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The duration of the project, that is two months was not enough to understand the entire process of

credit appraisal system.


As a student I was not allowed to access to the main sanctioning part due to the banks privacy
policy.

Target Group All Traders who are individuals, firms, companies, co-operative societies
dealing in any lawful trading activity i.e. trading in goods & services, which
is neither restricted nor prohibited by RBI/Govt.
Business concerns/agencies providing services such as Xeroxing, dry
cleaning, licenses to deal in petroleum products/LPG, auto service centers,
ISD/STD PCO Booths etc. are also eligible.
Eligibility 1. Traders/ Business concerns having Registration/ License as applicable
under local laws (i.e. Shops & Establishments Act)/ appropriate authorities.
2. The proponent should preferably be engaged in the line of business for
at least one complete financial year for which Income Tax Returns have
been submitted along with Statement of Financial Results or Financials
duly certified by a firm of Chartered Accountants acceptable to the
sanctioning authority. The unit should be a profit making one.
Purpose Working Capital Requirements : To meet day to day working capital
requirement of the unit/establishment.
Term Loan : Acquiring/construction of premises, go-downs on ownership
basis required for running the business/for repair, furnishing, renovating
existing business premises and/or purchase of furniture & fixtures and for
purchase of brand new equipments, business tools, computers, UPS etc.
Quantum of Loan Credit facilities will be sanctioned up to a limit of Rs. 5.00 Crores.
Security Primary:
Exclusive hypothecation charge on stocks, book debts & other current
assets and exclusive hypothecation charge on all fixed assets such as,
equipments, business tools, computers, furniture & fixtures etc. of the unit.
In case of loan sanctioned for acquiring/ construction of premises on
ownership basis, the property should be mortgaged in favour of Bank as
per Banks manual of mortgages.

Collateral:
For existing units :
Collateral security in the shape of NSCs, LIP (Surrender Value) or any
other tangible security with realizable value at least equivalent to 75% of
the total exposure.
For New units:
Collateral security in the shape of NSCs, LIP (Surrender Value) or any
other tangible security with realizable value at least equivalent to 100 % of
the total exposure.
Guarantee:
In case of Partnership firms, personal guarantee of all the partners.
For Private Limited companies, personal guarantee from all the promoter
directors required.
For Public Limited companies, personal guarantee of at least one of the
promoter directors and/or directors having major financial stake in the
business required.
Margin a) 25% on stocks
b) 30% on receivables upto 90 days only
c) 25% on term loan sanctioned for equipments, tools, furniture & fixture,
computer hard-wares etc.
d) 50% on term loan sanctioned for acquiring/construction of premises, go-
downs. e) 20% cash for Letter of Credit/ Bank Guarantee.
Tenure/ Repayment Term Loan : Depending upon the cash flows as well as effective life of the
equipment, a maximum of 84 months including moratorium.
Clean Term Loan : Maximum tenure of 3 years depending on cash flows.
Working Capital : On demand subject to review every year.
LC/Guarantee : As part of working capital limits, subject to review every
year
*Rate of Interest Rate of Interest depends on the profile of the proposed Borrower and varies
between Base Rate to BR + 5.00% (i.e. 10.20% to 15.20%) p.a. with
monthly rests. (For details, click on Rate of Interest link at Home page)
*Processing Fee Rs.225/- per lac. Minimum Rs.2000/- Maximum Rs.22500/-
Prepayment Penalty 2.25% of outstanding balance of Term Loan in case of take over.
Delivery Channels All Branches.


Financing Rice Shelling Units.
Allahabad Bank Scheme for Financing Rice Shelling Units
Know more...
Commercial Vehicle Finance.
Allahabad Bank Commercial Vehicle Finance Scheme
Know more...
Finance to Doctors/Medical Practitioners for clinics/ nursing homes.
Allahabad Bank Scheme for Financing Doctors / Medical Practitioners for clinics/nursing homes
Know more...
Weavers Credit Card (WCC).
Allahabad Bank Weavers Credit Card (WCC) Scheme.
Know more...
Laghu Udhyami Credit Card (LUCC).
Allahabad Bank Laghu Udhyami Credit Card (LUCC) Scheme.
Know more...
Artisan Credit Card (ACC).
Allahabad Bank Artisan Credit Card (ACC) Scheme



Q.1. What is the definition of MSME?
A.1. The Government of India has enacted the Micro, Small and Medium Enterprises Development
(MSMED) Act, 2006 in terms of which the definition of micro, small and medium enterprises is as
under:
(a) Enterprises engaged in the manufacture or production, processing or preservation of
goods as specified below:
(i) A micro enterprise is an enterprise where investment in plant and machinery does not exceed
Rs. 25 lakh;
(ii) A small enterprise is an enterprise where the investment in plant and machinery is more than
Rs. 25 lakh but does not exceed Rs. 5 crore; and
(iii) A medium enterprise is an enterprise where the investment in plant and machinery is more than
Rs.5 crore but does not exceed Rs.10 crore.
In case of the above enterprises, investment in plant and machinery is the original cost excluding land
and building and the items specified by the Ministry of Small Scale Industries vide its
notification No.S.O.1722(E) dated October 5, 2006.
(b) Enterprises engaged in providing or rendering of services and whose investment in
equipment (original cost excluding land and building and furniture, fittings and other items not directly
related to the service rendered or as may be notified under the MSMED Act, 2006 are specified
below.
(i) A micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10
lakh;
(ii) A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh
but does not exceed Rs. 2 crore; and
(iii) A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2
crore but does not exceed Rs. 5 crore.
Q.2. What is the status of lending by banks to this sector?
A.2. Banks lending to the Micro and Small enterprises engaged in the manufacture or production of
goods specified in the first schedule to the Industries (Development and regulation) Act, 1951 and
notified by the Government from time to time is reckoned for priority sector advances. However, bank
loans up to Rs.5 crore per borrower / unit to Micro and Small Enterprises engaged in providing or
rendering of services and defined in terms of investment in equipment under MSMED Act, 2006 are
eligible to be reckoned for priority sector advances. Lending to Medium enterprises is not eligible to
be included for the purpose of computation of priority sector lending. Detailed guidelines on lending to
the Micro, Small and Medium enterprises sector are available in ourMaster Circular no. RPCD.MSME
& NFS.BC.No.5/06.02.31/2013-14 dated July 1, 2013. The Master circulars issued by RBI, to banks,
on various matters are available on our website www.rbi.org.in and updated in July each year.
Q.3. What is meant by Priority Sector Lending?
A.3. Priority sector lending include only those sectors as part of the priority sector, that impact large
sections of the population, the weaker sections and the sectors which are employment-intensive such
as agriculture, and Micro and Small enterprises. Detailed guidelines on Priority sector lending are
available in our Master Circular on Priority sector lending no.RPCD.CO.Plan.BC 9 /04.09.01/2013-14
dated July 1, 2013. The Master circulars issued by RBI, to banks, on various matters are available on
our website www.rbi.org.in and updated in July each year.
Q.4. Are there any targets prescribed for lending by banks to MSMEs?
A.4. As per extant policy, certain targets have been prescribed for banks for lending to the Micro and
Small enterprise (MSE) sector. In terms of the recommendations of the Prime Ministers Task Force
on MSMEs (Chairman: Shri T.K.A. Nair, Principal Secretary), banks have been advised to achieve a
20 per cent year-on-year growth in credit to micro and small enterprises, a 10 per cent annual growth
in the number of micro enterprise accounts and 60% of total lending to MSE sector as on preceding
March 31st to Micro enterprises.
In order to ensure that sufficient credit is available to micro enterprises within the MSE sector, banks
should ensure that:
(a) 40 per cent of the total advances to MSE sector should go to micro (manufacturing) enterprises
having investment in plant and machinery up to Rs. 10 lakh and micro (service) enterprises having
investment in equipment up to Rs. 4 lakh ;
(b) 20 per cent of the total advances to MSE sector should go to micro (manufacturing) enterprises
with investment in plant and machinery above Rs. 10 lakh and up to Rs. 25 lakh, and micro (service)
enterprises with investment in equipment above Rs. 4 lakh and up to Rs. 10 lakh. Thus, 60 per cent of
MSE advances should go to the micro enterprises.
For details, the Master Circular RPCD.MSME & NFS.BC.No.5/06.02.31/2013-14 dated July 1, 2013
on 'Lending to Micro, Small and Medium Enterprises (MSME) Sector, may please be seen.
Q.5. Are there specialized bank branches for lending to the MSMEs?
A.5. Public sector banks have been advised to open at least one specialized branch in each district.
The banks have been permitted to categorize their MSME general banking branches having 60% or
more of their advances to MSME sector, as specialized MSME branches for providing better service
to this sector as a whole. As per the policy package announced by the Government of India for
stepping up credit to MSME sector, the public sector banks will ensure specialized MSME branches in
identified clusters/centres with preponderance of small enterprises to enable the entrepreneurs to
have easy access to the bank credit and to equip bank personnel to develop requisite expertise.
Though their core competence will be utilized for extending finance and other services to MSME
sector, they will have operational flexibility to extend finance/render other services to other
sectors/borrowers.
Q.6. How many such specialized branches for lending to MSMEs are there?
A.6. As on March 2013 there are 2032 specialized MSME branches.
Q.7. How do banks assess the working capital requirements of borrowers?
A.7. The banks have been advised to put in place loan policies governing extension of credit facilities
for the MSE sector duly approved by their Board of Directors (Refer circular RPCD.SME &
NFS.BC.No.102/06.04.01/2008-09 dated May 4, 2009). Banks have, however, been advised to
sanction limits after proper appraisal of the genuine working capital requirements of the borrowers
keeping in mind their business cycle and short term credit requirement. As per Nayak Committee
Report, working capital limits to SSI units is computed on the basis of minimum 20% of their
estimated turnover up to credit limit of Rs.5crore. For more details paragraph 4.12.2 of the Master
Circular on lending to the MSME sector dated July 1, 2010 may please be seen.
Q.8. Is there any provision for grant of composite loans by banks?
A.8. A composite loan limit of Rs.1crore can be sanctioned by banks to enable the MSME
entrepreneurs to avail of their working capital and term loan requirement through Single Window in
terms of our Master Circular on lending to the MSME sector dated July 1, 2010. All scheduled
commercial banks were advised by our circular RPCD.SME&NFS. BC.No.102/06.04.01/2008-09 on
May 4, 2009 that the banks which have sanctioned term loan singly or jointly must also sanction
working capital (WC) limit singly (or jointly, in the ratio of term loan) to avoid delay in commencement
of commercial production thereby ensuring that there are no cases where term loan has been
sanctioned and working capital facilities are yet to be sanctioned. These instructions have been
reiterated to scheduled commercial banks on March 11, 2010.
Q.9. What is Cluster financing?
A.9. Cluster based approach to lending is intended to provide a full-service approach to cater to the
diverse needs of the MSE sector which may be achieved through extending banking services to
recognized MSE clusters. A cluster based approach may be more beneficial (a)in dealing with well-
defined and recognized groups (b) availability of appropriate information for risk assessment (c)
monitoring by the lending institutions and (d) reduction in costs.
The banks have, therefore, been advised to treat it as a thrust area and increasingly adopt the same
for SME financing. United Nations Industrial Development Organisation (UNIDO) has identified 388
clusters spread over 21 states in various parts of the country. The Ministry of Micro, Small and
Medium Enterprises has also approved a list of clusters under the Scheme of Fund for Regeneration
of Traditional Industries (SFURTI) and Micro and Small Enterprises Cluster Development Programme
(MSE-CDP) located in 121 Minority Concentration Districts. Accordingly, banks have been advised to
take appropriate measures to improve the credit flow to the identified clusters.
Banks have also been advised that they should open more MSE focussed branch offices at different
MSE clusters which can also act as counselling centres for MSEs. Each lead bank of the district may
adopt at least one cluster (Refer circularRPCD.SME & NFS.No.BC.90/06.02.31/2009-10 dated June
29, 2010)
Q.10. What are the RBI guidelines on interest rates for loans disbursed by the commercial
banks?
A.10. As part of the financial sector liberalisation, all credit related matters of banks including charging
of interest have been deregulated by RBI and are governed by the banks' own lending policies. With a
view to enhancing transparency in lending rates of banks and enabling better assessment of
transmission of monetary policy, all scheduled commercial banks had been advised in terms of our
circular DBOD.No.Dir.BC.88/13.03.00/2009-10on April 9, 2010 to introduce the Base Rate system
w.e.f. July 1, 2010. Accordingly, the Base Rate System has replaced the BPLR system with effect
from July 1, 2010. All categories of loans should henceforth be priced only with reference to the Base
Rate.
Q.11. Can the MSE borrowers get collateral free loans from banks?
A.11. In terms of our circular RPCD.SME&NFS.BC.No.79/06.02.31/2009-10 dated May 6, 2010,
banks are mandated not to accept collateral security in the case of loans upto Rs 10 lakh extended to
units in the MSE sector. Further, in terms of our circular RPCD/PLNFS/BC.No.39/06.02.80/2002-04
dated November 3, 2003, banks may, on the basis of good track record and financial position of MSE
units, increase the limit of dispensation of collateral requirement for loans up to Rs.25 lakh with the
approval of the appropriate authority.
Q.12. What is the Credit Guarantee Fund Trust Scheme for MSEs?
A.12. The Ministry of MSME, Government of India and SIDBI set up the Credit Guarantee Fund Trust
for Micro and Small Enterprises (CGTMSE) with a view to facilitate flow of credit to the MSE sector
without the need for collaterals/ third party guarantees. The main objective of the scheme is that the
lender should give importance to project viability and secure the credit facility purely on the primary
security of the assets financed. The Credit Guarantee scheme (CGS) seeks to reassure the lender
that, in the event of a MSE unit, which availed collateral- free credit facilities, fails to discharge its
liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to 85
per cent of the outstanding amount in default.
The CGTMSE would provide cover for credit facility up to Rs. 100 lakh which have been extended by
lending institutions without any collateral security and /or third party guarantees. A guarantee and
annual service fee is charged by the CGTMSE to avail of the guarantee cover. Presently the
guarantee fee and annual service charges are to be borne by the borrower.
Q.13. Why is credit rating of the micro small borrowers necessary?
A.13. With a view to facilitating credit flow to the MSME sector and enhancing the comfort-level of the
lending institutions, the credit rating of MSME units done by reputed credit rating agencies should be
encouraged. Banks are advised to consider these ratings as per availability and wherever appropriate
structure their rates of interest depending on the ratings assigned to the borrowing SME units.
Q.14. Is credit rating mandatory for the MSE borrowers?
A.14. Credit rating is not mandatory but it is in the interest of the MSE borrowers to get their credit
rating done as it would help in credit pricing of the loans taken by them from banks.
Q.15. What are the guidelines for delayed payment of dues to the MSE borrowers?
A.15. With the enactment of the Micro, Small and Medium Enterprises Development (MSMED), Act
2006, for the goods and services supplied by the MSEME units, payments have to be made by the
buyers as under:
(i) The buyer is to make payment on or before the date agreed on between him and the supplier in
writing or, in case of no agreement, before the appointed day. The agreement between seller and
buyer shall not exceed more than 45 days.
(ii) If the buyer fails to make payment of the amount to the supplier, he shall be liable to pay
compound interest with monthly rests to the supplier on the amount from the appointed day or, on the
date agreed on, at three times of the Bank Rate notified by Reserve Bank.
(iii) For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the
interest as advised at (ii) above.
(iv) In case of dispute with regard to any amount due, a reference shall be made to the Micro and
Small Enterprises Facilitation Council, constituted by the respective State Government.
To take care of the payment obligations of large corporate borrowers to MSEs, banks have been
advised that while sanctioning/renewing credit limits to their large corporate borrowers (i.e. borrowers
enjoying working capital limits of Rs. 10 crore and above from the banking system), to fix separate
sub-limits, within the overall limits, specifically for meeting payment obligations in respect of
purchases from MSEs either on cash basis or on bill basis.
Banks were also advised to closely monitor the operations in the sub-limits, particularly with reference
to their corporate borrowers dues to MSE units by ascertaining periodically from their corporate
borrowers, the extent of their dues to MSE suppliers and ensuring that the corporates pay off such
dues before the appointed day /agreed date by using the balance available in the sub-limit so
created. In this regard the relevant circular is circular IECD/5/08.12.01/2000-01 dated October 16,
2000 (reiterated on May 30, 2003, vide circular No. IECD.No.20/08.12.01/2002-03) available on our
website.
Q.16. What is debt restructuring of advances?
A.16. A viable/potentially viable unit may apply for a debt restructuring if it shows early stage of
stickiness. In such cases the banks may consider to reschedule the debt for repayment, consider
additional funds etc. A debt restructuring mechanism for units in MSME sector has been formulated
and advised to all commercial banks .The detailed guidelines have been issued to ensure
restructuring of debt of all eligible small and medium enterprises. Prudential guidelines on
restructuring of advances have also been issued which harmonises the prudential norms over all
categories of debt restructuring mechanisms (other than those restructured on account of natural
calamities). The relevant circulars in this regard are circularDBOD.BP.BC.No.34/21.04.132/2005-06
dated September 8, 2005 and circular DBOD.No.BP.BC.37/21.04.132/2008-09 dated August 27,
2008 which are available on our website www.rbi.org.in.
Q.17. What is the definition of a sick unit?
A.17. As per the extant guidelines, a Micro or Small Enterprise (as defined in the MSMED Act 2006)
may be said to have become Sick, if
a. Any of the borrowal account of the enterprise remains NPA for three months or more
OR
b. There is erosion in the net worth due to accumulated losses to the extent of 50% of its net worth
during the previous accounting year.
The criteria will enable banks to detect sickness at an early stage and facilitate corrective action for
revival of the unit.
Q.18. Are all sick units put under rehabilitation by banks ?
A.18. No. If a sick unit is found potentially viable it can be rehabilitated by the banks. The viability of
the unit is decided by banks. A unit should be declared unviable only if such a status is evidenced by
a viability study.
Q.19. Is there a time frame within which the banks are required to implement the rehabilitation
package?
A.19. Viable / potentially viable MSE units/enterprises, which turn sick in spite of debt re-structuring
would need to be rehabilitated and put under nursing. It will be for the banks/financial institutions to
decide whether a sick MSE unit is potentially viable or not. The rehabilitation package should be fully
implemented by banks within six months from the date the unit is declared as potentially viable/viable.
During this six months period of identifying and implementing rehabilitation package banks/FIs are
required to do holding operation which will allow the sick unit to draw funds from the cash credit
account at least to the extent of deposit of sale proceeds. The relevant circular on rehabilitation of sick
units is RPCD.CO.MSME & NFS.BC.40/06.02.31/2012-2013 dated November 1, 2012 is available on
our website.
Q.20. What is the procedure and time frame for conducting the viability study ?
A.20. The decision on viability of the unit should be taken at the earliest but not later than 3 months of
the unit becoming sick under any circumstances.
The following procedure should be adopted by the banks before declaring any unit as unviable:
a. A unit should be declared unviable only if the viability status is evidenced by a viability study.
However, it may not be feasible to conduct viability study in very small units and will only increase
paperwork. As such for micro (manufacturing) enterprises, having investment in plant and machinery
up to Rs. 5 lakh and micro (service) enterprises having investment in equipment up to Rs. 2 lakh, the
Branch Manager may take a decision on viability and record the same, along with the justification.
b. The declaration of the unit as unviable, as evidenced by the viability study, should have the
approval of the next higher authority/ present sanctioning authority for both micro and small units. In
case such a unit is declared unviable, an opportunity should be given to the unit to present the case
before the next higher authority. The modalities for presenting the case to the next higher authority
may be worked out by the banks in terms of their Board approved policies in this regard.
c. The next higher authority should take such decision only after giving an opportunity to the
promoters of the unit to present their case.
d. For sick units declared unviable, with credit facilities of Rs. 1 crore and above, a Committee
approach may be adopted. A Committee comprising of senior officials of the bank may examine such
proposals. This is expected to improve the quality of decisions as collective wisdom of the members
shall be utilized, especially while taking decision on rehabilitation proposals.
e. The final decision should be communicated to the promoters in writing. The above process should
be completed in a time bound manner and should not take more than 3 months.
Q.21. What are the RBI guidelines on One Time Settlement scheme(OTS) for MSEs for
settlement of their NPAs?
A.21. Scheduled commercial banks have been advised in terms of our circular RPCD.SME&NFS.
BC.No.102/06.04.01/2008-09 dated May 4, 2009 to put in place a non -discretionary One time
Settlement scheme duly approved by their Boards. The banks have also been advised to give
adequate publicity to their OTS policies. (Refer circular RPCD.SME&NFS. BC.No.102/06.04.01/2008-
09 dated May 4, 2009)
Q.22. Apart from the loans and other banking facilities, do the banks provide any guidance to
MSE entrepreneurs ?
A.22. Yes. Banks provide following services to the MSE entrepreneurs:
(i) Rural Self Employment Training Institutes (RSETIs)
At the initiatve of the Ministry of Rural Development (MoRD), Rural Self Employment Training
Institutes (RSETIs) have been set up by various banks all over the country. These RSETIs are
managed by banks with active co-operation from the Government of India and State Governments.
RSETIs conduct various short duration (ranging preferably from 1 to 6 weeks) skill upgradation
programmes to help the existing entrepreneurs compete in this ever-changing global market. RSETIs
ensure that a list of candidates trained by them is sent to all bank branches of the area and co-
ordinate with them for grant of financial assistance under any Govt. sponsored scheme or direct
lending.
(ii) Financial Literacy and consultancy support:
Banks have been advised to either separately set up special cells at their branches, or vertically
integrate this function in the Financial Literacy Centres (FLCs) set up by them, as per their
comparative advantage. Through these FLCs, banks provide assistance to the MSE entrepreneurs in
regard to financial literacy, operational skills, including accounting and finance, business planning etc.
(Refer circular RPCD.MSME & NFS.BC.No.20/06.02.31/2012-13 dated August 1, 2012)
Further, with a view to providing a guide for the new entrepreneurs in this sector, a booklet titled
Nurturing Dreams, Empowering Enterprises Financing needs of Micro and Small Enterprises A
guide has been launched on August 6, 2013 by the Reserve Bank. The booklet has been placed on
our website www.rbi.org.in under the following path & URL:
RBI main page Financial Education Downloads For Entrepreneurs
(http://rbi.org.in/financialeducation/FinancialEnterprenure.aspx)
Q.23. What is the role of Banking Codes and Standard Board of India (BCSBI) for MSEs?
A.23. The Banking Codes and Standard Board of India (BCSBI) constituted a Working Group
comprising members from select banks, Indian Banks Association, Rural Planning & Credit
Department of Reserve Bank of India to formulate a Banking Code for SME Customers. On the basis
of discussions with Industry Associations, banks, SIDBI and Government agencies, The Banking
Codes and Standard Board of India (BCSBI) has formulated a Code of Bank's Commitment to Micro
and Small Enterprises. This is a voluntary Code, which sets minimum standards of banking practices
for banks to follow when they are dealing with Micro and Small Enterprises (MSEs) as defined in the
Micro Small and Medium Enterprises Development (MSMED) Act, 2006. The Code may be accessed
on the website of BCSBI www. bcsbi.org.in


n accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act,
2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes:

(a) Manufacturing Enterprises- The enterprises engaged in the manufacture or production of goods
pertaining to any industry specified in the first schedule to the industries (Development and regulation)
Act, 1951) or employing plant and machinery in the process of value addition to the final product
having a distinct name or character or use. The Manufacturing Enterprise aredefined in terms of
investment in Plant & Machinery.

(b) Service Enterprises: The enterprises engaged in providing or rendering of services and
are defined in terms of investment in equipment.
The limit for investment in plant and machinery / equipment for manufacturing / service
enterprises, as notified, vide S.O. 1642(E) dtd.29-09-2006 are as under:
Manufacturing Sector
Enterprises Investment in plant & machinery
Micro
Enterprises
Does not exceed twenty five lakh rupees
Small
Enterprises
More than twenty five lakh rupees but does not
exceed five crore rupees
Medium
Enterprises
More than five crore rupees but does not exceed
ten crore rupees
Service Sector
Enterprises Investment in equipments
Micro
Enterprises
Does not exceed ten lakh rupees:
Small Enterprises More than ten lakh rupees but does not exceed
two crore rupees
Medium
Enterprises
More than two crore rupees but does not exceed
five core rupees




What can be done for self-employment?

A micro or small or medium enterprise can easily be set up for self-employment. You can choose
an activity depending upon your interest and suitability not only to become self-employed but
also to generate employment for others.

What is a Micro, Small or Medium Enterprise?
The earlier concept of Industries has been changed to Enterprises
Enterprises have been classified broadly into:
(i) Enterprises engaged in the
Manufacture / production of
Goods pertaining to any industry; &
(ii) Enterprises engaged in providing
/ Rendering of services.
Manufacturing enterprises have been defined in terms of investment in plant

and machinery (excluding land & buildings) and further classified into :
- Micro Enterprises - investment up to Rs.25 lakh.
- Small Enterprises - investment above Rs.25
lakh & up to Rs. 5 crore
- Medium Enterprises - investment above Rs. 5
crore & up to Rs.10 crore.
Service enterprises have been defined in terms of their
investment in equipment (excluding land & buildings) and further
classified into:
- Micro Enterprises investment up to Rs.10 lakh.
- Small Enterprises investment above Rs.10 lakh & up to Rs.2 crore.
- Medium Enterprisesinvestment above Rs. 2 crore & up to Rs. 5 crore

It is not necessary to engage in manufacturing activity for self-employment. One can set up
service enterprises as well .

How do I select an activity for self-employment?

For selecting an activity or enterprise, you will have to consider the following significant issues:
Where do you want to promote the enterprise?
What resources are available near the location of the enterprise?
What kind of market or consumer pattern exists near the site of enterprise?
What kind of contacts you have to exploit to your advantage for marketing of the
product?
What infrastructure is available at the location of your enterprise?
How much capital is available?
There are many other considerations including availability of skilled manpower, raw material,
technology etc. before you narrow down your choice for selection of industry or activity.

Who will assist in identifying the activity?

MSME Development Institutes can assist you in identifying the activity based on the Industrial
Potential Survey and product specific market studies. District Industries Centers/State
Directorate of Industries also facilitate in identification of a suitable activity.

What steps are required for identifying the activity?

A preliminary market study of product(s) or service(s) needs to be undertaken to analyse
consumption and availability pattern. If there is a gap in demand and supply, the activity
considered ideal for selection.

Where is market information available?

Market information is available with MSME Development Institutes (MSMEDIs) and DIC's of
respective states/areas. Market Survey reports on various items and Industrial potential surveys
of particular areas provide the information about the market potential of items. Industry and
Trade associations, specialized institutions like PPDC can also provide such information.

How can market potential be ascertained?

Market potential can be ascertained by conducting preliminary study by prospective entrepreneur
to get an in sight of the product/ services to be setup. An entrepreneur can estimate local
demand, demand within the state or country, export market and future prospects of
product(s)/service(s). Visit to wholesale and retail markets, bulk consumers etc. provides
accurate information on market potential.

Is there any agency providing guidance on marketing potential?

MSMEDI and State Governments agencies viz. DICs and SIDCs provide guidance on market
potential. The gap in demand & supply can be established through potential surveys and market
assessments with the help of these agencies.

Where can the enterprise be set up?

The enterprise can be set up in a designated industrial areas, where infrastructure facilities are
available and is near to the market identified. It can also be set up in any other area depending
upon nature of activity and local municipal rules.

What are the inputs required for setting up an enterprise?

The following major inputs are required for setting up an enterprise:
Land, building or shed
Machinery and equipments
Raw Materials
Power and Water
Skilled manpower
Capital
Are there any projects suitable for non-technical and inexperienced entrepreneurs?

There are many projects, which are suitable for non-technical and inexperienced entrepreneurs.
Skilled manpower and technical personnel can be hired according to needs. Entrepreneurs can
also join special short term training programmes. MSMEDI's, DIC's, NSIC etc. provide intensive
consultancy to such first generation entrepreneurs.

How can a new entrepreneur compete with the existing manufacturers?

A prospective entrepreneur can take the advantage of opting for the latest technology and
production process and operate at higher volume of operation. This leads to reduced production
cost and production of quality goods and services. A new entrepreneur can thus provide
improved quality goods and services at lower cost and further tap the market with innovative
marketing approach.

Financial Assistance
Which are the agencies providing financial assistance?

Financial assistance is available from institutions such as Nationalised Banks, Small Industries
Development Bank of India, Regional Rural Banks, National Small Industries Corporation, State
Financial Corporations etc. depending upon the project requirement and promoters background.
Financial assistance has two components. Loan for fixed capital is used to acquire Plant and
Machinery, land and building. Working capital loan is used to meet day to day operational cost of
the production. State Financial Corporation and National Small Industries Corporation generally
provide working capital. However under a package assistance, State Financial Corporations also
provide a composite loan covering plant and machinery and working capital.

How to choose the most suitable source of funding?

Any of the financial institutions can be approached to get funds keeping in view their specific
schemes. Evaluate and compare the terms and conditions, including rate of interest and
repayment period of loan offered by the different financial institutions. Select the financial
institution, which offers funds at minimum interest rate as per your repayment plan to suit your
project. Choose the Institution which is in close proximity to the project site if other terms and
conditions are similar.

What are the eligibility criteria for getting a loan?

The major eligibility criteria is return on the investment and profitability of the project proposed
to be set up. Any financial institution will support the project if repayment is assured.

How much money the entrepreneur is required to invest out of his own resources?

Some portion of total investment has to be contributed by the Entrepreneur out of own sources.
This is called margin money. Financial Institutions insist on 10 to 25 per cent margin money
depending upon the category of the entrepreneur, risk factor and existing scheme under which
the project will be financed

What to do if an entrepreneur does not have any money of his own?

It is simple. One can arrange for loan for margin money under the scheme being operated by the
State Commissioner/Directorate of Industries or State Bank of India. But this scheme is
generally offered to professionally qualified entrepreneurs. Alternately you may have to prune
down the size of your project in tune with available margin money. The financial institutions will
prefer to support an entrepreneur, who is willing to put his/her own stake to some extent.

What is the procedure for getting a loan?

An entrepreneur should approach the concerned financial institution viz. State Financial
Corporation, NSIC, Bank branches etc. Application in prescribed proformae has to be submitted
along with project report including proof of ownership/availability of land/building, proof of
residence, collateral securities (wherever applicable) etc. The loan is given by the institution if
the application meets the norms.

Can the loan be used to cover all types of investment in the project?

The amount of loan can be used to cover all types of investment required in the project, such as
machinery & equipment, and working capital, land and building. The lending agency for each
component of loan may be same or different.

Is there any agency for funding the land and building costs?

The Banks and State Financial Corporations offer assistance for land/building/shed to certain
extent. However, some qualifying parameters have been laid down by these institutions. In
addition, Housing Development Corporation also provides funds for land /building.

What are the general conditions for availing financial assistance?

The general conditions for getting financial assistance are:
Eligibility criteria
Technical /Economic viability
Promoters contribution
Capacity to repay loan
Collateral securities/guarantee
Is loan available from any other source for small projects?

Loan is also offered under some special schemes like P.M.R.Y. which are directed towards
creation of self-employment.

Project Report
What is a project report?

The project report is a document, which gives an account of the project proposal to ascertain the
prospects of the proposed plan/activity. The project report contains detailed information about:
Land & building required
Manufacturing Capacity per annum
Manufacturing Process
Machinery & equipment along with their prices and specifications
Requirements of raw materials
Power & Water required.
Manpower needs
Marketing
Cost of the project and production.
Financial analyses & economic viability of the project.
How is a Project Report Prepared?

A project report is prepared with the help of prescribed guidelines available with MSMEDI's, DIC's
& financial institutions. Information about prices of machinery & equipment, raw material and
other various inputs required for setting up an enterprise need to be collected from the market.

Is there any standard model for preparing the project report?

A model proforma for preparing the project report is available with MSMEDI's, DIC's & financial
institutions. Every institution has its own model proforma. However contents of all the proforma
are almost similar.

Is a model project report available?

Yes, Model project profiles are available with the MSMEDIs(formerly Small Industries Service
Institute's) & DIC's for the guidance of entrepreneurs.. However, these project profiles have to
be recast in accordance with specific needs of the entrepreneurs and the current prices of inputs.

Which agency assists in preparation of Project Report?

MSMEDIs, NSIC and State Govt. agencies viz. DICs, SFCs can help you in preparing the Project
Report. You can also prepare the Project Report yourself by collecting detailed information on
various points.

What details are required for preparation of Project Report?

Information in detail is required about the technical process, requirements of plant and
machinery, raw materials, manpower requirement, market information and statutory
representations (like pollution control and public safety) etc. The details of power and water
tariff, land/shed/building and selling prices etc. needs to be collected as prevalent in the market.

Which agencies can be approached for obtaining information for preparation of the
Project Report?

Entrepreneur can approach MSMEDIs and state Govt. agencies viz. Directorate of Industries,
SFCs, DICs and market channels for getting information.

Who can help in selecting production process, equipment etc?

Micro, Small & Medium Enterprises Development Institutes (formerly Small Industries Service
Institutes), Design and Development Centers like MSME Technology Development Centers
(formerly PPDC's) /Tool Room's, Research and Developmental agencies such as NRDC's and
Regional Research Laboratories can help you in selecting the right production process, suitable
equipment's etc

Training
What basic training is required for setting up an enterprise?
Basic training differs from product to product but will necessary involve sharpening of
entrepreneurial skills. Need based technical training is provided by the Govt. & State Govt.
technical Institutions.
What are the other types of training relevant for a new entrepreneur?
One can acquire entrepreneurial skills by under going Entrepreneurial Development Programme
and Management Development programme.
What is the duration of such courses?
These are short-term courses of 2 week's to 4 week's duration.
Which are the agencies providing such training?
There are a number of Government organisations as well as NGOs who conduct EDPs and MDPs.
These EDPs and MDPs and are conducted by MSME's, NIESBUD, NSIC, IIE, NISIET,
Entrepreneurship Development Institutes and other state government developmental agencies.
Is different type of training available for different categories of entrepreneurs?
Need based training courses are available for different categories of entrepreneurs. For example,
Central Footwear Training Institute's provide training for footwear. Tool Room and Tool Design
Institutes provide training in Engineering Industry. Likewise other technical training is provided
by various institutions of centre and state govt.
Are there any preferential criteria for imparting training?
An entrepreneur desirous of setting up of enterprises or his representative is preferred for
attending these training programmes which are offered on a nominal fee. However, there is no
fee charged for imparting training for the entrepreneurs of NE region. Moreover, preference is
accorded to weaker sections such as SC/ST, Women, Ex-servicemen. and Physically handicapped
persons.
Are there any short terms courses available?
Short term technical training courses are conducted by SISIs and other technical institutions,
which vary from 3 to 6 months of duration depending on nature of training. In addition, short-
term training programmes for managers & supervisors are also conducted by MSME's to upgrade
their knowledge and skills.
Does any agency give on the spot training for installation and commissioning of
equipment?
Normally the suppliers of machinery & equipment provide on the spot training as well as facilities
on the spot for installation and commissioning of equipment. However, SISIs also assist the
entrepreneurs for installation and commissioning of machinery equipment at their premises.
Is there any agency providing training for skill upgradation?
Skill development/upgradation courses are offered by SISIs, NSIC, PPDCs etc. in different
disciplines to skilled workers engaged in the micro, small and medium enterprises with a view to
equip them with better and improved technologies of production.
Which are the organisations providing training to improve management of an
enterprise?
SISIs, Management Development Institute's, NPC, NSIC etc. offer Management Development
Programmes for acquiring knowledge about the different aspects of the management required for
an operation of industry. Short-term courses of two to four weeks are available on Production
Management, Marketing Management, Financial Management, Export Management, Export
Procedure & Documentation, Packaging for Exports, Cost Reduction, Material Management etc.
Are there institutions providing consultancy for development or setting up of project?
SISIs, DICs and State industrial development corporations can provide consultancy for
development or setting up of project. Suitable technologies are also offered by CSIR
Laboratories, PPDC's, NRDCs, R&D institutions also offer consultancy at nominal charges.
What kind of consultancy is offered by these agencies?
The consultancy provided by these institutions includes identification of suitable product, market,
technologies, Raw Materials, production method, regulatory requirement etc. In fact any problem
can be addressed by these institutions for setting up or running of the enterprise.
Which agencies provide information on plant and machinery, raw materials and other
equipments?
SISIs, DIC, CSIR Laboratories, PPDC's, NRDC, R&D institutions etc. provide information on plant
and machinery, raw materials and other equipments.
How does one tackle pollution control needs of the project?
In case your product is covered under the list of the polluting industries as defined by the state
government, it will be necessary to get specific clearance from the state Pollution Control
Board/Committees. Pollution control equipments/measures will have to be installed by the
enterprise as per need. Such polluting enterprises can only be set up in the designated industrial
areas or locations and may have to link up with the common affluent treatment facility, if
available in the area.
Which institutions provide details of pollution control requirements?
Pollution control board/ Committees and State Directorate of industries provide details of
pollution control requirements. SISIs, and DICs also help in understanding of pollution needs.
Does any agency provide training in pollution control?
MSME's provide training in pollution control for different type of industries as per their local
needs. Pollution Control Boards & Ministry of Environment also support training efforts.

Marketing
How does a new entrepreneur market the product?
This is an era of globalization and liberalization. The manufacturers have to offer goods and
services of desired quality at optimum cost. Select the right market/consumers identified at the
time of planning the unit. Establish Direct marketing channels or a network of dealers as per
requirement of the product based upon initial survey. Highlight strengths of the product.
How does one popularise the new product?
You may create awareness among the buyers or consumers about your product's strong points in
order to convince them of the utility of the product. Publicity in various available forms has to be
arranged within the budgetary constraints. Sell your quality, to gain consumer's confidence.
Review consumer feed back. Resort to live demonstration. MSME /NSIC help in popularising the
product through domestic and international trade fairs/exhibitions.
Are there any specialized agencies which offer marketing assistance?
There are Governmental and non-governmental specialised agencies which provide marketing
assistance. NSIC & KVIC are the devoted govt. agencies for providing marketing assistance to
MSME units.
Is there any other assistance offered by NSIC for marketing MSME Product?
Besides promotion of MSME products through exhibitions, NSIC directly market the MSME
produce in the domestic and overseas market. NSIC also manages a single point registration
scheme for manufacturers for Govt. purchase. Units registered under this scheme get the
benefits of free tender documents and exemption from earnest money deposit and performance
guarantee.
Does any agency help in exhibition of the product?
MSME & NSIC help the micro, small and medium enterprises for exhibiting products of MSME in
the domestic and international exhibition.
Does any agency help in promoting exports?
ITPO, DGFT, FIEO & Chambers of commerce in different countries Ministry of Commerce provide
assistance in promoting exports. Office of the Development Commissioner (MSME), Government
of India provides financial assistance to micro, small and medium scale entrepreneurs to display
their products in overseas fairs and also for sales-cum-study tours abroad.
Are there any special benefits for exports?
MSME units gets special benefits such as duty draw back, advance licensing for import of capital
goods and raw materials, pre- shipment and post shipment credit against firm export orders and
marketing development assistance. Income tax benefit is available on exports earning.

Promotional Schemes
What is the policy of Government for promoting a micro, small and medium enterprises
?
Government accords the highest preference to development of MSME by framing and
implementing suitable policies and promotional schemes. Besides providing developed land and
sheds to the entrepreneurs on actual cost basis with appropriate infrastructure, special schemes
have been designed for specific purposes like quality upgradation, common facilities,
entrepreneurship development and consultancy services at nominal charges.
What is the incentive provided for quality upgradation ?
Government of India has been executing the incentive scheme for providing reimbursement of
charges for acquiring ISO 9000 certification to the extent of 75% of the cost subject to a
maximum of Rs. 75,000/- in each case. ISO 9000 is a mechanism to facilitate adoption of
consistent management practices and production technique as decided by the entrepreneur
himself. This facilitates achievement of desired level of quality while keeping check on production
process and management of the enterprise.
Is there any concession on Excise Duty payable by small units ?
MSME units with a turnover of Rs. 1 crore or less per year have been exempted from payment of
Excise Duty. Moreover there is a general scheme of excise exemption for MSME brought out by
the Ministry of Finance which covers most of the items. Under this, units having turnover of less
than Rs. 3 crores are eligible for concessional rate of Excise Duty. Moreover, there is an
exemption from Excise Duty for MSME units producing branded goods in rural areas.
Is priority there any on providing credit to MSME ?
Credit to micro, small and medium scale sector has been covered under priority sector lending by
banks. Small Industries Development Bank of India (SIDBI) has been established as the apex
institution for financing the MSME. Specific schemes have been designed for implementation
through SIDBI, SFCs, Scheduled Banks, SIDCs and NSIC etc. Loans upto Rs. 5 lakhs are made
available by the banks without insisting on collaterals. Further Credit Guarantee Fund for micro,
small and medium enterprises has been set up to provide guarantee for loans to MSME up to Rs.
25 lakhs extended by Commercial Banks and some Regional Rural Bank.
What are the policies and schemes for promotion of MSME being implemented by State
Governments ?
All the State Governments provide technical and other support services to small units through
their Directorates of Industries, and District Industries Centres. Although the details of the
scheme vary from state to state, the following are the common areas of support.
a. Development and management of industrial estates
b. Suspension/deferment of Sales Tax
c. Power subsidies
d. Capital investment subsidies for new units set up in a particular district
e. Seed Capital/Margin Money Assistance Scheme
f. Priority in allotment of power connection, water connection.
g. Consultancy and technical support
If I perform well, will my efforts be recognized ?
Yes, Government of India runs a scheme for giving National Awards to micro, small and medium
scale entrepreneurs providing quality products in 11 selected industry groups of consumer
interest. The winners are given trophy, certificate and a cash price of Rs. 25000/- each.




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