SIDBI MSME Finance in India
Program Development Objective (PDO)
This program aims to directly support India’s leading institution for micro, small, and medium enterprises (MSMEs)—the Small Industries Development Bank of India (SIDBI)—and to indirectly support participating financial institutions (PFIs). The objective is to increase access to financing for MSMEs by designing innovative debt products for start-up and early-stage enterprises, as well as for MSMEs in the service and manufacturing sectors, thereby building capacity to extend the new products and supporting the rollout and scale-up of such products.
The Small Industries Development Bank of India has requested the program. The program will focus on improving access to finance for strategic sectors by developing and rolling out innovative and appropriately designed products, mechanisms, and initiatives that will address the key constraints that inhibit financing for start-up, early-stage, service-sector, and manufacturing-sector MSMEs.
The technical assistance (TA) component of the program has organized a series of carefully sequenced activities around the following three pillars.
Pillar 1. Financing for Start-Up and Early-Stage MSMEs
The first pillar focuses on the development and rollout of innovative financial products and frameworks to fund start-up and early-stage companies and to catalyze the start-up debt market in India.
To address the financing gaps, the pillar will first assist with the development of innovative products and appraisal models for start-up and early-stage MSMEs and enable SIDBI to scale up its lending portfolio to this segment. Next, SIDBI aims to support the entry of other PFIs through innovative partnerships and engagement models, incentivizing PFIs to lend to early-stage MSMEs. Finally, the TA component will support the further development and scale-up of a National Innovations Finance Program (NIFP), a comprehensive plan to address MSME finance through a virtual market place.
Pillar 2. Financing for MSMEs in the Service Sector
The second pillar focuses on the design and rollout of innovative structured frameworks for financial services to franchisees to enhance the flow of formal debt financing to the MSMEs in the service sector and contribute to sector growth.
To introduce and support the adoption of franchise financing models in India, the program will take a collaborative approach whereby SIDBI or a financial institution will actively engage the franchisor. At midterm, the TA component will assess the market to identify additional gaps in franchising financial products currently available to the service sector in India and will then develop these products for rollout. In addition, the TA component will explore improvements to the franchise ecosystem, including the opportunity for a national franchise registry in India.
Pillar 3. Financing for MSMEs in the Manufacturing Sector
This pillar will focus on new finance products for the manufacturing sector. It involves conducting a market assessment and developing new financial products and new credit delivery arrangements. In this model, PFIs, including SIDBI, could leverage cluster-level associations (including women-led clusters) and industry associations to help reduce information asymmetries, for example, by obtaining references and credit screening from clusters. To analyze the needs of clusters, the TA component will help identify specific sectors (five or six) by assessing the various studies on MSME clusters, followed by an informed identification of the sectors on which the program will seek to focus.
The short- and medium-term expected outcomes of this program include the following:
Pillar 1. Financing for Start-up and Early-Stage MSMEs
1. Increased availability of products and lenders’ enhanced capacity for financing for start-up
and early-stage MSMEs
2. Provision of capacity building for SIDBI to design and implement products for start-up
and early-stage MSMEs
3. Design of an NIFP platform and organization of outreach and dissemination events on new
products and NIFP
Pillar 2. Financing for Service Sector MSMEs
1. Increased availability of products and lenders’ enhanced capacity for financing for
2. Development of internal credit ratings of franchisors and franchisees
3. Provision of capacity building for SIDBI on franchisee financing
4. Development of a roadmap for designing and setting up a franchisee registry
Pillar 3. Financing for Manufacturing Sector MSMEs
1. Increased availability of products for financing for manufacturing-sector MSMEs
2. Design of new credit delivery and cluster financing frameworks
3. Provision of capacity building to SIDBI on new products and processes
4. Organization of outreach and dissemination events on new pilot products and best