F. No. E- 20 (2)/ 2003
GOVERNMENT OF INDIAMINISTRY OF SSI OFFICE
OF THE DEVELOPMENT COMMISSIONER (SMALL SCALE INDUSTRIES)
Nirman Bhavan, New Delhi
Dated :17th March, 2004
Subject: - Scheme of Micro Finance Programme
self employment opportunities is one way of attacking poverty
and solving the problems of unemployment. There are over 24 crore
people below the poverty line in the country. The Scheme of Micro-Credit
has been found as an effective instrument for lifting the poor
above the level of poverty by providing them increased self-employment
opportunities and making them credit worthy. Total requirement
of micro-credit in the country has been assessed at Rs.50,000
crore. Micro-credit programme works through NGOs/SHGs and the
merit lies in weekly monitoring and refund of instalments. The
rate of recovery under SIDBI’s Micro credit programme is as high
as 98%. Though there are various Departments and Organisations
implementing micro-credit schemes in the areas of activity falling
under their purview but their total reach is very low i.e. not
more than Rs.5,000 crore. Thus the existing programmes cater to
only 5 to 10% of total requirements and there is considerable
scope for expansion of such programmes.
Micro-credit programmes are run primarily by NABARD in the field
of agriculture and SIDBI in the field of Industry, Service and Business
(ISB). The success of Micro-credit programme lies in diversification
of services. Micro Finance Scheme of SIDBI is under operation since
January, 1999 with a corpus of Rs. 100 crore and a network of about
190 capacity assessed rated MFIs/NGOs. Under the programme, total
amount of Rs. 191 crore have been sanctioned upto 31st December,
2003, benefiting over 9 lakh beneficiaries. Under the programme,
NGOs/MFIs are supposed to provide equity support in order to avail
SIDBI finance. But they find it difficult to manage the needed equity
support because of their poor financial condition.The problem has
got aggravated due to declining interest rate on deposits. The Office
of the Development Commissioner (Small Scale Industries) under Ministry
of MSME is launching a new scheme of Micro Finance Programme to
overcome the constraints in the existing scheme of SIDBI, whose
reach is currently very low. It is felt that Government’s role can
be critical in expanding reach of the scheme, ensuring long term
sustainability of NGOs / MFIs and development of Intermediaries
for identification of viable projects.
Salient features of Micro- Finance Programme
Under the Scheme of Micro-Finance Programme, the
following activities would be undertaken.
Arranging Fixed Deposits for MFIs/NGOs:
The SIDBI is already running a Micro-Credit Programme with
a network of capacity assessed rated MFIs/NGOs. The scheme
of Micro-Finance Programme has been tied-up with SIDBI by
way of contributing towards security deposits required from
the MFIs/NGOs to get loans from SIDBI as per details given
- The Government of India will provide funds for Micro-Finance
Programme to SIDBI, which shall be called ‘Portfolio Risk
Fund’ (PRF). This fund would be used for security deposit
requirement of the loan amount from the MFIs/NGOs and
to meet the cost of interest loss. At present, SIDBI takes
fixed deposit equal to 10% of the loan amount. The share
of MFIs/NGOs would be 2.5% of the loan amount (i.e. 25%
of security deposit) and balance 7.5% (i.e. 75% of security
deposit) would be adjusted from the funds provided by
the Government of India. The MFIs/NGOs may avail the loan
from the SIDBI for further on lending on the support of
the security deposit.
- The Government would provide the needed fund in four
years of the Xth Plan and release the fund on half-yearly
basis based on demands for security deposit. By contributing
an amount of Rs.6 crore during the Xth Plan under Micro-Finance
Programme, SIDBI can provide loan of Rs.80.00 crore to
MFIs/NGOs. This would benefit approximately 1.60 lakhs
beneficiaries, assuming an average loan of Rs. 5,000/-
- The SIDBI will pay interest to the Govt. on the fixed
deposit made available by the Government at the same rate
as allowed to NGOs. Other terms and conditions will be
fixed mutually by SIDBI and GOI.
- The recovery of loan/interests will be the sole responsibility
of the SIDBI. In case of non recovery of loan, SIDBI would
first adjust fixed deposit and interest accrued thereon
for 2.5% security deposit of the loan pledged by the MFIs
/ NGOs and thereafter adjust 7.5% security deposit of
the loan amount provided by the Government of India and
the interest accrued thereon with the approval of Committee
of Govt. of India.
- After full recovery of loan from the MFIs/NGOs, the
7.5% security deposit of the loan amount provided by Govt.
of India and interest accrued thereon would be rotated
further as a security deposit for MFIs/NGOs with the approval
of Committee of the Govt. of India or the same will be
returned to the Govt. of India.
- As SIDBI is already running the Micro-Credit Programme,
they will monitor the scheme. They would also provide
the monthly/ quarterly progress report along with details
of beneficiaries, utilization of funds provided by Government
of India and loan sanctioned/ utilized by the beneficiaries.
- The activities covered under the scheme are manufacturing,
service sector and non-farming activities.
Training and Studies on Micro-Finance
Programme: The Government of India would help SIDBI in
meeting the training needs of NGOs, SHGs, intermediaries and
entrepreneurs and also in enhancing awareness about the programme.
This task would be performed through National Level Entrepreneurship
Development Institutes (EDIs) and Small Industries Service
Institutes (SISIs). The Research Studies would also be arranged
through reputed agencies.
Institution Building for ‘Intermediaries
’ for identification of viable projects : The Government
of India would help in institution building through identification
and development of ‘intermediary organization’, which would
help the NGOs/SHGs in identification of product, preparation
of project report, working out forward and backward linkages
and in fixing marketing/ technology tie-ups. The SISIs would
help in the identification of such intermediaries in different
Budgetary Provision for the Scheme
during 10th Plan
The Budgetary provision for the scheme in the Tenth Five Year
Plan is Rs. 7 crore and the provision in the current financial
year 2003-04 is Rs. 0.25 crore. The entire amout of Rs. 0.25
crore is to be provided to SIDBI as ‘Portfolio Risk Fund’ (PRF)
during the year 2003-04. Under the scheme, allocation of an
amount of Rs. 1 crore is for studies, training, awareness, etc.
and amount of Rs. 6 crore is for contribution to SIDBI as ‘Portfolio
Risk Fund’ (PRF). Savings if any, under any activity would be
utilized on other activity of the scheme so that the budget
allocated may be fully utilized.
A Committee under the Chairmanship of Additional Secretary &
Development Commissioner (MSME) is to be constituted. Other
members of the Committee would be Additional Development Commissioner
& EA, Director (IFW), Chairman-cum- Managing Director (SIDBI)
and Director (EA). Any other member can be co-opted by the Committee,
if required. The Committee would review the progress made under
the scheme, approve the adjustment of security provided by the
Government of India and interest accrued thereon in case of
non-recovery of loan by SIDBI, approve further rotation of funds
provided by the Government of India and other related matters.
- This issues with the concurrence of Integrated Finance
Wing of the Ministry, vide their Dy.No. 387/Fin.I/04 dated: 01.3.2004.
( Praveen Mahto)
Director ( EA)
- Chairman cum Managing Director,
Small Industries Development Bank of India. SIDBI Tower,
15, Ashok Marg
Lucknow - 226001
- Principal Director,
National Institute of Small Industry Extension Training,
Hyderabad- 500 045.
- Executive Director,
NSIC - PDTC Campus,
Okhla Industrial Estate,
New Delhi - 20
Entrepreneurship Development Institute of India,
Near Village Bhat, Via Ahmedabad Air Port & Indira Bridge,
Post Office Chandkeda,
Gujarat - 382 424.
Indian Institute of Entrepreneurship,( IIE),
Chariali, 37, N.H Bypass,
- Director - All SISIs.
IF Wing, Udyog Bhavan,
New Delhi.w.r.t Dy.No. 387/Fin.I/04 dated: 01.3.2004.
- Pay & Accounts Office,
MSME, Nirman Bhavan,
- Director of Audit, Civil & Services Ministries,
AGCR Building, I.P. Estate,
New Delhi - 110002.
Copy for kind information to:-
- PS to Minister( MSME),Udyog Bhavan, New Delhi.
- PS to MOS ( MSME), Udyog Bhavan, New Delhi.
- PPS to Secretary ( MSME & ARI), Udyog Bhavan, New Delhi
- PS to AS & DC(MSME), Nirman Bhavan, New Delhi.
- PS to AS & FA, Udyog Bhavan, New Delhi.
- PS to Joint Secretary( MSME), Udyog Bhavan, New Delhi.
- PS to Joint Secretary(ARI), Udyog Bhavan, New Delhi.
- PS to Joint Secretary, Deptt. of Economic Affairs, North Block,
- PS to Joint Secretray, Deptt. of Rural Employment & Poverty Alleviation,
Krishi Bhavan, New Delhi.
- PS to ADC & EA, O/o the DC(MSME), New Delhi.
- PS to ADC (Planning), Office of the DC( MSME), New Delhi.
- All IAs/ AIAs/ JDCs/ Directors in the Hq. Office
- CGM, Reserve Bank of India,
RPCD, 13th Floor, Central Office,
Central Office Building,
- Adviser, Planning Commission,
National Small Industries Corporation,
Okhla Industrial Estate,
New Delhi -110 020.
- Secretary ( Industries) - All States/ UTs.
( Praveen Mahto)
Director ( EA)