Institutional_Finance_to_Entrepreneurs by rahulwakude

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									   INSTITUTIONAL FINANCE TO ENTREPRENEURS
   1 Commercial Banks
   2 Other Financial Institutions:
          a) Industrial Development Bank of India (IDBI)
          b) Industrial Finance Corporation of India (IFCI)
          c) Industrial Credit and Investment Corporation of India (ICICI)
          d) Industrial Reconstruction Bank of India (IRBI)
          e) Life Insurance Corporation of India (LIC)
          f) Unit Trust of India (UTI)
          g) State Financial Corporations (SFC)
          h) State Industrial Development Corporations (SIDC)
           i) Small Industries Development Bank of India (SIDBI)
           j) Exim Bank
   3. SUMMARY
   4. Assessment Questions

  LEARNING OBJECTIVES
  On completion of this chapter, you should be able to:
 Know the types of financial assistance provided by commercial banks to the small
  entrepreneurs.
 List the various financial institutions which provide financial assistance with the types of
  assistance to the entrepreneurs in the country.

   Finance is one of the essential requirements of any enterprise. Before actually setting up their
   units, small entrepreneurs need to know very clearly about the type and extent of their
   financial requirements. This we have already discussed in the previously. Integral to financial
   requirements is to know about the possible alternative sources from which finance can be
   availed of. Given the shortage or lack of entrepreneurs' own funds/ resources, the
   Government of India as a part of its policy of promotion of small-scale sector in the country
   has set up a host of institutions to meet the financial requirements of small entrepreneurs.
   This discussion is, therefore, devoted to discuss the financial assistance given by various
   institutions to small entrepreneurs to set up their enterprises.

   COMMERCIAL BANKS
     The Scheduled Commercial Banks (SCBs) in the country (288) comprise the State Bank of
   India (SBI) and its associated banks (8), Nationalised banks (19), private sector banks (32),
   regional rural banks (RRBs) (196) and foreign banks (23). During 1994-95, ten more banks
   were given the status of SCBs and one; viz. Bank of Karad which was taken over by Bank of
   India was excluded. As on March 31, 1995, the total number of branches of SCBs stood at
   62,067, of these 35,060 (56.5% of the total) were in rural areas.
      For a long period, commercial banks did not come forward to extend financial assistance
   to the small-scale industries because of the SSIs weak economic base. The first lead in this
   regard was taken by the SBI, in consultation with the Reserve Bank of India (RBI), in March
   1956 by setting up a pilot scheme for the provision of credit for small-scale industries. In the
   beginning, the scheme was confined to 9 branches of the SBI which was later extended to all
   branches of the SBI. The commercial banks started taking initiation in financing SSIs in a
   greater way only after the bank nationalisation in July 1969. Normally, the commercial banks
   provide assistance for working capital requirements of SSls.
                                                                                    Page No. 2
Over the years, they have also started providing 'term' finance as is indicated by the data
compiled by the RBI that of all the advances given to SSls by the commercial banks, the
share of the term loan accounted for nearly 30%.
A notable feature in the financing of SSls has been the introduction of the 'Lead Bank
Scheme' by the RBI. Under this scheme, each district has been allotted to one scheduled
commercial bank for intensive development of banking facilities.
   The introduction of 'Credit Guarantee Scheme', in 1960, was a big fillip in the field of
commercial bank financing to SSls. Initially, this scheme was introduced in 22 districts on
experimental basis. Later, it was extended to all over the country. Further, the RBI set up a
Committee under the Chairmanship of Shri P.R. Nayak, to look into the adequacy of
institutional credit to SSls. Based on the recommendations of the Committee, the RBI
introduced a special package of measures for financing SSls and advised banks to take
various measures aimed at increasing the credit flow to the SSls and arresting the problem of
sickness in small-sector. Availability of credit to the SSI sector improved further with the
stipulation on foreign banks to extend at least 10% of their net bank credit to the SSI sector
and to deposit the shortfall, if any, with the Small Industries Development Bank of India
(SIDBI). According to the figures released by the Industrial Development Bank of India
(IDBI) (1) , the outstanding gross bank credit to industrial sector stood at Rs. 102953 crores
as on March 31, 1995 of which Rs. 27,612 crores (27% of total) were given to the SSls by the
commercial banks. It is interesting to mention that the bank credit to small sector as a
percentage to total bank credit is on increase year after year. For example, it increased from
22% in March 1993 to 27% in March 1995.

OTHER FINANCIAL INSTITUTIONS
INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI)
Prior to 1964, there was not any apex organisation to co-ordinate the functions of various
financial institutions. Then, V.V. Bhatt rightly pointed out that the country needed a central
development banking institution for providing "dynamic leadership in the task of promoting
a widely diffused and diversified and yet viable process of industrialisation" (2). It was to
fulfill this objective, the Government decided to establish the Industrial Development Bank
of India (IDBI). The IDBI was established on July 1, 1964 under the Act of Parliament as the
principal financial institution in the country. Initially, it was set up as wholly owned
subsidiary of the Reserve Bank of India. In February 1976, the IDBI was made an
autonomous institution and its ownership passed on from the Reserve Bank of India to the
Government of India.
The IDBI provides assistance to the small-scale industries through its scheme of refinance
and, to a limited extent, through its bills rediscounting scheme. As it is not feasible for the
IDBI to reach a large number of small-scale industries, scattered all over the country, the
flow of its assistance to this vast number has, therefore, been indirect in the form of
refinancing of loans granted by the banks and the State Financial Corporations (SFCs).
   The IDBI has shown its particular interest in the development of small scale industries. Of
particular mention is the setting up of the Small Industries Development Fund (SIDF) in May
1986 to facilitate the development and extension of small-scale industries.
   ----------------------------------------------------------
1. IDBI Report on Development Banking 1994-95, Industrial Development Bank of India,
Bombay, December 22, 1995, p.84.
2. VV Bhatt: A Decade of Performance of Industrial Development Bank of India, Commerce,
Annual Number, 1974-, p.151.
                                                                                     Page No. 3
In 1988, the IDBI also launched the National Equity Fund Scheme (NEFS) for providing
support in the nature of equity to tiny and small-scale industries engaged in manufacturing,
cost not exceeding Rs. 5 lakhs. The scheme is administered by the IDBI through nationalized
banks. The IDBI has also introduced the single window assistance scheme for grant of term
loans and working capital assistance to new, tiny and small scale enterprises. Last but no
means the least, the IDBI has also set up a Voluntary Executive Corporation Cell (VECC) to
utilize the services of experienced professionals for counselling small units, tiny and cottage
units and for providing consultancy support in specific areas.
During 1987-88, the IDBI sanctioned assistance worth Rs. 1,511 crores to the small-scale
industries out of total sanction of Rs. 4,580.60 crores. It means about one-third of total
industrial assistance was given to small-scale sector alone.
In order to make the IDBI's coordinating role more effective, the Narasimham Committee (3)
has suggested that the IDBI should give up its direct financing function and perform only
promotional apex and refinancing role in respect of other institutions like SFCs and SIDBI,
etc. The direct lending function should be entrusted to a separate finance company, especially
set up for this purpose.

INDUSTRIAL FINANCE CORPORATION OF INDIA LTD (IFCI)
The Government of India set up the Industrial Finance Corporation of India (IFCI) under
IFCI Act in July 1948. Since July 1, 1993, it has been brought under Companies Act, 1956.
The IFCI extends financial assistance to the industrial sector through rupee and foreign
currency loans, underwriting/direct subscriptions to shares/debentures and guarantees and
also offers financial services through its facilities of equipment procurement, equipment
finance, buyers' and suppliers' credit, equipment leasing and finance to leasing and hire
purchase companies. It also provides merchant banking with its Head Office in Delhi and a
bureau in Bombay.
The financial resources of the IFCI are constituted of the following three components:
1. Share capital,
2. Bonds and Debentures; and
3. Other Borrowings.
Its paid-up capital as on March 31, 1995 stood at Rs. 352 crore from an initial of Rs. 5 crore
in 1948. The Industrial Development Bank of India, scheduled banks, insurance companies,
investment trusts and the co-operative banks are the shareholders of the IFCI. Apart from
paid-up capital and reserves, the major sources of the IFCI are issue of bonds and debentures,
borrowings from the Government, the Reserve Bank of India, Industrial Development Bank
of India and foreign loans.
The IFCI started its lending operations on a modest scale in 1948. The operations of the IFCI
have grown over the years and so have its assistance. Assistance sanctioned by the IFCI
during 1994-95, rose by 52.7% to Rs. 5719 crores. Assistance disbursed went up by 31.2% to
Rs. 2839 crore during the year. Cumulatively, up to end-March 1995, the IFCI's sanctions
amounted to Rs. 24,599 crore, while disbursements aggregated Rs. 15,387 crore.4
In recent years, the IFCI has started new promotional schemes, such as
a) interest subsidy scheme for women entrepreneurs;
b) consultancy fee subsidy schemes for providing marketing assistance to small-scale
    industries;
c) encouraging the modernisation of tiny, small-scale ancillary units; and
d) control of pollution in the small and medium scale industries.
                                                                                Page No. 4
   The IFCI has shown its growing concern in the development of backward districts.
   Cumulatively, up to end March 1995, assistance sanctioned by the IFCI to backward areas
   aggregated Rs. 11,293 crore accounting for 45.9% of the total.
      -----------------------------------------
   3. Report of the Committee on the Financial System (Narasimham Committee), Government
   of India, New Delhi, 1991.
   4. IDBI Report on Development Banking in India 1994-95, Industrial Development Bank of
   India, December 22, 1995, p. 23.

   No doubt, the IFCI has experienced impressive performance over the years. At the same
   time, it is also true that there are certain flaws in its functioning which have invited criticism
   from different quarters. To quote, the important ones are:
1) The IFCI's lending operations have encouraged concentration of wealth and capital. It still
   pursues a discriminatory policy to the disadvantage of medium and small-scale units.
2) There are great delays in sanctioning loans and, then, making the amount of the loan
   available.
3) The IFCI has failed to exercise necessary control over the defaulting borrowers.

   Further, in many cases, the assistances have not been used for the specific purpose for which
   they are given. Here also, the IFCI has failed to take any action against such practices.

   INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LTD.
   (IClCI)
   The Industrial Credit and Investment Corporation of India Ltd. (IClCI) was set up in January
   1955 under the Indian Companies Act with the primary objective of developing small and
   medium industries in the private sector. Its issued capital has been subscribed by the Indian
   banks, insurance companies and the individuals and corporations of the United States, the
   British Eastern Exchange Bank and other companies and general public in India.
   The ICICI performs the following functions:
1. It provides assistance by way of rupee and foreign currency loans, underwriting and direct
   subscriptions to shares I debentures and guarantees.
2. It offers variety of financial services such as deferred credit, leasing credit, installment sale,
   asset credit and venture capital.
3. It guarantees loans from other private investment sources.
   The ICICI has recently set up a Merchant Banking Division which is working very
   creditably. It has also set up ICICI Asset Management Company Ltd. in June 1993 to operate
   the schemes of the ICICI Mutual Fund. Yet another subsidiary called ICICI Investors
   Services Ltd. (March 1994) and ICICI Banking Corporation Ltd. (January 1994) have started
   operations.
   Assistance sanctioned by the ICICI during 1994-95 increased by 77.4% to Rs. 15,065 crore,
   while disbursements went up by 55.9% to Rs. 6,879 crore. Cumulatively, up to end March
   1995, sanctions amounted to Rs. 53,307 crore and disbursements aggregated Rs. 30,595
   crore. The ICICI assists all sectors, that is, the private sector, the joint sector, the public
   sector and the co-operative sector. It is worth mentioning that the private sector continued to
   claim the largest share (90.1 %) of IClCI, sanctions during 1994-95, distantly followed by
   public sector (4.6%), joint sector (4.1%) and co-operative sector (1.2%). Thus, the major
   beneficiary of the IClCI's assistance is the private sector mainly comprising of small scale
   units.
                                                                                     Page No. 5
INDUSTRIAL RECONSTRUCTION BANK OF INDIA (IRBI)
The Government of India set up the Industrial Reconstruction Corporation of India (IRBI) in
April 1971 under the Indian Companies Act mainly to look after the special problems of
'sick' units and provide assistance for their speedy reconstruction and rehabilitation.
--------------------------------------------
5. Based on 5.5. Khanka: Role of IRBI in Reviving Sick Industries, In: B.S. Bhatia & C.5.
Bhatia (Ed.): Management of Sick Industries, Deep & Deep Publications, New Delhi, 1994,
pp. 192-99. .

In August 1984, the Government of India passed an Act converting the Industrial
Reconstruction Corporation of India (IRCI) into the Industrial Reconstruction Bank of India
(IRBI). The IRBI has to function as - the principal all-India credit and reconstruction agency
for industrial revival assisting and promoting industrial development and rehabilitating
industrial concerns.
During 1994-95, the IRBI had sanctioned Rs. 778 crore mainly in the form of term-loans, for
modernization, diversification, expansion, renovation. Its disbursements went up to Rs. 398
crore. Formerly IRCI had extended assistance to sick closed industrial units in textiles,
engineering, and mining and foundry industries. Now IRBI extends assistance to sick small-
scale units also.
The IRBI had diversified its activities into ancillary lines such as consultancy services,
merchant banking and equipment leasing. All these activities are allied to its task of
rehabilitation of sick industrial units. Through its consultancy services, IRBI attempts to help
banks and financial institutions to assess intrinsic worth of sick units which are seeking
assistance for revival. Through its merchant banking services, IRBI enables units in the
process of amalgamation, merger and reconstruction. Equipment leasing was, in fact, an
extension of the IRBI hire-purchase scheme.

LIFE INSURANCE CORPORATION OF INDIA (LIC)
The Life Insurance Corporation of India (LIC) was established under the LIC Act in 1956 as
a wholly-owned corporation of the Government of India, on nationalisation of the life
insurance business in the country. LIC offers a variety of insurance policies to extend social
security to various segments of society. It has been deploying its funds in accordance with
plan priorities.
As per its investment policy, it invests 75% and above of the accretion to its Controlled Fund
in Central and State Governments’ securities including government-guaranteed marketable
securities and in the socially oriented sectors. It also provides loans for various purposes like
housing, water supply, rural electrification, etc. to benefit individuals and groups. LIC also
provides term loans and underwriting/ direct subscriptions to shares and debentures of
corporate sector.
During the year 1994-95, LIC sanctioned assistance to corporate sector (including term loans
to other financial institutions) Rs. 1790 crore of which Rs. 1343 crore were disbursed. Of the
total assistance sanctioned, term-loans accounted for 31.4%. Cumulatively, up to end March
1995,LIC's sanctions stood at Rs. 11,563 crore including term-loans of Rs. 3,758 crore
(32.5% of total sanctions).
During 1994-95, assistance sanctioned to corporate sector stood at Rs. 113 crore. The private
sector claimed the higher share (57.8%) in total sanctions. It was distantly followed by public
sector (34.1%) and co-operative sector (8%).
                                                                                Page No. 6
As regards the purpose-wise assistance sanctioned, the new projects claimed maximum share
of 37.3% in total sanctions, followed by expansion/ diversification (31.2%) and
modernization/ rehabilitation/balancing equipment (12.4%).

UNIT TRUST OF INDIA (UTI)
   The Unit Trust of India (UTI), established under an Act of Parliament in 1964, mobilises
savings of small investors through sale of units and channelises them into corporate
investments. Over the years, the UTI has introduced a variety of schemes to meet the need of
diverse sections of investors. The UTI also provides assistance to the corporate sector by way
of term-loans and underwriting/direct subscription to shares/debentures.
During the year 1994-95, the UTI launched nine new schemes/plans aimed mainly at
common investors. These, among others, included open-ended schemes like Grihlakshmi
Unit Plan, Retirement Benefit Plan, Primary Equity Fund, Unit Scheme 1995 (targeted at
corporate investors) and Columbus India Fund.
Overall assistance sanctioned, during 1994-95, to corporate sector stood at Rs. 7,677 crore
and disbursement aggregated Rs. 4,791 crore. About three-fourth of the sanctions were by
way of underwriting/ direct subscription to shares and debentures. Cumulatively, up to end-
March 1995, assistance sanctioned and disbursed by the UTI to corporate sector amounted to
Rs. 39,642 crore and Rs. 29,285 crore respectively. During 1994-95, more than nine-tenth
(90.4%) of the total assistance sanctioned by UTI was accounted for by private sector and the
remainder (9.6%) by public sector. It is worth noticing that while private sector showed a
marginal increase of 6.1 % in sanctions, public sector experienced a big decline of 56.4%.
It is also interesting to mention that during 1994-95, more than half the sanctions was
claimed by new projects, followed by expansion/ diversification (12.6%) and
modernization/balancing equipment/rehabilitation (1.7%). Other purposes including working
capital loans accounted for 34.9% of total sanctions.

STATE FINANCIAL CORPORATIONS (SFCs)
The Industrial Finance Corporation of India (IFCI) set up in 1948 used to provide financial
assistance to only large-sized industrial undertaking. In order to cater the financial
requirements of a large number of small-scale units, the State Financial Corporation Act was
passed by the Parliament on September 28, 1951 under which the State Financial
Corporations (SFCs) could be set up. The first SFC was set up in Punjab in 1953. Today,
there are in all 18 SFCs in the country which exist almost in every State and Union Territory
(UT) of the country. Of these 17 are set up under the SFC Act, 1951. The Tamil Nadu
Industrial Investment Corporation Ltd., established in 1949 under the Companies Act as
Madras Industrial Investment Corporation, also functions as a full-fledged SFC. The
management of the State Financial Corporation is similar to that of the IFCI. It has a board of
directors, a Managing Director and an Executive Committee. An SFC can open its offices at
different places within the State.
The main functions of SFCs has been to provide long-term finance to small and medium
sized industrial units organized as proprietor/partnership, co-operative, public or private
company concerns. Its other functions are to undertake the issue of stock, shares, bonds or
debentures of industrial concerns and to grant loans and advance to industrial concerns
repayable within a period not exceeding 20 years. They also subscribe to debentures floated
by the industrial concerns. SFCs also grant financial assistance to small road transport
operators, hotels, tourism-related activities, hospitals and nursing homes, etc.
                                                                                Page No. 7
Total assistance sanctioned by SFCs during 1994-95 aggregated Rs. 2760 crores.
Disbursements amounted to Rs. 2005 crore. On a cumulative basis, up to end-March 1995,
SFCs sanctioned an aggregate assistance of Rs. 19,350 crore and disbursed a sum of Rs.
15,337 crore.
Aggregate assistance sanctioned by SFC to small-scale sector comprising of Small-Scale
Industries (SSls) and Small Road Transport Operators (SRTOs) amounted to Rs. 1992 crore.
The share of SSls in total sanctions accounted for 90.1% in 1994-95. Cumulatively, up to
end-March 1995, sanctions to small-scale sector aggregated to Rs 15,499 crore accounting
for 80.1% of the total sanctions, while disbursements amounted to Rs. 12,515 crore
constituting 81.6% of total disbursements.
As regards the purpose-wise assistance, assistance sanctioned to the new projects during
1994-95 continued to claim the largest share (68.5%) in SFCs' sanctions distantly followed
by expansion/diversification (22.2%). The balance was accounted for by modernization/
balancing equipment, rehabilitation and other purposes.

STATE INDUSTRIAL DEVELOPMENT CORPORATIONS (SIDCs)
The State Industrial Development Corporations (SIDCs) were incorporated under the
Companies Act, 1956, in the sixties and early seventies as wholly-owned State Government
Undertakings for promoting industrial development.
The main functions of SIDCs are to provide assistance in the form of term-loans,
underwriting direct subscription to shares/ debentures and guarantees. They also undertake a
variety of promotional activities like preparation of feasibility reports, conducting industrial
potential surveys, entrepreneurship development programmes and developing industrial
estates. Some SIDCs also offer a package of developmental services such as technical
guidance, assistance in plant locations and coordination with other agencies. In line with the
changing environment, many SIDCs are making efforts to diversify and entering into the
fields of equipment leasing, merchant banking, venture capital and mutual funds.
There are 28 SIOCs in the country. Aggregate to assistance sanctioned by all SIOCs during
1994-95 amounted to Rs. 1511 crore and disbursements accounted for Rs. 984 crore.
Cumulatively, up to end-March 1995, the total assistance sanctioned by SIDCs stood at Rs.
9774 crore, while disbursements amounted to Rs. 7126 crore. Total sanctions to backward
areas up to end-March 1995 accounted for Rs. 5,000 crore (constituting 51'.2% in total
sanctions) and disbursements amounted to Rs. 3942 crore (constituting 55.3% in total).
The bulk of the sanctions was claimed by the private sector (81.1 %), followed by joint sector
(13.2%), public sector (5.5%) and the co-operative sector (0.2%). As regards purpose wise
assistance, the new projects had the largest share (59.4%) in total sanctions, distantly
followed by expansion/ diversification (22.2%), modernization/balancing equipment (9.3%)
and supplementary assistance (8.4%). Sanctions for rehabilitation constituted the balance.

SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)
With a view to ensuring larger flow of financial and non-financial assistance to the small-
scale sector, the Government of India set up the Small Industries Development Bank of India
(SlDBI) under a special Act of the Parliament in October 1989 as a wholly-owned subsidiary
of the IDBI. The Bank commenced its operations from April 2, 1990 with its head office in
Lucknow. The SIDBI has taken over the outstanding portfolio of the IDBI relating to the
small-scale sector worth over Rs. 4,000 crores. The authorised capital of SIDBI is Rs; 250
crores with an enabling provision to increase it to Rs. 1,000 crores.
                                                                                      Page No. 8
The important functions of SlDBI are as follows:
(1) To initiate steps for technological up gradation and modernization of existing units.
(2) To expand the channels for marketing the products of SSI sector in domestic and
international markets.
(3) To promote employment oriented industries especially in semi-urban areas to create more
employment opportunities and thereby checking migration of people to urban areas.

The SIDBI's financial assistance to small-scale industries is channelised through the existing
credit delivery system comprising State Financial Corporations, State Industrial Development
Corporations, Commercial Banks and Regional Rural Banks. The SIDBI introduced two new
schemes during 1992-93; equipment finance scheme for providing direct finance to existing
well-run small-scale units taking up technology up gradation/ modernization and refinance
for resettlement of voluntarily retired workers of NTC. The other new scheme launched was
venture capital fund exclusively for small-scale units, with an initial corpus of Rs. 10 crore. It
enrolled itself as an institutional member of the OTC Exchange of India (OTCEI). SlDBI
also provides financial support to National Small Industries Corporation for providing
leasing, hire-purchase and marketing support to the industrial units in the small-scale sector.
The year-wise sanctions and disbursements made by the SIDBI since its establishment are
given in Table below:
TABLE: Assistance Sanctioned and Disbursed
                                                                      (Rs. Crore)
                                      Growth Rate                            Growth Rate
        Year          Sanctions                       Disbursements
                                           %                                       %
        1990-91           2408.7                           1838.5
        1991-92           2846.0           18.2            2027.4                  10.3
        1992-93           2908.4           2.2             2145.8                  5.8
        1993-94           3354.1           15.3            2671.3                  24.5
        1994-95           4699.3           40.1            3385.3                  26.7
Cumulative up to
                         16216.4                         12068.2
end-March 1996

Source: IDBI Report on Development Banking in India, 1994-95, Industrial Development
Bank of India, Bombay, December 22, 1995, and p.32.
It is seen from Table above that overall assistance sanctioned by the SIDBI during 199495
grew by 40.1 % to Rs. 4699 crore. Disbursements during the year stood at Rs. 3385 crore
recording a growth of 26.7%. Up to end-March 1995, cumulative financial assistance
sanctioned and disbursed by SIDBI aggregated Rs. 16,216 crore and Rs. 12068 crore
respectively. In terms of compound annual growth it works out to 18.2% in sanctions and
16.5% in disbursements over 1990-91 figures.
Assistance sanctioned to backward areas during 1994-95 amounted to Rs. 657 crore
accounting for 18% of the total sanctions. Disbursements to backward areas amounted to Rs.
486 crore accounting for 17.8% of the total assistance disbursed. The share of SSls in
refinance, during 1994-95, was 82.3%, distantly followed by small road transport operators
(SRTOs).
New projects accounted for 67.9% of the total assistance sanctioned, distantly followed by
expansion/diversification (11.6%) and modernization (6.2%). The rest was accounted for by
supplementary services for various purposes.
                                                                                   Page No. 9
EXPORT-IMPORT BANK OF INDIA (EXIM BANK)
The Export-Import Bank of India, commonly known as the EXIM bank, was set up on
January 1, 1982 to take over the operations of the international finance wing of the IDBI and
to provide financial assistance to exporters and importers to promote India's foreign trade. It
also provides refinance facilities to the commercial banks and financial institutions against
their export-import financing activities.
The important functions of the EXIM Bank are as follows:
(1) Financing of exports and import of goods and services both of India and of outside India.
(2) Providing finance for joint ventures in foreign countries.
(3) Undertaking merchant banking functions of companies engaged in foreign trade.
(4) Providing technical and administrative assistance to the parties engaged in export and
import business.
(5) Offering buyers' credit and lines of credit to the foreign governments and banks. (6)
Providing advance information and business advisory services to Indian exporters in respect
of multilaterally funded projects overseas.
During the year 1994-95, the EXIM Bank introduced the 'Clusters of Excellence' programme
for up gradation of quality standards and obtaining ISO 9000 certification in various parts of
the country. The Bank also entered into framework co-operation agreement with European
Bank for Reconstruction and Development (EBRD) for acquiring advance information on
EBRD funded projects in order to enter into co-financing proposals with EBRD in Eastern
Europe and CIS.

With a view to promote exports, EXIM Bank has introduced three schemes. These are:
        (i) Production Equipment Finance Programme.
        (ii) Export Marketing Finance.
        (iii) Export Vendor Development Finance.
During 1994-95, total assistance sanctioned and disbursed by the Bank amounted to Rs. 2903
crore and Rs. 1556 crore respectively. In terms of region-wise assistance, West Asia formed
the major portion (49.2%) of EXIM Bank's sanctions during 1994-95. This was followed by
South East Asia/Far East and Pacific (38.3%), Sub-Saharan Africa (5.9%) and South Asia
(3.6%).
Expansion/ diversification programmes claimed the maximum share (54.3%) of EXIM
Bank's sanctions in 1994-95, followed by new projects (33.2%) and modernization/
acquisition of equipment (12.5%).

SUMMARY
Realizing that small-scale entrepreneurs lack sufficient finance to run their enterprises, the
Government has set up a number of financial institutions - both at the Central and State level
- to provide financial assistance to small entrepreneurs in the country. These institutions
provide a variety of financial assistance required by the entrepreneurs to run their units. The
important types of assistance are term finance, refinance, working capital finance,
underwriting, direct subscriptions to shares/ debentures and guarantees, equipment leasing,
asset credit, venture capital, merchant banking, rehabilitation finance, export finance, etc.
The basic purpose of these assistances is to boost development of small-scale enterprises in
the country.
                                                                                Page No. 10
ASSESSMENT QUESTIONS
1. State the need for institutional finance for small enterprises. Which are the institutions
providing institutional support to small enterprises/entrepreneurs?
2. Discuss the role of Industrial Development Bank of India in financing small enterprises in
the country.
3. What are the main functions of SIDBI? Discuss the various types of assistances the SIDBI
provides to small enterprises.
4. Why was IRBI set up? What are its functions? What assistances does it provide to
rehabilitate sick small units? '
5. How do the SFCs contribute to the development of small-scale enterprises in the country?
6. Give an account of financial assistance provided by the IFCI to small
entrepreneurs/enterprises in India.
7. Why was EXIM Bank set up? Discuss the various types of assistances the Bank provides
to the entrepreneurs engaged in export and import business in India.
8. Write short notes on the following:
(a) IDBI                       (b) SIDBI
(c) EXIM Bank                  (d) ICICI
(e) Life Insurance Corporation of India (LIC)
(f) Unit Trust of India (UTI)
(g) EXIM Bank                  (h) SIDes
(i) SFCs                       (j) IRBI

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