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Trade Finance
Private Equity
CGTMSE
SME
Exchange
Subsidy schemes
ECB
Financial Solutions through the
Business Life Cycle
Unsecured Business Loans
Financing
Receivables
Banking Transactions
CP/NCD
Commercial
Papers
IPO/FPO
Mortgage Loans
Commodity Finance
MSME sector
32 Million MSMEs - 95% of industrial units
Manufacturing 8000+ products
Employment to 73 million
people
40% Manufacturing
output
45% of total Indian Exports
8.7% of Indian GDP
MSME Overview
Three Pillars for MSME Growth
Legal and Regulatory Framework
• Legal and regulatory framework to define the sector – MSMED Act 2006
• Financial regulations to bolster supply of finance – SARFAESI 2002, Credit
• Inclusion of MSE in purview of PSL
• Master circulars on lending to MSME
Government Support
• Policies to facilitate support on multi-pronged support
• Interest Subvention Schemes
• Promotion of cluster development
• Subsidy/Refinance Schemes from bodies like SIDBI/NABARD
• Funding support to credit guarantee schemes to enhance unsecured financing
•
• Support to increase penetration of credit rating
Financial Infrastructure Support
• Credit Bureau to track credit history of enterprises
• Collateral registry of immovable assets (CERSAI)
• Credit rating agencies (CRISIL, ICRA, SMERA CARE, FITCH etc.)
• Asset reconstruction companies
• SME stock Exchange to facilitate primary and secondary transactions for SME securities
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Govt. Schemes for Small & Medium Enterprises
1. Scheme of Fund for Regeneration of Traditional Industries (SFURTI)
2. Marketing Assistance Scheme
3. Subsidy and Credit Rating Scheme
4. Scheme of Interest Subsidy Eligibility Certification (ISEC)
5. Scheme for Enhancing Productivity and Competitiveness of Khadi
Industry and Artisans
6. National Manufacturing Competitiveness Program
7. Credit Linked Capital subsidy Scheme (CLCSS) for Technology Up-
gradation of the Small Scale Industries
8. Credit Guarantee Fund Scheme for Micro and Small Enterprise (CGTMSE)
9. Assistance for Strengthening of Training Infrastructure of existing and
new Entrepreneurship Development Institutions
10.Scheme for Micro Finance Program
The Government is working proactively to find innovative solutions to the
problems being faced by MSME Sector of India. The number of Financial
Assistance Schemes have been formulated to enable the Indian MSMEs to be
the major player in the International Markets. Few of the Schemes are as below:
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Financing Options at Incubation Stage
CGTMSE loans for Start-Ups
• Collateral Free Product for MSME Borrowers
• Maximum lending up to INR 10 MM per borrower
Banking Transaction
Based Assessment
• Limit assessment based on Net Banking Credit
• Simplified documentation for faster TAT
Mortgage Backed Lending
• Longer Tenure Loans by leveraging property
• Freedom of end use, while cheaper than Personal Loans
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Short term, self-liquidating finance against pledge of commodity
Borrower to stock commodity at the desired warehouse and
pledge the warehouse receipt to the lender
Provides liquidity management and risk mitigation
Value of the loan = Value of commodity - commodity specific margin
amount
Loans to farmers up to 50 lacs for a period not exceeding 12 months
is classified under Direct Agri fincnce
Commodity Finance
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Kisan
Credit
Card
Lending to Individual Farmers
Loans for “Seasonal Agricultural operations”
Short Term and Long Term funding
Credit call based on group financial comfort
Applicable for Agricultural land owned or leased by
the borrowers
Promoter Agri Funding
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Buyers Credit
• Replacement of high cost rupee finance with low cost USD funding
• Enables importers to attain Improved Cash flow.
• Working Capital upto 360 days and capex for 3 years .
• Available in the form of LUT/Stanby credit/LC.
Factoring and Forfeiting
• Factoring Regulation Act 2011 now allow outright purchase of credit approved account receivables with the factor assuming bad debts
• Forfeiter purchase the receivables from exporters and takes on all the risk associated
Supply Chain Finance
• An innovative option for extending working capital finance to Vendors who have business relationships with large companies
• Additional liquidity to Vendors for selling goods to Corporate .
• This would eliminate need for MPBF and is need based.
Trade Finance
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Right product if any of these questions is a YES
Receivables Financing
Do you deal with credit
worthy buyers
Are you facing a working capital
shortage
Selling to many buyers
on open account credit
terms?
Is tied up capital in a/c receivables
limiting your growth
Financing Receivables is the solution
Advance funds up to 90% of the invoice value compared to limited funding offer by traditional lending facilities
Higher limits assigned on the basis of
Quality of receivables
Underlying goods and services
Management of the company
Focus on quality of receivables as well as strength of relationship with buyers
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Eligible Borrowers
•Corporate other than hotel, hospital and software up to USD 750 MM
•Corporate in service sector viz. Hotel, Hospital, software up to USD 200 MM
•Units in SEZ
•NGO engaged in micro finance activities
Permissible End use
• Import of Capital goods
• Implementation of new projects
•Modernization/Expansion of existing production units
•Overseas investment in JV/WOS
•First stage of acquisition in the disinvestment process
Commercial loans availed from non-resident lenders
Source of finance for corporate to expand their existing capacity & for fresh investment
Minimum average maturity of 3 years.
Priority for projects in Infrastructure, power, oil, telecom, railways, roads, & bridges, ports, urban infrastructure, & export sectors
External Commercial Borrowings
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Equity Capital Not quoted on public exchange and raised primarily from institutional investors
Unlisted companies with high growth potential share risk and return in the company
Various types are Leveraged buyout, Venture capital, Growth capital, Mezzanine capital
Advantages to retain operational and majority control, lower regulatory compliance than Listing, Strategic and
operational support
Private Equity
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SME Exchange
Main Exchange SME Exchange
Companies with paid up capital of 10 crore & above can get listed
Companies with paid up capital up to 10 crore can be listed
Prior Approval of SEBI & Exchange required
Prior Approval of SEBI & Exchange not required
Quarterly compliance is required Half yearly compliance is required – Norm simplified
Entire Annual report has to be sent to investors
Abridged version of Annual report can be sent or soft copy of Annual Report in website would suffice
Issue expenses are costly Issue expenses are minimal
Better visibility among investors
Transparency will repose better faith in investors both Domestic & Foreign
Listing will ensure alternate source of funds
Tax Benefits – Long term capital gain on Listed company is zero
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An innovative option for extending working capital finance to Vendors who have business relationships with large corporate.
Vendor Financing meets the funds requirement of the suppliers of the Large corporate through sales bill/invoice discounting facility
Dealer Financing meets the working capital needs by providing additional liquidity to dealers for procuring goods from Corporate
Revolving line of credit in the nature of Overdraft
SUPPLY CHAIN FINANCE
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Commercial Paper
Unsecured money market instrument issued in the form of promissory note
Enabling highly rated corporate borrowers to diversify their sources of short term borrowings
Guidelines for issue governed by various directives issued by RBI
Wide range of maturity resulting in more flexibility
No lien on assets of the company
CP tradability provides investor with exit options
Helps Financial institutions in asset-liability and risk management
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Non-Convertible Debentures
Fixed income debt instruments issued by a company to raise long term funds
Manage liquidity & mitigate risk to great extent
Benefits of investing
• Listing on NSE & BSE providing liquidity
• Rated by credit rating agencies to assess the quality of debt papers
• Limited lock –in period from 2 to 20 providing ample options
Tax Implications
• Held till maturity: Interest added to total income & taxed at marginal rate
• Sold on exchange before one year: Short term capital gains tax
• Sold on exchange after one year: Long term capital gains tax at 20% with indexation & 10% without indexation
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IPO/FPO & Take Out Financing
• Private company shares offered to public for first time
• Opportunity for investing in primary market
• Attractive interest rates with case specific margins
Features of IPO
• Stock issue of supplementary shares
• Offered by publicly listed companies already gone through IPO
• Additional equity capital in the capital markets
Features of FPO
• Method of providing finance for longer duration projects (say of 15 years)
• Loan will be taken out of books of the financing bank within pre-fixed period, by another institution thus preventing any possible asset-liability mismatch
Take Out Financing
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A method of providing finance for longer duration projects of about 15 years by banks.
It is given that the loan will be taken out of books of the financing bank within pre-fixed period by another institution, thus preventing any possible asset-liability mismatch.
After taking out the loan from banks, the institution could offload them to another bank or keep it.
Remedial Management
Corporate Debt Restructuring
Asset Reconstruction
Special Mention Accounts
Securitization-Pass Through Certificates
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