Project Background

With an intent to facilitate increased flow of credit to SMEs and support other developmental initiatives, SIDBI is implementing a multi-agency / multiactivity flagship Project on Financing and Development of Small and Medium Enterprises in India. The International bank for Reconstruction and Development (IBRD), Department for International Development (DFID), UK, KfW and GTZ, Germany are the major international partners in the Project. The Project comprises of a line of credit of USD 120 million from IBRD and Euro 43.5 million from KfW. The Technical Assistance (TA) comprises of GBP 20 million from DFID, UK, EURO 1 million from KfW and Euro 5 million from GTZ. While SIDBI has been assigned with the responsibility of implementing the Project, Banking Division, DEA of the Ministry of finance, GoI is the nodal agency for the same. For implementation of the Project, SIDBI has set up a dedicated Project Management Division (PMD) at New Delhi.

The objective of this Project is to, inter-alia, improve SME access to finance (including term finance) and market oriented Business Development Services (BDS), thereby fostering SME growth, competitiveness and employment creation. The Project is designed to achieve this objective through a multi-pronged approach that will address key bottlenecks to SME financing and development in India, by focusing on a) enabling framework for SME financing by banks (the primary target group of the Project) b) helping banks better access to longer term financing for lending to the SME sector, thereby facilitating capital formation and technological upgradation c) mitigating bank’s risks related to SME lending and reducing transaction cost of such lending while at the same time ensuring enhanced quality of the SME loan portfolios, and d) strengthening SME’s access to Market linked Business Development Services, thereby helping them to improve profitability and competitiveness and become more creditworthy

The Technical Assistance support from DFID comprises:

Business Development Services (BDS) for SMEs: This is designed to strengthen SMEs' access to BDS, to facilitate designing & mplementing strategies to foster BDS market development, strengthening BDS in select 25-30 SME clusters and develop them as "Role Models", with a strong demonstration effect. It is understood that in clusters there is deficiencies in BDS supply; either BDS services are not appropriate for the type of SMEs or they are not costeffective, or not ‘packaged’ or delivered in the desired manner. This type of deficiencies in both demand and supply has to be addressed by either transaction subsidies or specific interventions, like sensitisation, product development and capacity building for BDS providers. The BDS sub-component of the TA package [d] is to be operationalised in 25-30 clusters / sub-sectors

The BDS intervention under the programme shall focus on:

• Building the capacity of existing and potential BDS providers and financial institutions (lead banks) within each of the selected clusters and subsectors to serve the SME market more effectively;

• Facilitating networking between SME business associations and other BDS providers and similar associations in other countries;

• Developing linkage programs between large corporations and SMEs, working through the major SME business associations;

• Developing high quality, affordable management training for local SMEs;

• Entrepreneurship training programs to create new entrepreneurs;

• Providing SMEs with better access to technology, for example, through technology transfer agents/supporting dedicated institutions to facilitate dissemination of information on technology transfer and match-making.