and activities. These schemes are targeted at solving the major problems faced by the small scale industries, in areas such as marketing, infra-structural development, delayed realization of bills, obsolescence of technology, quality improvement, export financing and risk capital assistance.
  16. 16. THANKS