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Indian Financial System

Notes The basic idea underlying the formation of the SIDBI was to foster the growth of small-scale
sector which occupies a pivotal position in Indian economy. Thus, the Bank has been assigned
the role of the principal financial institution for promotion, financing and development of
industry in the small, tiny and cottage sectors and to coordinate the functioning of institutions
engaged in similar activities.
It has to pay concentrated attention to the multi-dimensional village, cottage, and tiny sectors.
Initially, the SIDBI's business comprised refinancing to term loans granted by SFCs, SIDCs,
banks and other eligible financial institutions; direct discounting and rediscounting of bills
arising out of sale of machinery/capital equipment by manufactures in the small scale sector on
deferred credit and rediscounting of short-term trade bills arising out of sale of products of the
small scale sector.
At present, the SIDBI renders equity type of assistance to special target groups like new promoters,
women and ex-servicemen under National Equity Fund, and voluntary agencies working for
development/to the up liftment of underprivileged women.

It also provides resource support to NSIC and SSIDCs for their material supply and marketing
of SSI products as well as their hire purchase and leasing activities. For promotion, development
and growth of small-scale sector, SIDBI extends technical and related support services.
The SIDBI, in tandem with the overall policy measures of the Government of India and keeping
in view the expectations of the sector, has been refining its strategies and putting in place new
policies and programmes for the development of small scale sector.
As an apex institution, the Bank has been expected to play a more proactive role in reaching out
financial and support services to SSIs with the help of existing credit delivery structure and
support service agencies.
Besides co-promoting new intermediaries and strengthening the existing network of institutions
engaged in development of small scale sector, the SIDBI has developed tailor-made schemes
catering to specific requirements of SSIs, thus supplementing the efforts of PL's.

A major challenge confronting the SIDBI is to devise strategies for development of all three
distinct segments with in small scale sector, viz., micro, tiny and modern SSI, the first two
predominantly covering traditional industries.
Promotional and Development Role of SIDBI

The SIDBI has been playing the role of catalytic agent to foster growth of small-scale enterprises.
The focus of the Bank's promotional and developmental activities has been on the following:
1. Enterprise Promotion: Enterprise promotion is being accomplished through four
programmes/schemes, viz., Micro Credit Scheme (MCS), Rural Industries Programme
(RIP), Mahila Vikas Nidhi (MVN) and Entrepreneurship Development Programmes (EDPs).

2. Micro Credit Scheme: Under the enterprise promotion initiatives of the Bank, Micro credit
programme was accorded greater importance in terms of policy changes and quantum of
finance, which are critical for growth of micro finance sector. In view of the acute need for
provision of financial services to the poor and huge growth potential of the micro finance
sector, the SIDBI played a proactive role as an apex Bank to promote the process of
establishing an appropriate and responsive credit delivery system for the poor, especially
women in rural areas.
Under the scheme, soft loan assistance is provided to well managed NGOs for on-lending
to SHGs/individuals for pursuing non-farm income generating activities coupled with
grant assistance to help them in institutional capacity building. The pilot phase was a

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