Development Banking emerged after the Second World War and the Great Depression in the

1930s. The demand for reconstruction funds for the affected nations compelled in setting up of
national institutions for reconstruction. At the time of Independence in 1947, India had a fairly
developed banking system. The adoption of bank dominated financial development strategy was
aimed at meeting the sectoral credit needs, particularly of agriculture and industry. Towards this
end, the Reserve Bank concentrated on regulating and developing mechanisms for institution
building. The commercial banking network was expanded to cater to the requirements of general
banking and for meeting the short-term working capital requirements of industry and agriculture.
Specialised Development Financial Institutions (DFIs) such as the IDBI, NABARD, NHB and
SIDBI were set up to meet the long-term financing requirements of industry and agriculture.

Small Industries and Development Bank of India

Small Industries and Development Bank of India (which is the SIDBI full form) mainly focuses
on the financing, promotion and development of the Micro, Small and Medium Enterprises
(MSMEs). Established in 1990, SIDBI’s primary objective is to strengthen the MSME sector by
facilitating cash flow. The bank assists MSMEs to get funds for the development,
commercialization and marketing of their innovative technologies and products. SIDBI offers
customized financial products under several loan schemes and provides services to meet the
demands of various business projects.

SIDBI’s Objectives

SIDBI majorly follows 4 major objectives which are Development, Promotion, Coordination

and Financing. Some of its key functions include:

 SIDBI offers financial support to MSMEs, Small Scale Industries (SSIs), and other
service sectors

 It provides funding via banks, NBFCs, SFCs and other financial institutions

 SIDBI aims to create equilibrium in the financial sector by strengthening credit flows and
promoting skill development

Loan products offered by SIDBI

SIDBI covers mainly 6 products under Direct Loans that are discussed below:

 SIDBI Make in India Soft Loan Fund for Micro Small and Medium Enterprises
(SMILE)

 Smile Equipment Finance (SEF)

 Loans under Partnership with OEM

  Working Capital (Cash Credit)

 SIDBI Trader Finance Scheme (STFS)

 Loan for Purchase of Equipment for Enterprise’s Development (SPEED)

Let’s further have some basic understanding of these products:

 SMILE (SIDBI Make in India Soft Loan Fund for MSME): SMILE focuses on
covering the financial requirements for new enterprises which are in the manufacturing or
in the services sector. The loan amount offered under this scheme is minimum Rs. 10
lakh for equipment finance and Rs. 25 lakh for other purposes. Repayment tenure is
maximum of 10 years, including moratorium period of up to 36 months

 SMILE Equipment Finance (SEF): SEF has a simplified application format with

competitive interest rate. MSME entities that want to purchase any new equipment or
need financing for the same are covered under this loan scheme. Repayment period is of
72 months and the loan amount starts from Rs. 10 lakh

 Loans under Partnership with OEM (Original Equipment Manufacturer): This loan

scheme is helpful for MSMEs that can purchase machines from OEMs. Minimum 3 years
of business existence is required and the repayment period is of 60 months. Loan amount
offered is maximum up to Rs. 1 crore

 Working Capital (Cash Credit): Working Capital is available for MSME units.

Working Capital offers seamless approvals, as per the loan applicant’s requirement

 SIDBI Trader Finance Scheme (STFS): STFS loan scheme is for MSME

Retails/Wholesalers who are in existence for at least 3 years with a satisfactory financial
position. The minimum loan amount offered is Rs. 10 lakh and maximum up to Rs. 1
crore. However, the repayment period shall depend on the cash flow and size of business.
However, the repayment tenure is maximum up to 60 months

 Loan for Purchase of Equipment for Enterprise’s Development (SPEED): Under this

loan scheme, SIDBI offers 100% financing with loan amount up to Rs. 1 crore for New to
Bank and Rs. 2 crore for existing customers. Minimum 3 years of operations are required
to get this loan wherein the repayment period is 2 to 5 years, including Moratorium
period of 3-6 months. Borrowers can avail this loan at an interest rate of 9.25% to 10%
per annum

Types of Loan Schemes from SIDBI

Loan Scheme Eligibility Repayment Loan Amount Features

 Criteria  Tenure

New Enterprises
in the
manufacturing as
well as service
SIDBI Make in SMILE offers
sector and Starts from
India Soft Loan Up to 10 affordable interest rate
existing Rs.10 lakh up
Fund for MSME years with a longer
enterprises who to Rs.25 lakh
(SMILE) repayment period
want to expand
their operations
can apply for
SMILE

Minimum loan
MSME entities amount is The loan scheme
who have had Rs.10 lakh and provides simplified
three years of the maximum application format
Small Equipment Up to 72
existence in loan amount which is easier for the
Finance (SEF) months
financial sector depends on the applicants and the rate
can apply for financial of interest is affordable
SEF profile of the and competitive
applicant

Minimum loan
MSME entities amount is Rs.1
Loans under who are in the crore. One can The loan scheme works
partnership with financial sector apply for as a one stop solution
Up to 60
OEM (Original for at least 3 higher loan for the MSMEs where
months
Equipment years can apply amount as well they can purchase
Manufacturer) for this loan as per the machines
scheme bank’s
guidelines

Working Capital Existing Tenure Depends on the Working Capital gives

(Cash Credit) customers under depends as loan applicant’s the option of choosing
SIDBI or other per the bank financial the banking facilities
banks can apply guidelines profile from at least 2-3 banks
for Working
 Capital

Retailers and The tenure

Wholesalers in depends on
distribution, the loan
The minimum
retailing, malls, amount and The rate of interest is
SIDBI Trader loan amount
and super the competitive along with
Finance Scheme starts from
markets with a maximum flexible repayment
(STFS) Rs.10 lakh up
financial profile repayment options
to Rs.1 crore
for three years tenure is up
can apply for this to 60
scheme months

Start-ups who This loan scheme was

As per the
require funds for As per the loan launched with the idea
loan amount
operational or amount and of supporting
Funds of Funds for and financial
day to day financial Alternative Investment
start-ups profile of
purpose, can profile of the Funds which can help
the loan
apply for this loan applicant in the contribution of
applicant
scheme SIDBI

Enterprises who
are enlisted with Aspire fund helps in
As per the loan
SIDBI that can contributing to the early
amount and
support the AIF’s Up to 6 stages of a start-up in
Aspire Fund financial
for the years the form of
profile of the
contribution to manufacturing, service
loan applicant
SIDBI can apply delivery etc
for this scheme

India Aspiration Varies from As per the The loan India Aspiration Fund
Fund applicant to loan amount amount focuses on promoting
applicant and financial depends on equity and equity linked
profile of number of investments in the
the loan factors as the MSME sectors
applicant complete fund
size of India
Aspiration goes
 up to Rs.2000
crore

The company The loan The loan NBFCs and the loan
should be repayment amount companies that are
Assistance to registered with period starts depends on the registered with the RBI
NBFCs RBI and should from 2 to 5 need based help in promoting the
be in business for and half assistance of financial assistance to
5 years years the companies the MSME sector

The entity should

be in business
operations for at This loan scheme helps
least 3 years with As per the loan in supporting the micro
earned profit of 2 amount and and the small
Up to 5
Refinance Scheme years. The entity financial enterprises by
years.
should also have profile of the providing smooth flow
strong profit or loan applicant of cash credit to the
loss balance MSME Sector
sheet for the last
3 years

The entity should

have a license
sanctioned by the Assistance to Small
As per the loan
RBI to carry out As per the Finance Banks helps in
Assistance to amount and
small business financial strengthening the small
Small Finance financial
operations. The institution’s finance banks by
Banks (SFBs) profile of the
entity should also guidelines providing the financial
loan applicant
have profits support
earned for the
last 2-3 years

Note: The mentioned interest rates, eligibility criteria, fees & charges are subject to change and
depend on the sole discretion of SIDBI, RBI and Govt. of India. GST and service tax shall be
levied extra on the applicable fee & charges on each loan from SIDBI.

Additional Loan Products from SIDBI

SIDBI’s Venture Capital

This loan scheme covers some major initiatives which take care of start-up funding. This
includes Start-ups Life cycle along with SIDBI’s interventions, Funds of Funds for Start-ups,
Aspire Fund and India Aspiration Fund.

 Start-ups Lifecycle along with SIDBI’s interventions: There are new start-ups and
ventures in the field of business that require the right funding from time to time. This
initiative helps in providing the funds with the help of banks, NBFCs and SFBs

 Funds of Funds for Start-ups: The Government of India started with this initiative to
support various Alternate Investment Funds (AIFs) with the idea that it will bring some
contribution to the start-up businesses. It aims to support the growth and development of
the enterprises which are innovation driven

 Aspire Fund: Aspire fund focuses on providing financial backing to start-ups who are in
the initial stages of setting up manufacturing and services

 India Aspiration Fund: With the support of RBI, India Aspiration Fund was set up in
order to promote equity and equity based investments in start-ups and the MSME sector

SIDBI’s Indirect Finance

Under Indirect Finance, there are schemes where financial assistance is provided to banks,
NBFCs and SFBs.

 Assistance through Banks, NBFCs, and SFBs: Indirect Finance is provided to Banks,

NBFCs, SFBs and MSMEs

 Assistance to NBFCs: NBFCs which include the loan companies as well that are
registered with RBI help in providing financial assistance to enterprises in the MSME
sector

 Refinance Schemes: Assistance is provided to banks that are financially stable through

the refinance schemes

 Assistance to Small Finance Banks (SFBs): In order to strengthen the SFBs equity and
resource base, this scheme was introduced. This scheme focuses on providing refinance
support to SFBs

SIDBI’s Micro-Lending

There are 3 main schemes under Micro Lending namely Micro Lending Development
Department, Responsible Finance Initiatives and Beyond Microfinance
  Micro-Lending Development: The mission of Micro-Lending Development is to create
an institution and provide micro financial services to the people who are economically
weak, including women

 Responsible Finance Initiatives: In the light to promote cooperation and the right
lending practices in the financial sector, this loan scheme comes as a big support to the
banks and other financial institutions in the country

 Beyond Microfinance: This loan scheme helps the entrepreneurs to graduate from micro
finance to a higher ticket size at an affordable rate

National Bank for Agriculture and Rural Development

NABARD was established on the recommendations of B.Sivaramman Committee (by Act 61,
1981 of Parliament) on 12 July 1982 to implement the National Bank for Agriculture and Rural
Development Act 1981. It replaced the Agricultural Credit Department (ACD) and Rural
Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and
Development Corporation (ARDC). It is one of the premier agencies providing developmental
credit in rural areas. NABARD is India's specialised bank for Agriculture and Rural
Development in India.

NABARD has been instrumental in grounding rural, social innovations and social enterprises in
the rural hinterlands. As of May, 2020, NABARD operates at 31 Regional Offices in the country.
[9] It has in the process partnered with about 4000 partner organisations in grounding many of
the interventions be it, SHG-Bank Linkage programme, tree-based tribal communities’
livelihoods initiative, watershed approach in soil and water conservation, increasing crop
productivity initiatives through lead crop initiative or dissemination of information flow to
agrarian communities through Farmer clubs. Despite all this, it pays huge taxes too, to the
exchequer – figuring in the top 50 tax payers consistently. NABARD virtually ploughs back all
the profits for development spending, in their unending search for solutions and answers. Thus
the organisation had developed a huge amount of trust capital in its 3 decades of work with rural
communities.

1.NABARD is the most important institution in the country which looks after the development of
the cottage industry, small scale industry and village industry, and other rural industries.

2.NABARD also reaches out to allied economies and supports and promotes integrated
development.

3.NABARD discharge its duty by undertaking the following roles :

 Serves as an apex financing agency for the institutions providing investment and
production credit for promoting the various developmental activities in rural areas
  Takes measures towards institution building for improving absorptive capacity of the
credit delivery system, including monitoring, formulation of rehabilitation schemes,
restructuring of credit institutions, training of personnel, etc.
 Co-ordinates the rural financing activities of all institutions engaged in developmental
work at the field level and maintains liaison with Government of India, state
governments, Reserve Bank of India (RBI) and other national level institutions concerned
with policy formulation
 Undertakes monitoring and evaluation of projects refinanced by it.
 NABARD refinances the financial institutions which finances the rural sector.
 NABARD partakes in development of institutions which help the rural economy.
 NABARD also keeps a check on its client institutes.
 It regulates the institutions which provide financial help to the rural economy.
 It provides training facilities to the institutions working in the field of rural upliftment.
 It regulates and supervise the cooperative banks and the RRB's, through out entire India.

Industrial Development Bank of India

Industrial Development Bank of India (IDBI Bank Limited or IDBI Bank or IDBI) was
established in 1964 by an Act to provide credit and other financial facilities for the development
of the fledgling Indian industry. Many national institutes finds their roots in IDBI like SIDBI,
India Exim Bank, National Stock Exchange of India and National Securities Depository Limited.

Initially it operated as a subsidiary of the Reserve Bank of India and later RBI transferred it to
the Government of India. On 29 June 2018, Life Insurance Corporation of India (LIC) has got a
technical go-ahead from Insurance Regulatory and Development Authority of India (IRDAI) to
increase stake in IDBI Bank up to 51%. LIC completed acquisition of 51% controlling stake on
21 January 2019 making it the majority shareholder of the IDBI Bank. Reserve Bank of India has
clarified vide a Press Release dated 14 March 2019, that IDBI Bank stands re-categorized as a
Private Sector Bank for regulatory purposes with effect from 21 January 2019.

Industrial Credit and Investment Corporation of India (ICICI)

Industrial Credit and Investment Corporation of India (ICICI) was established in 1955 as public
limited company under Indian Company Act, for developing medium and small industries of
private sector. In March 2002, the ICICI was merger with the ICICI Bank and created a first
universal bank in India. With this merger, ICICI does not exist any more as a development
financial institution.

Objectives:

The important objectives of the ICICI are as follows:

(i) To provide loans to industrial projects in private sector

(ii) To stimulate the promotion of new industries.

(iii) To assist the expansion and modernization of existing industries.

(iv) To provide Technical and managerial aid to increase production.

Financial Assistance of ICICI:

To achieve its objectives, ICICI provides financial assistance in various forms such as:

(i) Long term and medium term loans both in terms of rupee and foreign currency.

(ii) Participating in equity capital and in debentures.

(iii) Underwriting new issues of shares and debentures.

(iv) Guarantee to suppliers of equipment and foreign loaners.

Activities of ICICI:

The activities of ICICI are discussed below:

1. Project Finance:

The project finance is provided to industries for the cost of establishment, modernization or
expansion of manufacturing and processing activities in the form of rupee and foreign loans,
underwriting, subscription to shares and debentures and guarantees to supply of equipment and
foreign donors.

The rupee loan is given for the purchase of equipment and machinery, construction and
preliminary expenses. The foreign currency loans are provided for the purchase of imported
capital equipment.=

2. Leasing:

The leasing operations of the ICICI commenced in 1983. Leasing assistance is given for
computerization, modernization/replacement, equipment of energy conservation, export
orientation, pollution control etc.

3. Project Advisory Services:

The Project advisory services are provided to the Central and State Governments and public
sector and private sector companies. Advice to the governments is provided on policy reforms
and on value chain analysis and to private sector companies on strategic management.

4. Facilities for Non-resident Indians:

The information regarding on facilities and incentives given by the Government of India to the
non-resident Indians for judicious investing in India are offered.

5. Provision of Foreign Currency Loans:

The ICICI has a provision of foreign currency loans and advances to enable Indian Industrial
concerns to secure essential capital goods from foreign countries.

6. Other Institutions Promoted:

(a) ICICI promoted the Housing Development Finance Corporation (HDFC) to provide long-
term finance to individuals in middle and lower income groups, co-operations, etc., for the
construction and purchase on ownership basis of residential houses all over the country.

(b) Credit Rating Information Services of India Ltd. (CRISIL) set up by ICICI in association
with Unit Trust of India (UTI) to provide credit rating services to the corporate sector.

(c) Technology Development and Information Company of India Ltd. (TDICI), promoted by
ICICI, to finance the transfer and Up gradation of technology and provide technology
information.

(d) Programme for the Advancement of Commercial Technology (PACT) set up with a grant of
US $10 million provided by USAID (United States Aid) to assist market-oriented R&D activity,
jointly undertaken by Indian and US companies, ICICI has been entrusted with the
administration and management of PACT.

(e) Programme for Acceleration of Commercial Energy Research (PACER) funded by USAID
with a grant of US $ 20 million to support selected research and technology development
proposals in Indian energy sector PACER was also launched by ICICI.