Joint Lending Programme of SIDBI and Small Finance Banks (SFBs) – To boost funding to micro and small enterprises Signing of MoU

Mumbai, October 28, 2017:To take forward ‘Make in India’ campaign of the Government of India, SIDBI has today entered into an MoU with two SFBs viz. AU Small Finance Bank and Suryoday Small Finance Bank, to make available timely and adequate credit at affordable rates to MSE units and to augment credit flow to MSE sector.

The arrangement involving joint lending by SIDBI and SFB shall principally be in the nature of co-origination wherein both the parties shall jointly sanction loans and shall share the term loan equally on common terms with all arrangements under a single application.

While SIDBI will bring in its expertise spanning two decades on the subject of MSME finance, SFBs network will facilitate credit flow to Micro & Small Enterprises (MSEs) located in unserved and underserved areas. The arrangement would enable MSEs get affordable finance at competitive rates and also help them avail full financial services in the underserved areas under a single window. The arrangement would cover loans ranging from ₹ 25 lakh to ₹ 200 lakh, which will be shared equally between SIDBI and SFB. In addition, SIDBI would also help in financial education, skill development and capacity building of MSEs covered under the program, by providing need based promotional and developmental support.

SFBs will benefit by improving their skill sets in partnership with SIDBI on account of SIDBI’s knowledge base and SFBs would also be able to put in place better risk assessment models for lending to MSEs on account of getting access to structured risk rating mechanism and appraisal tools developed by SIDBI.

SIDBI, set up under an Act of Indian Parliament, is the Principal Financial Institution for the Promotion, Financing and Development of Micro, Small and Medium Enterprise (MSME) sector and for Co-ordination of the functions of the institutions engaged in similar activities. It has pioneered products in niche segments not conventionally addressed by the formal banking sector viz. Risk Capital, Energy Efficiency Products for MSMEs, etc. besides receivable financing scheme by pioneering of bill discounting facilities. SIDBI has recently launched a portal viz. Udyamimitra.in, which is functioning effectively as a market place for lending to MSMEs. SIDBI is addressing the problem of receivables for MSMEs through the Receivable Exchange of India Limited (RXIL). SIDBI is also promoting entrepreneurship among women and under-privileged sections of the society under the Prime Minister’s Stand Up India Program in the MSME sector through a portal viz. standupindia.in.

To give thrust to the supply of credit to micro and small enterprises, agriculture and banking services in unbanked and under-banked regions in the country, Reserve Bank of India (RBI) hasgranted licenseto new “Small Finance Banks (SFBs)” in the private sector. RBI has licensed 10 entities to begin operations under this category.  The SFBs are required to extend 75 per cent of their credit to the priority sector. At least 50 per cent of their loan portfolio should constitute loans and advances of upto Rs. 25 lakh, thus mainly focusing on micro enterprises.SIDBIhas been playing an active role in the evolution of SFBs by engaging with them individually as well as a group. Besides providing assistance to them to meet their financial requirement through refinance as well as equity, where needed, SIDBI is keen to strengthen their lending practices for MSMEs as also partner with them for the Banks’ lending operations.

Speaking on the occasion, Shri Mohammad Mustafa (IAS), Chairman and Managing Director, SIDBI said, “the MoU with SFBsis a continuum of series of SIDBI’s effort in addressing the gaps in the MSME eco system. This initiative will act as a catalyst to improve financial inclusion of hitherto under-served sectors of the nation. On successful operationalisation, this could be a milestone in the MSME financing in the country.”

Shri. Sanjay Agrawal, MD & CEO, AU Small finance Bank, said, “Our cordial relationship with SIDBI started in September 2010 when they provided credit facility of ` 10Cr extended by them for the promotion and development of MSME sector units in rural and semi urban areas which has now reached` 1000 crores and will strengthen further in times to come. SIDBI has always been our one of prime lender & partner in terms of extending credit as & when needed to support Micro & SME Sector in unserved areas towards financial inclusion. Further, under the able support of SIDBI, we were able to build our MSME portfolio to this level. We look forward to the same support to us at our banking platform as well. This joint financing programme with SIDBI shall be crucial step and milestone in this direction to build values as well.”

Shri Baskar Babu, MD & CEO, Suryoday SFB said “Suryoday Small Finance Bank is happy to partner with SIDBI for a co-lending initiative.  We expect this collaboration to help us build a robust MSME portfolio.  In this program, we see an excellent opportunity to complement SIDBI’s expertise in the sector with our outreach at the field level.  We are confident this initiative will help strengthen the MSME ecosystem.”