Entrepreneurship

Development
BBA – V Sem
UNIT - IV
Institutional Finance for Entrepreneurs
• Institutional finance refers to the
provision of capital to entrepreneurial
ventures by financial institutions.
• Development Financial Institutions - DFIs
• Support the growth and development of
new businesses
• Provides necessary funding to scale
operations, acquire assets, and hire talent.
Characteristics
• Long-term investments
• Expertise and networks
• Risk Tolerance
• Expertise and Guidance
• Enhances Credibility
• Provides Exit Opportunities
Structure of DFIs
• IFCI - Industrial Finance Corporation of India
• IDBI - Industrial Development Bank of India
• IRBI- Industrial Reconstruction Bank of India
• ICICI - Industrial Credit and Investment Corp. of India
• NSIC - National Small Industries Corp.
• SFC - Small Financial Corp.
• SIIC - State Industrial Investment Corp.
• SIDC - State Industrial Development Corp.
• NABARD - National Bank for Agri. and Rural Dev.
• SLDB - State Land Development Bank
• PLDB - Primary Land Development Bank
• EXIM Bank - Export Import Bank of India
Industrial Finance Corp. of India
(IFCI )
• Established in 1948 under the Industrial
Finance Corporation Act, 1948.
• One of India's premier DFIs
• To provide long-term finance to industrial
enterprises
• For establishment, expansion &
modernization.
Objectives of IFCI
• To promote the growth of industries
• To promote development of MSMEs
• To provide financial assistance to
industries through medium and long-
term loans
• To encourage balanced regional
development
• To foster innovation and technological
advancement in Indian industries
Functions of IFCI
• Term Loans • MSME Financing
• Equity Investments • Regional
• Underwriting of Development
Public Issues • Technical and
• Merchant Banking Administration
• Consultancy Services Support
– Research/Survey
• Infra. Development
ICICI
• Industrial Credit and Investment Corp. of
India
• Established in 1955
• Joint venture between the Govt. of India,
World Bank, and International Finance
Corporation (IFC).
• Originally focused on providing long-term
finance to industrial enterprises
• Diversified the operations
Objectives of ICICI
• To promote industrial growth
• To provide financial assistance to
industrial enterprises
• To encourage entrepreneurship and
innovation
• To support the development of capital
markets in India.
• To contribute to the overall economic
development of the country.
Functions of ICICI
• Commercial Banking
• Investment Banking
• Merchant Banking
• Underwritings
• Financial Services to individuals, businesses
• Credit facility to businesses
• Consultancy work
• Insurance
• Asset Management
• International Operations
IDBI
• Established in 1964, owned by RBI
• Set-up to provide institutional finance for large
and small scale industries
• In 1976, autonomous body under Govt. of India
Objectives
• To support industries financially
• To provide non-financial support to manage and
expand businesses
• To provide Consultancy and Merchant Banking
Services
Functions
• Provides finance to different industries
• Soft loans for modernization, upgradation
• Financial assistance for export businesses –
deferred payments
• Coordination of activities of other DFIs and banks
• International Financial services
• Equity investments, bonds, etc.
• Technical and administrative support
• Research and Surveys for Govt. and Pvt. firms
 SIDBI
• Set-up in 1990
• Supporting small Scale Industries
Objectives
• To promote, finance and develop MSME sector
• To promote SSI products in domestic and
international markets.
• To promote SSIs in semi-urban and rural areas.
• To promote export businesses
• To support new and existing small businesses
 Functions
• Financing MSMEs • Supports NSIC and
• Direct and Indirect other DFIs
Lending • Refinance support
• Promotion and • Discount bills to SSIs
development of • Assistance to exports
MSMEs • Aids in bank loans
• Nodal agency for
MSME Schemes
• Improvement of SSIs
• Marketing assistance
• Financial support to DFI
 EXIM Bank
• Established in 1981
• Supporting business in international trade
Objectives
• To finance exporters and importers
• To coordinate institutes in EXIM operations
• To develop foreign trade of country
• To ensure regular earning of foreign currency
• To establish good relations with foreign financial
institutes
 Functions
• Loans to exporters and • Issues letters of credit
importers on behalf of importers
• Fin. Support to Govt., • Consultancy work and
DFIs, foreign bodies. research to develop
• Finance JVs abroad foreign trade
• Limited functions of • Support on lease, and
Merchant Banking hire-purchase basis for
• Non-financial support machinery and
equipment
• Assists to purchase and
discount bills
SFCs
• State Financial Corporations
• First SFC in Punjab in 1953
• Modernization and Technical Upgradation
Objectives
• To organize EDPs and Seminars
• To support small businesses and sick enterprises
• To provide soft loans and short, long-term loans
• To generate employment in rural areas
• To accelerate socio-economic growth
Functions
• Term loans to MSMEs for up to 20 years
• Loans to buy assets
• Promote SC/St and women entrepreneurs
• Support specially-abled people, ex-servicemen
• Rehabilitation of sick enterprises
• Coordinate with Central and State Governments
• Coordinate with other DFIs
• Organize EDPs and promote entrepreneurship
• Underwriting of public offerings
• Accelerate socio-economic growth
SIDCs
• State Industrial Development Corporations
• Owned by State Governments
• To promote industrial growth
• Grants loans and equipment leasing
• Consultancy, EDPs, Guidance, Feasibility reports
• Merchant Banking
• Agents of IDBI and SIDBI for Capital Schemes
• Facilitates incentive schemes of Govt.
• Works in infrastructure development projects
NSIC
• National Small Industries Corporation
• Estd. By Govt. of India in 1955
• Promoting and developing SSIs
• Provides Trainings, EDPs
• Supplies equipment and tools on hire-purchase
and lease
• Marketing Support – National and International
• Enlisting SSIs for Govt. Stores Purchase Programs
• Turn-key projects with other countries
• Supplying raw materials – indigenous and import
UTIs
• Asset Management Institute
• Established in 1964 as a mutual fund – PSU
• Initially assisted individual investors
• Provides investment opportunities
• Promotes savings and investment
• Offer investment management services
• Mutual Fund Management
• Advisory Services - Investment
• Retirement Planning
IIBIL
• Industrial Investment Bank of India Limited
• Established in 1971, Merged with IDBI in 2008
• To promote medium and large-scale industries
• Expansion, modernization, diversification
• To provide Term Loans
• Equity Investments
• Underwritings and Consultancy Services
• Infrastructure Financing
• International Operations
NBFCs/NBFIs
• Financial institutions that provide various
financial services but are not banks.
• Regulated by RBI
• Cannot accept demand deposits or issue
checkbooks
• Provide financial services to individuals and
businesses
• Promotes economic growth and development
• Fills the gaps in the financial system
Functions of NBFCs
• Financial services, and not core banking services
• Asset Financing
• Consumer Finance
• Discount invoices
• Loans on hire-purchase basis
• Leasing
• Investment services
• Venture capital funding
• Merchant banking
Types of NBFCs
• Asset Finance Companies
• Housing Finance Companies
• Consumer Finance Companies
• Leasing Companies
• Factoring/Discount Companies
• Investment Companies
• Mortgage Guarantee Companies
Commercial Banks
• Provides core banking services
• Accepting deposits and providing loans
• Primary objective is to generate profit
• Relatively higher rates of interest for loans
• Financial services to individuals and
corporates
• Merchant banking
• Financial assistance towards establishing
enterprises
Role in Building Entrepreneurship
• Provides capital to businesses
• Loans towards working capital, plant, machinery,
other assets
• Supporting businesses at different stages
• Detect and revive sick units by providing support
• Minimize risk by providing capital
• Offer customized schemes
• Entrepreneurial motivation through awareness
• Financing employment generating activities
Principles of Good Lending
• Principle of Fund Safety
• Principle of Profitability
• Liquidity Principle
• Purpose Principle
• Risk Spread Principle
• Security Principle
Appraisal of Loan Application
• Borrower
• Business of entrepreneur
• Capital resources of entrepreneur
• Amount of loan
• Purpose
• Source of repayment
• Security
LIC
• Life Insurance Corporation of India.
• Established in 1956 as a state-owned life
insurance company
• One of the largest insurance companies
globally
• Provides a wide range of life insurance
products and services to individuals and
corporates
Objectives of LIC
• Spread Life Insurance, especially to the rural areas and to the
socially and economically backward classes
• Maximize mobilization of people's savings
• Conduct business with utmost economy and with the full
realization that the moneys belong to the policyholders
• Act as trustees of the insured public
• Meet the various life insurance needs of the community
• To provide efficient insurance service with courtesy
• Promote amongst all agents and employees of the Corporation
a sense of participation, pride and job satisfaction through
discharge of their duties with dedication towards achievement
of Corporate Objective.
Functions of LIC
• Collect the savings and • Provides refinancing
invest that money in activities through SFCs
various financial markets. • Corporate funding
• Invest fund into • Loan to various national
government securities projects
• Issue an insurance policy • Financial supports to
at affordable rates socially-oriented projects
• LIC provides direct loans like electrification,
to industries at lower sewage, and water
interest rates channelizing, etc.
• Blue-chip companies in • Gives housing loans at
the Indian stock market. reasonable rates