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Business News/ Politics / News/  Govt tells Sidbi to phase out direct lending to MSEs
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Govt tells Sidbi to phase out direct lending to MSEs

Govt tells Sidbi to phase out direct lending to MSEs

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New Delhi: The finance ministry has asked Small Industries Development Bank of India (Sidbi) to gradually phase out direct lending to micro and small enterprises (MSEs) and instead back these with equity financing, credit guarantee and venture capital funding. The ministry wants Sidbi to change its business model because most banks already provide term and working capital loans to MSE.

Sidbi’s chief executive confirmed the change in focus. “We are looking to fill the gaps. There are many segments such as receivable financing, energy efficiency financing, service sector financing and equity financing where funding shortage exists," said Sushil Muhnot, chairman and managing director of Sidbi.

There are around 26 million MSEs in India providing employment to more than 60 million people, according to government estimates.

“Now Sidbi takes money from banks, makes a margin and then lends at a higher rate than banks. From an economic point of view it ... does not make sense," the finance ministry official said.

Sidbi provides venture capital funding through Sidbi Venture Capital Ltd (SVCL), a wholly owned subsidiary, and credit guarantees through the government’s credit guarantee fund trust for MSEs.

As of 31 December, Sidbi’s direct lending book size was around 10,000 crore. SVCL has committed 542 crore to enterprises and has made partial or full exit from 33 companies.

“Sidbi started off as a refinancing agency and its core competency has not been in direct lending. Venture capital funding or equity participation in these (MSE) businesses will bridge the sizeable gap in risk capital in India," said Robin Roy, associate director at audit and consulting firm PWC.

remya.n@livemint.com

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Published: 08 Feb 2012, 01:15 AM IST
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