INSTITUTIONAL

FINANCE TO
ENTREPRENEURS
By

A.Anusuya-17CAS21

D.Hepzibha-17CAS13

S.Merlin-17CAS10

S.Soundarya-17CAS42

B.Peratchi Selvi-17CAS50

Keren Teena Dasan-17CAS27

Rexlin-17CAS60

Pravina.G-17CAS18
 IMPORTANCE OF
FINANCE
Finance is one of the essential requirements of
any enterprise.
Before setting up the units, small
entrepreneurs need to know about the type and
extent of their financial requirements.
It is to know about the possible alternative
sources from which finance can be availed of.
 Due to shortage of entrepreneurs’ own
funds/resources, the Government Of India to
promote small scale sectors has set up a host of
institutions to meet the financial requirements
of small ‘entrepreneurs.
 COMMERCIAL BANKS
The main functions of Commercial banks are:
 These mostly provide short term and, in some cases, medium term financial
assistance to small scale units. Short term credit facilities are granted for
working capital requirements like those for raw materials, goods-in-process,
finished products, bills receivables, and book debts.
 Medium term loans are granted for the acquisition of land, construction of
factory premises, purchase of machinery and equipment, and operative
expenses. These loans are generally granted for periods ranging from five to
seven years.
 Certain transactions, particularly those in contracts of sale to Government
departments, may require guarantees being issued in lieu of security/earnest
money deposits for release of advance money, supply of raw materials for
processing, full payment of bills on assurance of performance, etc. Commercial
banks also issue such guarantees. 3
 INDUSTRIAL DEVELOPMENT BANK OF INDIA
The IDBI was established on July 1, 1964 by the Government of India under an Act of
Parliament as the principal financial institution in the country.
MAIN FUNCTIONS OF IDBI:
 The IDBI provides assistance to the small scale sector through its scheme of Refinance
and bills rediscounting scheme.
 In order to assist the small scale sector, the IDBI has set up Small Industries
Development Fund (SIDF) in May 1986. This fund basically aims at providing a focal point
to co-ordinate financial and non-financial inputs required for growth of small industries
sector.
 In association with Government of India, IDBI has constituted National Equity Fund
(NEF) to support to tiny and small scale units which are engaged in manufacturing
activities. The scheme is administered by IDBI through nationalized banks.
 The IDBI has also set up a Voluntary Executive Corporation Cell (VECC) to use the
services of experts, professionals for counseling small units and for providing consultancy
support in specified areas.
 During 1987-88, the IDBI sanctioned assistance Rs.1,511 crores to small scale industries
out of total sanction of Rs.4,580 crores which means about one-third of total industries
 INDUSTRIAL FINANCE CORPORATION OF INDIA LTD
The Industrial Finance Corporation of India was set up by the Government of India
under IFC1 Act in July 1948. It is an important financial institution which gives
financial assistance to the entrepreneurs through rupee and foreign currency loans,
underwriting, direct subscriptions to shares, debentures and guarantees.
MAIN FUNCTIONS OF IFCI:
 Assistance provided by IFCI during 1994-95 rose by 52.7% to Rs.5719 crores. It
went by 31.2% to Rs.2839 crores during the year.
 Consultancy fees, subsidy schemes for assisting small scale entrepreneurs in
marketing sector.
 Interest subsidy schemes for women entrepreneurs.
 Pollution control in small and medium scale enterprises.
 Encouraging the modernization of tiny, small and medium scale industries
 It showed its concern to backward districts by providing assistance of Rs.11293
crores accounting for 45.9% of the total. 5
 INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LTD.
(ICICI):
The ICICI was established by the Government of India in January 1955 under the
Companies Act 1956, with the objective of providing financial assistance to the small
and medium scale sectors.
The main functions of ICICI are as follows
• Financial assistance is extended by way of rupee and foreign currency loans,
underwriting and direct subscriptions to shares, debentures and guarantees.
• Financial facilities such as deferred credit, leasing credit, installment sale, asset credit
and venture capital are given by ICICI.
• It also guarantees loans from other private investment sources, small scale units are
the major beneficiary of the ICICI assistance.
• It has set up ICICI Asset Management Company Ltd. In June 1993 to operate the
schemes of ICICI Mutual Fund.
• Assistance sanctioned by ICICI during 1994-95 increased by 77.4% to Rs.15,065
crores.
 INDUSTRIAL RECONSTRUCTION BANK OF INDIA (IRBI)
The IRCI was set up in 1971 under the Companies Act to act as an agency to
rehabilitate the sick units. But, in the year 1984, the Government of India
renamed the IRCI as Industrial Reconstruction Bank of India (IRBI) by an Act of
Parliament. IRBI plays a significant role in promoting entrepreneurial and
industrial development in the country by performing the following functions
 It provides financial assistance to industrial concerns.
 It acts as an agency of State Government, Union Government and other financial
institutions as per the authorization of the Government.
 It provides consultancy and merchant banking services for reconstruction and
development of industrial units.
 It also helps in providing infrastructural facilities, raw materials, machineries
and other tools on the basis of hire-purchase and lease schemes.
 It acts as a reconstruction agency to revive, reconstruct and rehabilitate the sick
industrial concerns.
 LIFE INSURANCE CORPORATION OF INDIA (LIC):
LIC was established under the L1C Act in 1956. It offers many insurance
policies to give social security to various segments of society.
The main functions of LIC are:
 As per its investment policy, LIC invests 75% and above in Central and
State Government’s securities including government-guaranteed
marketable securities and in the socially-oriented sector.
 The LIC gives loans for activities like housing, rural electrification,
modernization of industry, expansion, diversification of industrial ventures,
water supply and sanitation etc.
 During 1994-95 the LIC sanctioned assistance to corporate sector of
Rs.1790 crores.
 LIC provides term loans and underwritings to shares and debentures of
corporate sector.
 UNIT TRUST OF INDIA (UTI):
The UTI was set up by the Government of India in 1964 under an Act of
Parliament.
The chief objectives of UTI are
 To mobilize savings of small investors through sale of units and to channelize
these savings towards corporate investment.
 The UTI has introduced many schemes which aimed at common investors.
 These schemes are mainly Primary Equity Fund, Retirement Benefit Plan,
Unit Scheme 1995 and Columbus India Fund.
 The UTI also provides financial assistance to corporate sector in the form of
term loans and underwriting direct subscriptions to shares and debentures.
 During 1994-95 more than nine-tenth(90.4%) of total assistance sanctioned by
UTI was accounted for private sector and remaining (9.6%) for public sector.
 STATE FINANCIAL CORPORATIONS (SFCS):
IFCI provides financial assistance only to large sized industrial undertakings. In order
to cater to the needs of the small scale units, the Government of India passed the State
Financial Corporations Act in 1951 under which the State Financial Corporations
(SFCs) were set up. The first SFC was set up in Punjab in 1953. Today, there are 18 SFCs
functioning in the country. State Financial Corporations are managed by a Managing
Director, Board of Directors and the Executive Committee is headed by a chairman.
The functions of SFCs are as follows
• To advance term loans to small scale and medium scale industrial units.
• It underwrites the issue of stocks, shares, debentures and bonds of industrial units.
• It grants loans to the industrial concerns which is repayable within a period not more
than 20 years.
• It subscribes to debentures floated by industrial concerns.
• It provides financial assistance to small road transport operators, tour operators,
hoteliers, hospitals, nursing homes, etc.
 STATE INDUSTRIAL DEVELOPMENT / INVESTMENT CORPORATION
(SIDC/SIIC)

Set up under the Companies Act, 1956 as wholly owned undertakings of the State
Governments, act as catalysts in respective states.

FUNCTIONS OF SIDC ARE:

SIDC helps in developing land, providing developed plots together with facilities like
roads, power, water supply, drainage and other amenities.
They also extend assistance to small-scale sector by way of term loans, subscription
to equity and promotional services.
11 out of 28 SIDC's in the country also function as SFCs and are termed as Twin-
function of IDCs.
Established under Companies Act, 1956 as State government undertaking, caters to
small, tiny and village industries in respective states.
 STATE SMALL INDUSTRIAL DEVELOPMENT CORPORATIONS
(SSIDC)

The functions of SSIDC performs: -

 Procure and distribution of scarce raw materials.
 Supply of machinery to SSI units on hire-purchase basis.
 Construction of industrial estates, allied infrastructure facilities
and their maintenance.
 Product marketing assistance.
 Providing management assistance to production units.

12
 SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI):
SIDBI was established in 1989 under a Special Act. Its main functions are the promotion and
development of small scale industries by way of financing. It commenced its operations from 2
April, 1980 with its head office at Lucknow. The initial authorized capital of SIDBI was 25
crore, which can be extended upto 1,000 crores.
The functions of SIDBI are as follows
 To promote small scale industries in semi-urban areas to create more employment
opportunities.
 To undertake technological upgradation and modernization of existing small scale industries.
 To expand the channels for marketing the products of SSI sector on both domestic and
international markets.
 To direct assistance and refinance for exports of small scale sector.
 To provide financial assistance to SFCs, SIDCs, Commercial Banks, RRBs through existing
credit delivery system.
 To provide financial assistance to the institutes, organizations for undertaking EDPs.
 Special emphasis and the new schemes of assistance for marketing support to the small scale
sector.
 EXPORT AND IMPORT BANK OF INDIA (EXIM)
The Export and Import Bank of India, popularly known as the EXIM Bank was set
up in 1982. The main function of the Export and Import Bank of India is to provide
financial and other assistance to importers and exporters of the country. The ultimate
aim is to promote foreign trade activities in the country.
Functions of the EXIM Bank
• Finances import and export of goods and services from India
• It also finances the import and export of goods and services from countries other
than India.
• It finances the import or export of machines and machinery on lease or hires
purchase basis as well.
• Provides refinancing services to banks and other financial institutes for their
financing of foreign trade.

14
• EXIM bank will also provide financial assistance to businesses joining a joint
venture in a foreign country.
• The bank also provides technical and other assistance to importers and exporters.
Depending on the country of origin there are a lot of processes and procedures
involved in the import-export of goods.
• The EXIM bank will provide guidance and assistance in administrative matters as
well.
• Undertakes functions of a merchant bank for the importer or exporter in transactions
of foreign trade.
• Will also underwrite shares/debentures/stocks/bonds of companies engaged in
foreign trade.
• Will offer short-term loans or lines of credit to foreign banks and governments.
• EXIM bank can also provide business advisory services and expert knowledge to
Indian exporters in respect of multi-funded projects in foreign countries
 ORIGIN OF WTO
The World Trade Organization (WTO) was established on 1st January 1995. The ‘Marrakesh
Declaration' of 15th April 1994, affirmed that the results of the Uruguay Round would
‘Strengthen the world economy and lead to more trade, investment and employment and income
growth throughout the world.
IMPACT OF WTO ON SSI:
After the origin of WTO, the SSIs in India enjoy the following privileges:
 Enabling India to export goods to the member countries of the WTO with fewer restrictions.
Reduction of tariffs on the export products to India i.e., Tariff based protection has become the
rule.
 Export in India has been increased from Rs.13883 crores in 1992 to Rs.53975 crores in the year
2000 in SSI sector.
 Prospects in agricultural exports as a result of likely increase in the world prices of agricultural
products due to reduction in domestic subsidies and barriers to trade.
 Availability of modern technologies from the other countries at reduced cost.
 Exports increased marginally from $ 30.63 billion during the year 1995 to $ 44.2 billion in the
year 2000 though share in the global trade increased marginally from 0.6 to 0.6%.
16
THANKS!
17