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CONT_21LCT-362 :: MSMES & FINANCING VENTURES
Home My courses CONT_21LCT-362 :: MSMES & FINANCING VENTURES Chapter 2.1
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Lecture Topic-Institutional Framework & MSME
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Lecture Topic-Institutional Framework & MSME
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Lecture Topic
Institutional Framework
1. Introduction and Assessment Framework Government’s role in SME development is very central in constructing a
solid building block for SMEs to engender their growth. The objective of having a proper set of indicators for the
institutional framework is to ensure the consistency and effective implementation of the overall SME development
policy (OECD, 2009). There are five policy sub-dimensions for a good institutional setting (Figure 5) which include: (i)
clearly defined and consistent application of SME definition; (ii) good coordination among and within government
agencies; (iii) responsive and effective implementation of SME development strategy; (iv) resourceful and effective
policy executing agency; and (v) proper measures to address the problem of informality of the SMEs.

Figure : Assessment Framework for Institutional Framework

It is essential that support measures to SMEs be based on a common definition to improve the consistency and
effectiveness of the national and regional SME development. One of the main objectives of a common SME definition is
to ensure that support measures are granted only to those enterprises which genuinely need them. A common SME
definition applied in a country is necessary to promote a synergy among relevant government agencies in the
implementation of the SME development strategies. In addition, it would be best to have a policy implementation
agency that monitors all the strategies so that the implementation of the strategies is on the right track.

INSTITUTIONAL SUPPORT TO ENTREPRENEURS INTRODUCTION Starting a business or industrial unit-say, enterprise in short-
requires various resources and facilities. Small scale enterprises, given their small resources, find it difficult to have
their own. Finance has been an important resource to start and run enterprise. Hence finance is considered as “life-
blood’ for an enterprise. Admittedly, finance is an important resource but not the only condition to run an enterprise. In
order to start any economic activity, a minimum level of prior built-up of infrastructural facilities is needed. Financial
assistance and concessions cannot, in any case, adequately compensate for the deficiencies of infrastructure such as
transport and communication. This is one of the reasons why industries have not been developing in backward areas
in spite of financial assistance and concessions given by the governments to the entrepreneurs to establish industries
in backward areas. The following are the various kinds of support and facilities provided by various institutions to the
entrepreneurs to help them establish industries.

Institutional support system is necessary at three stages enterprise development:

• Inception or Promotion

• Day-to-day management

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 • Expansion and Diversification.

Three dimensions of institutional support system are:

• Central Government

• State Government

• Non-government Support System

CENTRAL GOVERNMENT INSTITUTES

SMALL SCALE INDUSTRIES BOARD (SSIB) Established in 1954 It consists of the following members: • Union Industry
Minister • State Industry Minister • Selected members of Parliament • Secretaries of department concerned
NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD) Established in 1982 Services offered by
NABARD: • Attracting youth to rural non-farm sector. • District Industries Rural Project (DRIP). • Rural Entrepreneurship
Development Programme (REDP).
SMALL INDUSTRIES DEVELOPMENT ORGANISATION (SIDO) Constituted in 1954 to develop support services for promotion
of SSS. Main objectives of SIDO are: • To formulate policy for promotion of SSI • Provide coordination of policies of
state government • To collect and disseminate information
To provide wide range of extension services through allied institutions • To promote facilities for technology
upgradation • To offer consultancy services
Services Rendered by SIDO: • Entrepreneurship development and Management training. • Efforts for skill
development. • Preparation of feasibility reports for different products. • Provision of testing services. • Availability of
tool room facilities.
NATIONAL SMALL INDUSTRIES CORPORATION (NSIC) Set up by government of India in 1955. Main functions are: Supply
of machinery and equipment. Provision of financial assistance. Assistance for arrangement of raw materials.
Establishment of technology transfer centers. Arrangement of marketing assistance. Priority in government
purchase programme
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI) Established in 1990 Subsidiary of IDBI, setup as an act of
parliament. Provides assistance for: • Setting up of new SSI units, small hotels, hospitals and so on. • Technological
upgradation and modernization, expansion and diversification.
Quality upgradation. • Development of markets. • Development of infrastructure. • Discounting of bills of
manufacturer-seller in selling either equipments or components.

STATE GOVERNMENT INSTITUTES

STATE FINANCIAL CORPORATIONS (SFC) Objectives: • Provide term loans • Promotion of self-employment. • Encourage
women entrepreneurs. • Expansion of industry. • Provide seed capital assistance.
STATE SMALL INDUSTRIES DEVELOPMENT CORPORATION (SSIDC) Important functions performed are: • Procurement
and distribution of raw materials. • Supply of machine on hire-purchase basis. • Construction of industrial estates. •
Providing assistance for marketing of products of SSI.
TECHNICAL CONSULTANCY ORGANISATON Services of TCOs include: • Preparation of project profiles. • Undertaking
industrial potential surveys. • Identification of potential entrepreneurs. • Undertaking market research. • Project
supervision and rendering technical and administrative assistance. • Conducting EDPs.
KHADI AND VILLAGE INDUSTRIES COMMISION (KVIC) It is engaged in the development of khadi and village industries in
rural areas. Main objectives of KVIC are: • Providing employment in rural areas. • Skill improvement. • Rural
industrialization. • Transfer of technology.

NON-GOVERNMENT INSTITUTES
INDIAN COUNCIL OF SMALL INDUSTRIES (ICSI) It was established in 1979. Main functions are: • Information
dissemination. • Entrepreneurship development. • Consultancy and managerial support. • Training and research.
LAGHU UDYOG BHARTI (LUB) It was founded in 1995. It is responsible to undertake: • Entrepreneurial training. •
Technology upgradation. • Marketing services.

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