1
Unit-4
Institutional finance to entrepreneurs-IFCI-SFC-IDBI-ICICI-TIIC-SIDCS-LIC-GIC-UTI-SIPCOT-SIDBI-Commercial bank-Venture
capital
Financing Institutions
Finance is one of the essential requirements of an enterprise."Without
adequate funds, no business can be developed. In India, Central and state governments are promoting number of financial institutions
to bring in the industrial development in the country. Some of the important financial institutions are:
1. Industrial Finance Corporation of India (IFCI)
2. State Financial Corporation’s (SFC)
3. Industrial Development Bank of India (IDBI)
4. Industrial Credit and Investment Corporation of India Ltd (ICICI)
5. Tamil Nadu Industrial Investment Corporation Limited (TIIC)
6. State Industrial Development Corporations(SIDCs)
7. Life Insurance Corporation of India (LIC)
8. Guaranteed Investment Certificate(GIC)
9. Unit Trust of India (UTI)
10. State Industries Promotion Corporation of Tamil Nadu(SIPCOT)
11. Small Industries Development Bank of India (SDBI)
12. Commercial Bank
13. Venture Capital
1. 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. It also extends other financial facilities like equipment procurement,
equipment finance, buyer’s and supplier’s credit, equipment leasing and finance to leasing and hire-purchase companies.
The IFCI has devised new promotional schemes such as
(a) Consultancy fees, subsidy schemes for assisting small scale entrepreneurs in marketing sector.
(b) Interest subsidy schemes for women entrepreneurs.
2
(c) Pollution control in small and medium scale enterprises.
(d) Encouraging the modernization of tiny, small and medium scale industries
2. 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
(a) To advance term loans to small scale and medium scale industrial units.
(b) It underwrites the issue of stocks, shares, debentures and bonds of industrial units.
(c) It grants loans to the industrial concerns which is repayable within a period not more than 20 years.
(d) It subscribes to debentures floated by industrial concerns.
(e) It provides financial assistance to small road transport operators, tour operators, hoteliers, hospitals, nursing homes, etc.
4. 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
(a) The IDB1 provides assistance to the small scale sector through its scheme of refinance and bills rediscounting scheme.
(b) The financial assistance has been indirect in the form of refinancing of loans and the State Financial Corporations (SFCs).
3
(c) 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.
(d) In association with Government of India, IDB1 has constituted National Equity Fund (NEF) to prevail equity type of support to
tiny and small scale units which are engaged in manufacturing activities. The scheme is administered by IDB1 through nationalized
banks.
(e) The IDBI has also introduced the single window assistance ‘scheme for grant of term loans and working capital assistance to
tiny, small and medium scale enterprises.
(f) The IDB1 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.
5. Industrial Credit and Investment Corporation of India Ltd. (ICICI):
The ICICI was established by the Government of India under the Companies Act 1956, with the objective of providing financial
assistance to the small and medium scale sectors. The main functions of ICIC1 are as follows
(a) Financial assistance is extended by way of rupee and foreign currency loans, underwriting and direct subscriptions to shares,
debentures and guarantees.
(b) Financial facilities such as deferred credit, leasing credit, installment sale, asset credit and venture capital are given by ICICI.
(c) It also guarantees loans from other private investment sources, small scale units are the major beneficiary of the ICICI
assistance.
6. Tamil Nadu Industrial Investment Corporation Limited
The Tamil Nadu Industrial Investment Corporation Limited (TIIC) (Tamil: தமிழ்நாடு தொழில் முதலீட்டுக் கழகம்(
tamil naattu muthaleettu kazhakam), Limited is an institution owned by the government of Tamil Nadu and is intended as a catalyst for
the development of small, medium and large scale industries in Tamil Nadu. It was established in 1949
4
Functions
TIIC as a State Level Financial Institution, offers long and medium term financial assistance to various industries including service
sector in the following forms:
● Term Loans
● Term Loan and Working Capital Term Loans under the Single Window Scheme.
● Special types of assistance like Bill Financing Scheme, etc.
7. STATE INDUSTRIAL DEVELOPMENT CORPORATIONS (SIDCS)
The State Industrial Development Corporations have been set up by the State Governments as companies wholly owned by them. At
present, 22 such SIDCs are functioning in India. SIDCs are not merely financing agencies, but are intended to act as instruments for
accelerating the pace of industrialization in the respective States. Besides providing financial assistance to industrial concerns by way
of loans, guarantees and underwriting of or direct subscriptions to shares and debentures, the SIDCs undertake various promotional
activities such as conducting techno-economic surveys, project identification, preparation of feasibility studies, selection and training
of entrepreneurs. They also promote joint sector projects in association with private promoters. In such projects SIDCs take 26%
private co-promoter takes 25% of the equity and the rest are offered to the investing public.
8. Life Insurance Corporation of India (LIC):
The LIC was established under the L1C Act in 1956. It offers many insurance policies to give social security to various segments of
society. 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.
9. Guaranteed Investment Certificate (GIC)
A GIC (guaranteed investment certificate) is a safe and secure investment with very little risk. You don’t have to worry about losing
your money because it is guaranteed.
5
A GIC works like a savings account in that you deposit money into it and earn interest on that money. The difference is that you need
to leave your money in a GIC account for a specified period of time. If you take it out early, you may have to pay a penalty –
depending on the type of GIC you own.
Things you need to know about GICs
● You need to invest at least $500 in a GIC
● Generally there are no fees with GICs
● Most GICs pay a fixed rate of interest for a set term (6 months, 1 year, 2 years or up to 5 years) and the term ends on the maturity date
- the longer the term, the higher the interest rate
● Some GICs offer variable interest rates
● Interest on your GIC may be paid monthly, once a year or on the maturity date
● If you need to get your money back before the maturity date, you may have to pay a penalty depending on the type of term purchased.
Funds in a non-redeemable term are generally locked in until maturity unless there are qualifying circumstances
● Some GICs — called cashable or redeemable GICs — do not charge a penalty if you need to get your money out early, but the interest
paid is lower
● Your money is protected through the Canada Deposit Insurance Corporation (CDIC) – but only for terms of 5 years or less and only on
Canadian funds
● You can hold your GICs in registered investment accounts like RRSPs, RRIFs and TFSAs
● If you hold your GICs outside of your RRSPs, RRIFs or TFSA – you will be taxed on the interest you earn
10. 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,
Grihalaxmi Unit 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.
11. State Industries Promotion Corporation of Tamil Nadu
The State Industries Promotion Corporation of Tamil Nadu Limited (SIPCOT) (Tamil: தமிழ்நாடு அரசு தொழில்
முன்னேற்றக் கழகம் ( tamil naattu thozil munnettra kazhakam)), Limited is an institution owned by the Government of Tamil
Nadu. . The State Industries Promotion Corporation of Tamil Nadu Limited (SIPCOT) was formed in the year 1971, to promote
industrial growth in the State and to advance term loans to medium and large industries
6
Functions
The Functions of State Industries Promotion Corporation of Tamil Nadu Limited (SIPCOT) are:[2]
● Development of industrial complexes/parks/industrial estate in Nallamballi Road growth centres with basic infrastructure facilities
● Establishing sector-specific Special Economic Zones (SEZs);
● Implementation of Special infrastructure Projects;
● SIPCOT IT Park is the largest Information Technology Park in Asia, located in Padur, Siruseri, along the IT
Corridor, Chengalpattu taluk, Kancheepuram District.
12. Small Industries Development Bank of India (SIDBI):
SIDBI was established in 1989 as a subsidiary of IDBI under a Special Act. The main functions of SIDBI 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 up to 1,000 crores.
The functions of SIDBI are as follows:
(a) To promote small scale industries in semi-urban areas to create more employment opportunities.
(b) To undertake technological up gradation and modernization of existing small scale industries.
(c) To expand the channels for marketing the products of SSI sector on both domestic and international markets.
(d) To extend seed capital or soft loan assistance under National Equity Fund Scheme / Mahila Udyam Nidhi Scheme.
(e) To great direct assistance and refinance for exports of small scale sector.
(f) To provide financial assistance to SFCs, SIDCs, Commercial Banks, RRBs through existing credit delivery system.
(g) To provide factoring and leasing service.
(h) To provide financial assistance to the institutes, organizations for undertaking EDPs.
(i) Special emphasis and the new schemes of assistance for marketing support to the small scale sector.
7
⮚ Commercial bank
A commercial bank is an institution that provides services such as accepting deposits, providing business loans, and offering basic
investment products. Commercial bank can also refer to a bank, or a division of a large bank, which more specifically deals with
deposit and loan services provided to corporations or large/middle-sized business - as opposed to individual members of the
public/small business.
There are 3 types of commercial banks: public sector, private sector, and foreign. The general role of commercial banks is to provide
financial services to general public, business and companies, ensuring economic and social stability and sustainable growth of the
economy.
Functions
Along with core products and services, commercial banks perform several secondary functions. The secondary functions of
commercial banks can be divided into agency functions and utility functions.
Agency functions include:
● To collect and clear cheques, dividends and interest warrant
● To make payments of rent, insurance premium, etc.
● To deal in foreign exchange transactions
● To purchase and sell securities
● To act as trustee, attorney, correspondent and executor
● To accept tax proceeds and tax returns.
Utility functions include:
● To provide safety locker facility to customers
● To provide money transfer facility
● To issue traveller's cheque
● To accept various bills for payment: phone bills, gas bills, water bills, etc.
● To provide various cards: credit cards, debit cards, smart cards, etc.
⮚ Venture Capital
8
The term venture capital comprises of two words, namely, ‘venture’ and ‘capital’. The term venture literally means a course or
proceeding, the outcome of which is uncertain but which is uncertain but which is attended by the risk of danger of ‘loss’. On the other
hand, the term capital refers to the resources to start the enterprise. However, the term venture capital can be understood in two ways.
Dimensions of Venture Capital
Venture capital in India is available in four forms:
1) Equity Participation: The venture capital finances up to 49% of the equity capital and the ownership remains with the entrepreneur.
2) Conventional Loan: Under this, a lower fixed rate of interest is charged to the unit till its commercial operation. After normal rate of
interest is paid, loan is to be repaid as per the agreement.
3) Conditional Loan: A conditional loan is repayable in the form of royalty ranging between 2 and 15% after the venture is able to
generate sales and no interest is paid on such loans.
4) Income Notes: The income note combines the features of conventional and conditional loans in a way that the entrepreneur has to
pay both interest and royalty on sales at low rates.
