Chapter 2: Small Business

Chapter 2: Small Business

Introduction In most of the developing countries like India, Small Scale Industries (SSI) constitutes an important and crucial segment of the industrial sector. They play an important role in employment creation, resource utilisation and income generation and helping to promote changes in a gradual manner. In the post independence era, a strategic position has been allotted to the small scale industries in the industrial policy.

What are Small Scale Industries ?
The industries in India which are organized in a small scale and produce goods with the help of machines, hired labour and power are considered as small scale industries. Definition Initially, the following units were classified as a small scale business: Those using power with less than 50 employees Those not using power with more than 50 but less than 100 employees. Criteria

However, the capital investment in a unit was considered as a primary criterion to classify a small scale business. On 21st December 1999, a unit was considered to be a small scale business if: Investment in fixed assets like plant & equipment is not more than Rs. 1 crore. The fixed assets may be owned, leased or on hire purchase basis. The unit was not owned, controlled or an auxiliary for any other industrial unit.

However, now the classification is based on the Micro Small and Medium Enterprises Development (MSMED) Act, 2006 The following is the investment criteria: Manufacturing Sector Service Sector Micro Does not exceed Rs. 25 lacs Does not exceed Rs. 10 lacs Small Rs. 25 lacs but does not exceed Rs. 5 crores Rs. 10 lakhs but does not exceed Rs. 2 crores Medium Rs. 5 crores but does not exceed Rs. 10 crores Rs. 2 crores but does not exceed Rs. 5 crores.

TINY What are Small Scale Industries ?
After the MSMED Act, 2006, the small scale industries were referred to as MSME or SME. In order to promote small business units, the government offers special concession and subsidies to business units registered under MSMED Act, These concessions include exemptions from sales tax, electricity at subsidized rate, government grants, and advances at low rate of interest. TINY Tiny Sector – All small scale units whose investment in plant and machinery is not more than Rs. 25 lacs irrespective of location of the unit have been given the status of tiny enterprises.

Characteristics of Small Scale Industries
Adaptability Labour Intensive Managed by a single individual Export contribution Localised operations Low gestation period Decentralization of economic power Production methods Small-scale industries are flexible in their operation. They require limited capital and are labour intensive. Due to their small size, they can change and adapt themselves to changing business trends.

Adaptability Labour Intensive Managed by a single individual Export contribution Localised operations Low gestation period Decentralization of economic power Production methods There are no or few machines in the small scale industries. Therefore, the production process is substantially dependent on labourers. This makes the small scale industries labour intensive. They provide an economic solution by creating employment opportunities in urban and rural areas at a relatively low cost of capital investment. It creates 8 to 10 times more employment as compared to large scale industries. Currently, more than 2 crore people are employed in the small scale sector in India.

Adaptability Labour Intensive Managed by a single individual Export contribution Localised operations Low gestation period Decentralization of economic power Production methods A small-scale unit is generally a one-man show. It is mostly set up by individuals. Even some small units are run by partnership firm or company, the activities are mainly carried out by one of the partners or directors. Therefore, they provide an outlet for expression of the entrepreneurial spirit. As they are their own boss, the decision making process is fast and at times more innovative.

Adaptability Labour Intensive Managed by a single individual Export contribution Localised operations Low gestation period Decentralization of economic power Production methods Small scale industries have a substantial share in India’s total exports. They contribute nearly 40% of India's total exports. Handicraft products made in India have huge demand in foreign markets.

Adaptability Labour Intensive Managed by a single individual Export contribution Localised operations Low gestation period Decentralization of economic power Production methods Small-scale industries generally restrict their operation to local areas in order to meet the demands of the local people. They cannot expand their business activities due to limited resources.

Small Gestation Period
Characteristics of Small Scale Industries Adaptability Labour Intensive Managed by a single individual Export contribution Localised operations Low gestation period Decentralization of economic power Production methods Small Gestation Period Gestation period can be stated in general terms as period in which firms achieve profitability and a steady income is generated through the business activities. Small scale industries can be set up in a small period of time and they can increase the production at a fast pace. Thus, they have a low gestation period. The capital of the entrepreneur does not remain blocked for a longer period of time

Adaptability Labour Intensive Managed by a single individual Export contribution Localised operations Low gestation period Decentralization of economic power Production methods Due to formation of small scale industries, many entrepreneurs are created in an economy. They put efforts and try to make their business successful. This prevents concentration of economic power in hands of few people. Moreover, income is distributed evenly.

Adaptability Labour Intensive Managed by a single individual Export contribution Localised operations Low gestation period Decentralization of economic power Production methods Small scale industries utilize a mix of both traditional and modern methods of production. The traditional methods refer to manual operations using skills of labour. Modern methods refer to operations by use of machines. The production methods used are simple and less time consuming.

Traditional Small Scale Industry Modern Small Scale Industry
Types of Small Scale Industries Small Scale Industry Traditional Small Scale Industry Modern Small Scale Industry It includes metal work, ivory, wood carpet carving, pottery, hand woven textile, goods of common use etc. It includes producing cycle parts, sewing machines, razor blades, electrical goods etc.

What is Cottage Industry ?
Introduction: In rural regions of India, many families engage in small production activities from their homes. There scale of operations is very miniscule and the workers are generally the family members themselves. There are rarely any machines involved and the production is carried out entirely by hand. The produce generally consists of handicraft, woolens, carpets, handloom articles, earthenware, jewellery, etc. The products are generally unique. Definition: Any industry where the creation of product and services are home based rather than factory based and specific skills is required is called as cottage industry.

Characteristics of Cottage Industry
Unorganized Sector Use of traditional skill Small scale production Employment generation Preservation of culture Use of agricultural resources Cottage industries are scattered all over country. They function in villages, districts and towns also. There is also no common link between them. As a result, they are unorganized.

Unorganized Sector Use of traditional skill Small scale production Employment generation Preservation of culture Use of agricultural resources There is hardly any use of mechanization in cottage industries. They are based on skilful production. The skill for making the product is passed on through generations in the family. Certain products made by this sector require high skill workmanship.

Unorganized Sector Use of traditional skill Small scale production Employment generation Preservation of culture Use of agricultural resources Cottage industries are based on skilful production. There is hardly any use of machines. Even the laborers involved are family members only. Thus, they production of cottage industry is on a small scale. Moreover, they are able to maintain quality if the production is on a small scale.

Unorganized Sector Use of traditional skill Small scale production Employment generation Preservation of culture Use of agricultural resources Cottage industry is regarded as a self-employed industry. It helps to provide employment to a lot of people in rural India. Thus, it has great importance for our country.

Unorganized Sector Use of traditional skill Small scale production Employment generation Preservation of culture Use of agricultural resources Cottage industries have helped to preserve the cultural heritage of the country. Certain products made in the cottage industry are based on skilful production. The skill for making such products is passed on through generations in the family. The products have a distinct identity of its own and bear the impression of the Indian culture.

Unorganized Sector Use of traditional skill Small scale production Employment generation Preservation of culture Use of agricultural resources Some cottage industries are also engaged in processing of agricultural produce. They acquire the agricultural produce which is available in that particular geographical area.

Cottage Industry Cottage industries work with bare minimum capital and they are responsible for providing part time and full time employment to may unskilled and unemployed rural Indians. It has helped to improve the per capital income of rural India and improves the overall standard living. Cottage Industry Products Common Consumer Goods Footwear, garments, toys, silk, handloom, leather goods High Skilled Production Dress fabric, ivory carving, khadi, stone idols, jewellery etc. Agro-based processing Edible items, spices, oils, honey, pickles, fruit products, jams etc.

Utilization of human resources Advantage to Entrepreneur
How does cottage Industry benefit the society? Any industry where the creation of product and services are home based rather than factory based and specific skill is required is called as cottage industry. The following are the benefits of cottage industry to the society: Utilization of human resources Self Sufficiency Empowerment Advantage to Entrepreneur

Benefits of Cottage Industry
Utilization of human resources Cottage industries utilize the manual skill of the people. As a result, they are engaged in the production activities and this reduces the idle man hours of the society. Self-sufficiency Cottage industries ensure self sufficiency of the people engaged in these industries. In villages, where there are no big industries, cottage industries help to provide livelihood to the people and it assures wealth creation.

Benefits of Cottage Industry
Empowerment Cottage industry is regarded as a self-employed industry. People engaged in cottage industry generate employment for themselves. This gives them a self pride and increases their role in empowerment of the whole nation. Advantage to entrepreneur The cost of setting up and maintaining a cottage industry is relatively low. Therefore, it gives great advantage to entrepreneur as he can earn higher profits.

Relationship between cottage industries, small scale industries and large scale industries.
Points Cottage Industry (Tiny Sector) Small Scale Industry Large Scale Industry Investment in plant & machinery Does not exceed Rs. 25 lakhs More than Rs. 25 lakhs but does not exceed Rs. 5 crores More than Rs. 10 crores Use of technique Traditional technique involving operation by hand. Mix of traditional and modern technique Modern technique involving sophisticated machines Labour supply Members of the family itself work as labourers People residing in the local areas are available as labourers. People belonging from different parts of the country are available as labourers. Raw Material It is procured from local areas It is procured from outside if not available in local areas It may also be imported from other countries if not available within the country.

Rural Industry Definition:
According to Khadi and Village Industry Commission (KVIC), rural industry means “Any industry located in rural areas, population of which does not exceed 10,000 or such other figure. Goods/services produced with or without use of power and in which the fixed capital investment per head of an artisan or worker does not exceed Rs. 1,000” According to Government of India, rural industry means “Any industry located in rural area, village or town with a population of 20,000 and below with an investment of Rs. 3 crores in plant & machinery.” Ministry of Agro and Rural Industries (MOARI) Established: September 2001 Aim : Develop rural industrialization by upgrading skills, supply chain management, expanding markets and introducing innovative techniques.

Agro-Based Industries Forest-Based Industries Mineral-Based Industries
Types of Rural Industry The industries which use agricultural produce as their raw material are called as agro-based industries. E.g.: Food processing, vegetable oil, cotton textile, dairy products, leather, fruit pulp and juices, pickles, spices etc. Agro-Based Industries The industries which use forests as their raw material are called as forest based industries. E.g.: Wood products, bamboo products, honey collection, making eating plates from leaves, coir industry, making furniture from timber, etc. Forest-Based Industries The industries which use mineral ore as their raw material are called as mineral based industries. E.g.: Iron & Steel industries, cement, cement industries, machine tools, stone crushing, red oxide making etc. Mineral-Based Industries

Engineering and service rendering Industry
Types of Rural Industry The industry which is involved in growing or producing fibres, or converting fibres to threads, or converting thread to cloth or dyeing / bleaching of cloth is called as textile industry. E.g.: Spinning, weaving, bleaching, dyeing, etc. Textile Industry The industries which provide engineering goods and services to support other rural industries are covered under this type. E.g.: Production of agricultural equipments, tractors, pumpset repairs, weaving machines, cutting tools etc. Engineering and service rendering Industry Ministry of Agro and Rural Industries (MOARI) Established: September 2001 Aim : Develop rural industrialization by upgrading skills, supply chain management, expanding markets and introducing innovative techniques.

Sectors in Rural Economy
Fisheries: The occupation of raising and harvesting fishes is called as fishery. It is carried on around the main coastline and India has around 4000 fishing villages. The fish production in India doubled between 1990 and It is mainly because of the National Programme of developing fish seeds. Under this programme, various new fishing methods and processed fish products were introduced in Indian markets. As a result, productivity improved. Horticulture: Horticulture is a part of agriculture and deals with science & technology for intensive plant cultivation. Since India has diverse climate and soils, there is a great opportunity for horticulture. This occupation has become popular over the last decade only. Some crops cultivated in horticulture comprises of vegetables, fruits, exotic flowers, aromatic plants, spices etc.

Sericulture: Sericulture or silk farming is the rearing of silkworms for the production of silk. This industry is generally found in the southern parts of India. It is a highly profitable activity and is carried out by small & marginal farmers including women. Jute Business: Jute business in India is one the major foreign exchange earner for the country. India is one of the leading producers of jute. The delta of the river Ganges in West Bengal is the ideal place for the cultivation of jute in India. Jute is one of the most popular natural fibers next only to cotton. Jute is used for a variety of uses such as gunny bags, shopping bags, handicrafts, carpets, etc. which has high demand in urban areas.

Tea Business: The tea business in India is nearly a 170 years old practice. This agro-based industry is a very important contributor to the economy of India. The main tea business in India is located along the rural hills and backward areas of north eastern and southern states like Assam, West Bengal, Tamil Nadu and Kerala. The tea business in India is mainly based on cultivation of tea variants like CTC, orthodox tea and green tea. Poultry Business: Poultry business or poultry farming refers to raising of domesticated birds like chickens for the purpose of meat or eggs for food. India is the 7th largest poultry producer all over the world. The major poultry production takes place at Andhra Pradesh, Karnataka and Kerela. Tamil Nadu contributes 45% of the total egg production and the central part of India contributes 20%.

Rubber Business The rubber business is one of the oldest businesses in India. Natural rubber is cultivated in the remote areas of southwest Konkan and Malabar coast, in Kerela and in Kanyakumari. The production of rubber in 2006 was 6.49 lakh tons and has increased gradually since then. The rubber business in India has huge potential but the technique of production needs to be improved.

Role of small business in India
Almost 75% of the population of India resides in rural areas. Therefore, small businesses play a significant role in rural India. Most importantly, it provides employment and livelihood to crores of people living in rural areas. Also, it has helped to preserve the cultural heritage of India. The following is the role of small business in rural India: Reducing gap between rural and urban areas Equitable distribution of national income Capital Mobilization Rise of co-operative sector Employment Rural entrepreneurship Co-ordination with agricultural sector Self-sufficiency Optimum utilization of local raw material Connectivity to developed world

1. Reducing gap between rural and urban areas Due to small businesses, there has been a great amount of development in rural areas. A lot of infrastructure has developed to support these businesses. Moreover, employment is being generated for the local people. Thus, small business has helped to reduce the gap between rural and urban areas. Small business provides an answer to various problems such as poverty, unemployment and backwardness. 2. Capital Mobilization Small scale businesses are scattered over a large area throughout rural India. They are not concentrated in certain specific areas only like large scale industries. They are able to mobilize capital easily. They are suitable for the capital scarce and labour abundant rural parts of India.

3. Employment In rural India, small scale businesses provide largest employment opportunity after agriculture. This is mainly because small businesses are labour intensive. Moreover, agriculture is a seasonal business and it leads to seasonal unemployment. Such unemployed labourers find employment in small businesses. Thus, small businesses have been able to absorb the surplus labour in rural economy. Total contribution of small business is around 45% in area of employment. 4. Co-ordination with agricultural sector Small business support agricultural sector by providing processing facilities and consumer goods for consumption. This has led to a boost in agricultural production. Further, agricultural sector also provides raw material to the agro based industries. This has led to growth of agro based industries as well.

5. Optimum utilization of local raw material Small businesses utilize the raw material available locally. In absence of such small businesses, this local raw material would have not been utilized or under-utilized. Also, since local raw materials are utilized, the cost of production is reduced and the consumers get the final product at a reasonable price. 6. Equitable distribution of national income Small scale industries are scattered throughout the country unlike large industries which are based in urban areas only. As a result, there is decentralization of industrial expansion. People residing in rural areas also earn income. Thus, there is equitable distribution of income and wealth.

7. Rise of co-operative sector Due to the growth of small businesses, there has also been an emergence of co-operative institutions at rural and district level. Co-operative institutions collect savings from people and utilize it for the benefit of the people. Co-operative sector is very active in agro based industries especially in western Maharashtra. 8. Rural entrepreneurship The small businesses have promoted entrepreneurship among the rural youth. A lot of people are now starting up and becoming self employed. It has also encouraged innovation in the country.

9. Self-sufficiency Small businesses brought about self sufficiency in rural areas in two ways: Consumer goods produced by small businesses became available locally at reasonable prices Rural people started earning their livelihood from small businesses. 10. Connectivity to developed world Small businesses have led to social as well as economic development of rural areas. There is an overall increase in education, general awareness and familiarity to modern techniques. Rural areas are no longer backward. Rural areas are slowly connecting to the developed world.

Problems of small businesses
Due to their small size, small scale industries face a lot of problems. Due to limited capital, the businesses are not in a position to expand and enjoy the benefits of large scale production. They are also not able to take advantage of the government schemes. As a result, many small scale unit have turned sick. The following are the problems of small scale businesses in India:- Problems (M-M-M-M) Manufacturing Marketing Monetary Many Others

Monetary Problems (Funding Problem) This is one of the major problems faced by small businesses. Most of the small businesses are proprietary firms or partnership firms. Thus, their capital base is essentially weak. In order to set up and run the businesses, the owners are forced to borrow from non-institutional sources like money lenders, traders, agents, relatives and friends. The rate of interest charged is very high which becomes a burden for the business owners.

Manufacturing Problems Quality Under utilization of capacity Infrastructure Expenditure on R & D Technology is outdated Non-availability of raw materials SMART CODE: QUIET - N

Manufacturing Problems Quality Small businesses are not able to maintain quality for the following reasons: They focus more on cutting costs and keeping prices low. They do not adhere to quality standards. They work on outdated technology and do not have funds to upgrade. Under utilization of capacity Small scale businesses may not be able to market their products properly due to which the demand for their goods is low. As a result, they have to operate below full capacity. Also, resources are not utilized optimally which leads to increase in operating costs. Such businesses may have to face losses.

Manufacturing Problems Infrastructure Rural areas face the major problems of water shortage, shortage of power and poor road connectivity. Such basic infrastructural problems hamper the growth of small businesses. Apart from these basic problems, transport problems, shortage of space, high rent and other labour problems also affect the working of the business. Expenditure on R & D Small Units have a very small capital base they do not have funds to carry out any research or development on their products. This leads to higher costs of production, shortens the product life cycle, failure to offer variety.

Manufacturing Problems Technology is outdated Most of the small businesses are working on outdated technology. The following are the disadvantages: Low productivity High costs Low quality Difficulty to face competition. There are very few small businesses which have access to modern technology. Non-availability of raw materials Small businesses obtain raw materials from local sources. They face the following problems relating to raw material: Local traders exploit them by charging higher prices. Shortage problems due to natural calamities, transport problems and industrial strikes. Low quality raw materials are available.

Marketing Problems Involvement of middlemen Limited funds for marketing Other marketing problems Lack of advertising Non-branding of products Poor quality of products Heavy competition from large players Lack of knowledge regarding marketing.

Marketing Problems Involvement of middlemen The small businesses do not have the capacity to directly market their goods to final consumers. Therefore, they involve middlemen who many times exploit them by paying low prices and delaying their payments. Limited funds for marketing Small businesses allot limited funds for marketing due to which they are not able to undertake market research. As a result, their marketing is not effective. Also, they are not able to expand the size of their markets. They are forced to restrict their sales to local markets. Other marketing problems The other marketing problems faced by small businesses are as follows: Lack of advertising Non-branding of products Poor quality of products Heavy competition from large players Lack of knowledge regarding marketing.

Many Other Problems Heavy Competition Export related problems Problem of sickness Other problems: There are various other problems faced by small units like: Products are not recognized as branded products many times. Burden of local taxes Labour problems like highly demanding employees, absenteeism, high labour turnover, strikes etc. Problem of delayed payments by large firms and government departments.

Marketing Problems Heavy Competition Small businesses face competition not only from large scale businesses in the country but also from multinational companies (MNCs). The small businesses cannot match up to the quality standards and marketing capacity of big companies. Thus, they are not able to grow and reach out to a wider audience. Export related problems Various products made by small businesses have huge demand in foreign markets and are exported to all parts of the world. Infact, the government has announced various schemes to encourage exports. However, small businesses are not able to effectively market their products in foreign countries, there is demand fluctuation and also lack of organized effort to increase exports.

Marketing Problems Problem of sickness A business unit is said to be sick if it is not able to sustain itself financially. According to RBI, a business unit is said to be sick if it has suffered a cash loss in the previous year and is expected to suffer a cash loss in the current year and the next year as well. A lot of small business units are turning sick due to various internal and external causes. Other problems: There are various other problems faced by small units like: Products are not recognized as branded products many times. Burden of local taxes Labour problems like highly demanding employees, absenteeism, high labour turnover, strikes etc. Problem of delayed payments by large firms and government departments.

Government schemes for industries in hilly and backward areas
In order to facilities last growth of small industries, the government has devised and launches multiple schemes, which directly or indirectly favour and aid the growth of small units. Among the developing countries, India was the first to display special concern for small scale enterprises. The following are some schemes that the government has announced for small units in hilly and backward areas: District Special Employment Programme:- This programme was launched with the motive of creating employment in all those districts which were specifically included in this programme. In order to create employment, this programme helped establishment of tiny and small units in the various districts covered by this programme. It had envisaged employment generation of 10,000 persons per district over a period of time. Under this programme, village industries like carpentary, fruit processing, cane, bamboo, honey processing, stone crushing, detergent, soap etc. So far, 71 backward districts spread over 24 states have benefited from this program.

Block Development Programme :- This programme was launched on 2nd October 1994. It was initiated in 125 backward blocks. The programme aimed at generating sustainable employment for 1000 persons per block. So far, 171 institutions have been identified under this programme. Integrated Infrastructural Development Centres:- The central government has formulated a scheme for setting up IID in rural and backward areas and the target was to set 50 such IID centres. The scheme was formulated in the 8th five year plan and continued in the 9th five year plan as well. Under this scheme, the central government provides aid in the form of grant upto Rs. 2 crores for a project which requires investment of Rs. 5 crores. The grant is upto Rs. 4 crores for projects in north east region of the country. SIDBI provides loans upto Rs. 3 crores for projects covered under this scheme.

Package for tiny sectors: Tiny sectors are those having investment in plant and machinery upto Rs. 25 lacs and 95% of small businesses are tiny units. The government has provided a separate package of facilities and incentives to tiny sectors. Out of total credit available for small businesses, 60% was reserved for tiny sector with 40% to units having investment upto Rs. 5 lacs and 20% to units having investment from Rs. 5 lacs to Rs. 25 lacs. Credit Flow 60% to Tiny Sector 40% for units with investment upto Rs. 5 lacs 20% for units with investment upto Rs. 5 lacs to Rs. 25 lacs 40% to other small businesses

Policies formulated by central government and financial assistance to small businesses.
New Small Enterprise Policy, 1991. After 1990, the government adopted policies to liberalise the economy and to open it to foreign trade. In 1991, the government announced the New Small Enterprise Policy in order to encourage the growth of small businesses. This was a policy package for small, tiny and village industries. The following are the important measured announced in the policy: Investment limit raised - Investment limit in plant and machinery for tiny units was increased to Rs. 5 lakhs from Rs. 2 lakhs. Unrestricted entry - The scheme allowed unrestricted entry i.e. removed location based barriers for tiny units. Integrated infrastructure development centers - Government established integrated infrastructure development centers in rural regions of India. These centers provide infrastructural aid to tiny units established in their rural areas. Scope of tiny units widened - The policy helped to widen the scope of tiny units so as to include industry related services apart from just manufacturing activities. Separate package proposed - Special privileges were given to “TINY” units from the government .They were given many benefits from the Government on a continuous basis where as other small businesses were given only 1 time benefits. New form of organization introduced - The policy introduced a new form of organization where the liability of atleast one partner is unlimited. It is known as restricted partnership. Market promotion - The policy proposed that the market promotion of small and tiny sectors should be undertaken by co-operatives, public sector institutions and professional agencies. Priority - The policy also proposed to give priority to tiny sector in government purchases as well as in allocation of indigenous/local raw material.

Cluster Based Approach A cluster is a collection of enterprises producing similar products or services, setup within a common identifiable area. Clustering of units help to improve the productivity and competitiveness of micro and small enterprises. National Programme for Rural Industrialization (NPR1) was launched in the year , to promote clusters of units in rural areas. It aimed at setting up 100 rural clusters in each year. The aim of the scheme was to support the growth and development of the micro and small enterprises by providing them assistance in areas like marketing, export promotion, skill upgradation and infrastructure. NPR1 provided assistance of upto Rs. 5 lacs for intervention in a cluster. There is a budget provision of Rs. 5 crores in the 10th plan for this program. Further, the Ministry of Small Scale Industries launched a scheme called UPTECH in Later in August 2003, the scheme was renamed Small Industry Cluster Development Program (SICDP).

Various schemes were launched by the government to provide financial assistance to small units: Sr. No. Scheme Launched in Functions 1 Small Industries Development Fund (SIDF) 1986 Provides refinance assistance for development, expansion, diversification and rehabilitation of small, tiny, village and cottage industry. 2 National Equity Fund (NEF) 1987 Provides equity type of support for setting new projects in tiny sector. Provides assistance for sick units. 3 Single Window Scheme (SWS) 1988 Provides long term loans for fixed capital to new tiny and small businesses.

Note on SIDBI About SIDBI Objective of SIDBI Major activities
Small Industries Development Bank of India (SIDBI), set up on April 2, 1990 under an Act of Indian Parliament, is the principal financial institution for the promotion, financing and development of the Micro, Small and Medium Enterprise (MSME) sector and for co-ordination of the functions of the institutions engaged in similar activities. SIDBI is the wholly owned subsidiary of IDBI. Objective of SIDBI Initiating steps for technological upgradation and modernisation of existing units; Expanding the channels for marketing the products of the small scale sector; and Promotion of labour intensive industries, especially in semi- urban areas to create more employment opportunities. Major activities Refinances loans and advances provided by the existing lending institutions to the small-scale units. Extends capital assistance under National Equity Fund, Mahila Udyam Nidhi and Mahila Vikas Nidhi and seed capital schemes. Financial facilities relating to marketing and development of industrial areas and technical support. Direct discounting and rediscounting of short term trade bills.

Schemes by SIDBI National Equity Fund Scheme which provides equity support to small entrepreneurs setting up projects in tiny sector Technology Development & Modernisation Fund Scheme for providing finance to existing SSI units for technology upgradation/modernisation. Single Window Scheme to provide both term loan for fixed assets and loan for working capital through the same agency Composite Loan Scheme for equipment and/or working capital and also for worksheds to artisans, village and cottage industries in Tiny Sector. Mahila Udyam Nidhi (MUN) Scheme provides equity support to women entrepreneurs for setting up projects in Tiny Sector. Scheme for financing activities relating to marketing of SSI products which provides assistance for undertaking various marketing related activities such as marketing research, R&D, product upgradation, participation in trade fairs and exhibitions, advertising branding, establishing distribution networks including show room, retail outlet, wears-housing facility, etc. Equipment Finance Scheme for acquisition of machinery/equipment including diesel generator sets which are not related to any specific project. ISO 9000 Scheme to meet the expenses on consultancy, documentation, audit, certification fee, equipment and calibrating instruments required for obtaining ISO 9000 certification.

National Bank for Agricultural and Rural Development
NABARD stands for National Bank for Agricultural and Rural Development. The Government of India and Reserve Bank of India (RBI) constituted a committee to review the arrangements for institutional credit for agriculture and rural development on 30 March 1979, under the Chairmanship of Shri B.Sivaraman, former member of Planning Commission. The Committee in its report recommended the formation of a separate organization and thus the NABARD was formed by an act of parliament in July 1982.

NABARD and its role It was established with the purpose of providing credit facilities in the rural areas. It is an apex development bank facilitating credit flow for production and development of agriculture, small scale and cottage industries. Role of NABARD Providing refinance to institutions in rural area i.e supporting those institutions who promote rural development Promoting the development of institutions. Evaluating, monitoring and inspecting client banks.

Functions of NABARD Assists the government, RBI and other organizations in matters related to rural development Offers training facilities and research facilities for banks, co-operatives and other organizations which are working in the field of rural development. Acts as a co-ordinator in the operations of rural credit institutions. Acts as a regulator for co-operative banks Helps the state government in reaching their targets of providing assistance to eligible institutions in agricultural and rural development.

Khadi and Village Industries Commission
The KVIC is a statutory body established by an Act of Parliament in 1957. It took over the work of the former All India Khadi and Village Industries Board.

Functions of KVIC The KVIC is charged with the planning, promotion, organisation and implementation of programs for the development of Khadi and other village industries in the rural areas in coordination with other agencies engaged in rural development Building up of a reserve of raw materials and implement for supply to producers, creation of common service facilities for processing of raw materials and provisions of facilities for marketing of KVI products The KVIC is also charged with the responsibility of encouraging and promoting research in the production techniques and equipment employed in the Khadi and Village Industries.

Functions of KVIC Further, the KVIC is entrusted with the task of providing financial assistance to institutions and individuals for development and operation of Khadi and Village Industries. In implementing KVI activities, the KVIC may take such steps as to ensure genuineness of the products and to set standards of quality and ensure that the products of Khadi and Village Industries do conform to the standards. The KVIC may also undertake directly or through other agencies studies concerning the problems of Khadi and/or village industries besides research or establishing pilot projects for the development of Khadi and village industries.

Comprehensive Policy Package 2000
The S.P. Gupta Committee recommended a comprehensive policy package on 30th August 2000 with the basic objective to enable domestic industry to meet global competition. The important features of the policy are as follows: An increase in investment limit from Rs. 5 lacs to Rs. 10 lcs in industry related to service and business enterprise. Raised the limit for excise duty exemption from Rs. 50 lacs to Rs. 1 crore. Providing grants of Rs to every small unit for obtaining ISO 9000 certification till the end of 10th five year plan. Conducting the third census of small industry after a gap of 12 years.

Mahila Bachat Ghat Mahila Bachat Gat is an organization established to promote co-operation of self development of women. In rural areas, self help groups were established with the primary objective of empowering women at grass root level. It has resulted into Mahila Bachat Gat which is a co-operative moment. Rate of loan interest for Mahila Bachat Gat is 2%. The micro loans are available to members to buy equipments. They can either take contractual work or help cottage industries. They can purchase construction machinery at subsidized rates through government schemes.

Objectives of Mahila Bachat Ghat
The following are the objectives of Mahila Bachat Gat: Income generation for lower income group women. Providing guidelines to member to start cottage industry. Making rural women independent. Elevating economic status of women in family.

Background of Mahila Bachat Ghat
The concept of Mahila Bachat Gat and self help groups (SHGs) can be traced to Bangladesh. Dr. Mohammed Yunus, a professor of Economics at Chitgaon University had initiated a project “Grameen Bank” in 1976. The basic objective of this project was to provide loans to landless poor women to promote self employment. Around 24 lakh people had joined the project till 2001. Machila Bachat Gats are not only economically active in Maharashtra but they also participate in various social causes like: Establishing primary health care centers in villages Addressing issue of clean water and sanitation Active participation in village education committee Contesting local elections

Example of Mahila Bachat Ghat
1. Mann Desi Mahila (MDM) Bachat Gat: Founder & Head: Mrs. Chetna Gala Sinha Comprises of: Mann Desi Mahila Sahakari Bank (MDMSB) Mann Vikas Samajik Sanstha (MVSS) Mann Desi Mahila Bachat Gat Federation (MDMBGF) – a microfinance institution. All clients are rural women with daily incomes of less than Rs. 60 and more than 60% are daily wage labourers. They live in drought prone area of Mhaswad in Maharashtra and North Karnataka.

Example of Mahila Bachat Ghat
2. Hembai Didi Saraswati Mahila Swayam Sahayta Samooh Raigad: It was started in the year 2000 by a group of 12 women. They used to contribute Rs. 5 each per week. Gradually the savings increased. They further borrowed Rs. 60,000 and purchased a silk reeling machine from the sericulture department. They now produce Grade A silk that sells at a high value. The members of this group lead a respectful life. Mahila Bachat Gats have presence not only in rural areas but also in urban areas. In urban areas, the Mahila Bachat Gats provide tiffin services or they are suppliers of pickles and food products for functions.

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Chapter 2: Small Business

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Chapter 2: Small Business

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