Provision: The Small Industries Development Bank of India or SIDBI is a regulatory body set up for the purpose of licensing and regulation of micro, small, and medium enterprise finance companies in India. It operates under the Union Ministry of Finance.

About SIDBI

• SIDBI Full Form: Small Industries Development Bank of India
• Formation: SIDBI was set up in 1990 by the Government of India through an act of the Parliament, as a wholly owned subsidiary of IDBI Bank. It was delinked from IDBI on March 27, 2000. 
• Mandate: The main purpose of SIDBI is to provide refinance facilities to banks and financial institutions and engage in term lending and working capital finance to small-scale industries.
• Ownership: The government of India and twenty-two other institutions / public sector banks/insurance companies owned or controlled by the Union Government own the shares of the Small Industries Development Bank of India. 
• Working: SIDBI offers financial support to MSMEs in the following ways: 
  • Indirect financing through refinancing the banks, and refinancing financial institutions for onward lending to MSMEs.
  • Direct financing through service sector financing, receivable financing, risk capital sustainable financing, etc.
• Stakeholders: GOI, SBI, LIC, and NABARD are among the major stakeholders in the SIDBI.

SIDBI: Structure and Composition

• Members: The SIDBI Board is Comprised of 3 executive directors and 8 non-executive directors. 
• Headquarters: The headquarters of SIDBI is located in Lucknow.

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SIDBI: Functions

• Credit Extension: SIDBI plays a statutory role in the financial markets through credit extension and refinancing operation activities.
• Support Micro-finance Institutions: SIDBI acts as a foundation for the Micro Credit ecosystem and assists in extending microfinance through the Micro Finance Institution (MFI) route.
• Rural Enterprise Development: SIDBI focuses on rural enterprise promotion and entrepreneurship development through its lending activities.
• Implementation of Government Schemes: SIDBI works as a nodal agency for several government schemes related to the development of MSMEs, such as Make in India and Startup India.
• Promote Growth of the MSME Sector: SIDBI is involved in the development, promotion, and financing of the MSME sector and also coordinates functions of the institutions engaged in similar activities.
• Boost Rural Employment: SIDBI engages in lending to industries located in rural and semi-urban areas to create employment opportunities and thus check rural-to-urban migration.
• Expanding Business of Small-scale Industries: SIDBI helps in the expansion of marketing channels for the products of the SSI (Small Scale Industries) sector both in the domestic as well as international markets.
• Technological Modernisation: Small Industries Development Bank of India helps small-scale industries in the modernization and technological advancement of existing units.

SIDBI: Significance

• Customized Loans: SIDBI customizes loan size so that MSMEs can avail of different types of loans custom-made to suit their business requirement.
• Low Interest Rates: SIDBI has tie-ups with leading financial institutions all over the world to offer concessional interest rates. 
• Business Advice: SIDBI offers assistance advice to entrepreneurs in making the right business decisions.
• Venture Capital Funding: SIDBI offers growth capital as equity through venture capital funds that focus on MSMEs.
• Subsidized Interest Rate: SIDBI has been designed to offer concessional interest rates and comfortable terms for entrepreneurs.
• Expansion of Small Business: SIDBI enables entrepreneurs to acquire adequate capital for meeting their growth requirements without compromising on ownership.
• Collateral-free Lending:  SIDBI provides security-free loans to its customers, allowing MSMEs to borrow up to Rs. 1 crore without collateral.
• Transparent Procedure: While applying for loans, there are no hidden fees, and its sanctioning process is also highly transparent.

SIDBI: Criticism

• Dependence on Government: SIDBI is excessively dependent on the government for its growth and survival. This hampers its independence.
• Funding: SIDBI requires regular funding to handle lending activities. Without adequate funding, MSME industries may suffer.

Initiatives of SIDBI

• CriSidEx: CriSidEx is India’s first sentiment index for micro and small enterprises (MSEs), which has been developed jointly by CRISIL & Small Industries Development Bank of India.
  • It is based on a diffusion index of 8 parameters and measures MSE business sentiment on a scale of 0 (extremely negative) to 200 (extremely positive).
  • Readings of CriSidEx will flag potential headwinds and changes in production cycles, helping improve market efficiencies.
  • It also acts as an actionable indicator of foreign trade by capturing the sentiment of exporters and importers.
• MSME Pulse: This is a quarterly report on MSME credit activity that closely tracks and monitors the MSME segment in the country.
• Udyami Mitra Portal: It has been developed to improve the accessibility of credit and handholding services to MSMEs. 
  • Using this portal, entrepreneurs can apply for a loan without physically visiting any bank branches can track the status of their application, and avail multiple loan benefits.
• Swavalamban Challenge Fund: It offers financial assistance to development organizations, educational institutions, and start-up businesses that focus on environmental actions, sustainable livelihoods, financial inclusion, health and sanitation, access to financial services, etc.
• Livelihood Outreach Program: This initiative of SIDBI seeks to help artisans become digitally literate and to increase their capacity for selling their goods to companies/end customers directly on e-commerce platforms.
• SIDBI MSME Covid Response Fund (SMCRF): The fund helps assist MSMEs, small enterprises, and microloan borrowers by investing in the debt instruments of NBFCs, Fin-Tech firms, and microfinance companies.
• SIDBI Venture Capital Limited (SVCL): It is an investment management company and a wholly owned subsidiary of SIDBI. 
  • It manages funds of Startups/early-stage technology businesses, manufacturing SMEs, service entities, agribusiness entities, financial inclusion companies, etc.
• Micro Units Development & Refinance Agency (MUDRA): Micro Units Development and Refinance Agency Bank is a public sector financial institution that disperses loans at low rates to micro-finance institutions and non-banking financial institutions.
  • MUDRA will provide services to small entrepreneurs and businesses outside the service area of regular banks. It is a wholly-owned subsidiary of the Small Industries Development Bank of India.

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Conclusion:

SIDBI has a mandate for the promotion, financing, and development of the MSME sector and other institutions involved in similar activities.