SIDBI Scheme for Energy Saving Projects in MSME Businesses

Small Industries Development Bank of India (SIDBI) is a financial institution setup for the promotion, financing and development of the Micro, Small and Medium Enterprise (MSME) sector. In line with its objectives, the SIDBI operates a scheme to promote energy saving amongst MSME businesses. In this article, we look at the SIDBI Scheme for Energy Saving Projects in detail.

SIDBI Overview

Micro, Small and Medium Enterprises (MSMEs) businesses make a significant contribution to the national economy in terms of production, employment and exports. There are over 5.1 crore MSME businesses in India - creating employment of about 11.7 crores, manufacturing in excess of 6,000 products, contributing about 45% to manufacturing output and about 40% of exports in terms of value, about 37% of GDP. SIDBI helps alleviate the financial and non-financial gaps in MSME eco-system by providing financial support such as:

Indirect or refinance to banks or Financial Institutions for onward lending to MSMEs
Direct finance in the functional areas like risk capital, sustainable finance, receivable financing, service sector financing, etc.

SIDBI adopts a ‘Credit Plus’ approach, under which, besides credit, SIDBI offers support to enterprise development, skill up-gradation, marketing support, cluster development, technology modernization, etc., in the MSME sector by means of its promotional and developmental support to MSMEs. As on March 31, 2016, SIDBI has made cumulative disbursements of about 4.50 lakh crore benefitting about 350 lakh persons. By this way, SIDBI would be complementing and supplementing efforts of banks/ FIs in meeting diverse credit needs of MSMEs.

SIDBI Energy Saving Project

The SIDBI energy saving project helps MSMEs acquire, install, lease or rent energy saving equipment or facilities. Existing energy saving equipment or facilities like industrial furnaces, boilers, burners, etc., can also be augmented by new installations, replaced, remodeled or upgraded with equipment having advance or similar performance to those of replacement, Mostly, the scheme supports installation or development or adoption of manufacturing machinery and tools that meet the unambiguous requirements for energy performance standard provided in India like energy labels, green building, etc.,

Eligibility for Energy Saving Project

New or existing MSME units according to the definition of the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 are eligible for the MSME energy saving project,

Existing units must have reasonable track record of past performance and good financial position.
Units must have minimum investment grade rating of SIDBI.
Sectors such as the arms industry, narcotics industry or any criminal businesses are not eligible.
Correspondingly, such projects which may perhaps result in larger negative social and environmental effect are too not eligible under this scheme.

Funding under Energy Saving Project

A minimum of Rs. 10 lakh per project is sanctioned by SIDBI under the scheme. Promoters of existing units are required to infuse promoter contribution of 25%, while promoters of new units are required to infuse upto 33%. Further, debt to equity ratio of a maximum of 2:1 is only permissible.

Interest Rate & Charges

Currently, SIDBI charges 75 basis points below the related lending rate for MSMEs having appropriate credit rating. A non-refundable upfront fee of up to 2% of sanctioned loan and service tax is applicable.

Collateral Security

First charge over assets obtained under the scheme; first or second charge over existing assets as well as collateral security as may perhaps be deemed essential. Also, a minimum asset coverage of 1.4: 1 for new units and 1.3 : 1 for existing units must be maintained.

Repayment period

The repayment period and schedule is set based on the cash flow of the MSME business. Usually, the repayment period does not extend beyond a period of 7 years. However, longer repayment period of greater than 7 years can be considered, in rare cases. Need loan under the SIDBI Energy Saving Project? Click here to know more