Cluster business development units and development of a SIDBI energy project management unit (SIDBI) Nov 18,

2 An overview of Indian MSME  MSE Sector Contribution to Indian Economy 40% of Industrial Production 32% share of exports More than 1000 products  Second largest sector after agriculture More than 13.3 million units Largest employer after agriculture in India.  Accelerates the growth of Economy Recorded growth rate of 13% in FY 2008 (12.6% in FY 2007) Growth higher than GDP & industrial growth Source : SIDBI annual report

3 An overview of Indian MSME FEATURES –  Very small in size (majority are MSE units)  Majority of units are proprietorship / family owned concern  Obsolete technology, production process  Lack of awareness of on energy efficient production options / technology  Lack of adequate finance for investments

4 Indian MSMEs : Challenges Slow down in world economy - Severely affecting export based MSMEs in leather, textile, gems & jewellary, auto components, etc. Financial crisis - Liquidity crunch for MSMEs Dereservation of products - Threat from large corporates Opening up of Economy - Increased overseas competition Environmental protection issues - Threat to shut down / relocate Small economic size - High production cost / uncompetitive in market

5 Indian MSMEs : Opportunities Opening up of global market – Explore new markets Outsourcing by large units - Opportunity to scale up Recession - Right time for technological upgradation / improvement in production processes Survive & Grow - Reduce cost to be competitive Growth Mantra - Investment in Energy Efficient (EE) equipment/manufacturing processes as a tool to cut cost, protect margin and remain competitive.

6 Approach for EE lending in MSMEs MSMEs are in all major industries & spread across the country in clusters. About 77% of 13.3 million MSMEs exist in clusters generating 72% of total employment and 61% of total investment in the MSME sector. MSMEs at each cluster/industrial sector has its own specific characteristic. To promote the EE in MSMEs, Cluster based approach could be an effective solution

7 Lending potential for EE in MSME clusters Cluster based approach – Pre-requisite  Identification of energy intensive MSME clusters – out of list of 388 clusters listed by UNIDO about 150 could be described as highly energy intensive and 162 with medium energy intensity  Energy saving potential of the cluster / Financial health of the sector  Availability of proven / commercial technologies suitable for the cluster  Replicability potential – service providers  Strong local association

Definition of Energy Efficiency Energy Efficiency (EE) encompasses all changes that result in a reduction in the energy used for a given energy service (heating, lighting...) or level of activity. This reduction in the energy consumption is not necessarily associated to technical changes, since it can also result from a better organization and management or improved economic efficiency in the sector (e.g. overall gains of productivity). by World Energy Council This definition indicates at both - investments as also no investment / low investments for achieving EE.

No Investment / Low investment solutions Lack of documentation of best practices (even basic practices)documentation Unwillingness of MSMEs to use experts :- – Low awareness – Non availability of experts at the field level Non availability – Unskilled manpower – High costs associated / non benchmarking of fees ( example of SMERA) – ‘AUDIT’

Investment solutions Only a few Banks have schemes to fund EE financing Sometimes EE proposal would involve replacement of certain fixtures / tools etc. which may result in asset coverage dilution MSMEs looking for certain pull factors like concessional interest rates Capacity building of bank officials

Promotional efforts Awareness creation – – 40 workshops under JICA – Handbooks on EE – 4 no. Partnership with BEE – 25 clusters – shelf of EE technologies Capacity building of BDS providers/ energy experts Cooperation with WB – use of Ind. assn/SPV for EE lending Create a national level integrated mechanism to promote & Finance EE

Energy Efficiency in BDS Clusters Activities include: o Exploratory – awareness, workshop / seminar, feasibility study o Experimental – Walk through audits, trainings etc. o Deeper implementation – energy audits, ISI, BEE rating etc. More than 50 activities covering about 1000 MSMEs are planned upto March Focus on documentation Linkages with other schemes like ISI, Star rating etc.

WB – GEF project To co implement with BEE To generate 500 investments in energy efficiency in MSME sector from 5 clusters Budget allocation of about $ 9 mio for 5 years To work with – MSMEs – Banks / FIs – BMOs – Intermediaries – both financial and technical 14

15 SIDBI’s Assistance for EE Projects Under KfW LoC SIDBI provided assistance to MSMEs in textile processing, foundry, forging, ceramics, tanning, CETP for investing in energy efficient clean production technologies to the tune of US$ 21 million (Rs. 103 crore). LoC from JICA, Japan of JPY 30 billion for promoting EE projects in MSME sector. – sanctioned approx. 927 MSME proposals for EE projects totaling approx.US$ 55 million (Rs. 255 crore) under JICA – refinance facility to banks at concessional rates to encourage them to lend for EE projects in MSE sector. New LOCs from KfW and AFD for financing energy efficiency in MSME sector

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Energy Management professionals - distribution StateNo. of EA/EM Maharashtra1445 Gujarat672 TN639 UP508 AP439 DELHI358 HARYANA213 ORISSA198 PUNJAB85 UTTARANCHAL41 HP3 ASSAM41 CHANDIGARH26 OTHERS TOTAL6287 Concentration in Western zone PUNJAB – LOW PENETRATION HP & UTTARANCHAL – LOT OF NEW DEMAND 17