Forms of financial assistance from various funding institutions

Financial institutions can be broadly classified into national financial institutions and state level institutions. Some schemes of the national institutions are administered through the state level institutions. National financial institutions cater mostly to large and medium industries. Small-scale industries get assistance, largely from state level institutions.

All India Institutions

State level Institutions

Forms of Assistance

The forms of assistance can be broadly classified into direct assistance and indirect assistance. The basic feature of direct assistance is that financial institutions provide funds directly to the project, whereas, in indirect assistance, the financial institutions provide guarantees on behalf of the promoter(s) of the project.

Direct assistance

Fund based assistance

In this kind of assistance, term loans are provided in both rupees and in foreign currency. Apart from this, funds are provided by subscription to the equity shares of the company.

Rupee term loans are extended for site, construction, factory and other buildings; purchase of plant and machinery, as well as, for technical know how, preliminary and pre-operative expenses, and margin money for working capital. Generally, the repayment period is five to fifteen years with an initial moratorium of six months.

Institutions provide term loans in foreign currency to fund the acquisition of fixed assets like plant and machinery, as well as to acquire technical know how from foreign suppliers. Institutions generally ask for a first charge on the assets financed by them, and on all other fixed assets of the borrower, to secure the loans.

This form of assistance is available to the project only when institutions are sure that the project is not able to take any more debt, although the proposed venture is worthwhile. It is often a very small part of the project cost.

This form of assistance is provided by national financial institutions through the State Finance Corporations (SFCs) and the State Industrial Development Corporations (SIDCs). All borrowers have to submit their proposals, through their respective SFCs and SIDCs. This assistance carries interest as low as one percent, and can be payable on easy terms, subject to the applicability of certain conditions.

Risk capital assistance is almost the same as seed capital assistance. It is offered by the IFCI through a society formed under the Society Registration Act. Loans under this scheme are generally interest free and range between Rs. 15-40 lakhs, depending on the number of the promoters and the cost of the project.

Indirect Assistance

Financial institutions provide this deferred credit facility to the equipment suppliers on behalf of their clients and charge guarantee commission to the client. Guarantee is provided for the purchase of both indigenous and imported equipment. Most scheduled banks and co-operative banks provide this facility.

This kind of guarantee is provided to the client as raised term loans from overseas market, directly. Institutions stand guarantee to the borrower, who is yet to establish him in the overseas market or does not have high credit standing.

Institutions usually underwrite the public issue of those clients, who have invested in the project cost, through term loans.

This scheme has been introduced by IDBI to help domestic producers and dealers of capital goods. Under this scheme, deferred payment facility is available for the purchase of machinery in all categories forms of businesses such as proprietary concerns, partnerships, private and public companies, co-operative societies and corporations.

This scheme has been floated by ICICI to enable domestic manufacturers and dealers increase their sales by offering deferred credit to their buyers. This scheme is similar to the Bill Rediscounting Scheme of IDBI.

This scheme has been offered by the two institutions- IDBI and IFCI. They provide assistance to existing units to acquire indigenous/imported equipment.

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