Government to jointly develop Food Parks with Foreign Countries, SMEs to Benefit

Food Processing Industries minister Subodh Kant Sahai has said that government has signed a MoU (Memorandum of Understanding) with Italy and France to set up joint food parks. Mr Kant also stressed that this joint food park model will immensely help the food processing industry and will also be prove to be future model for food processing industry in India.

In an interview Mr Kant said that government was in opinion that country needed to develop its food processing industry with help of those who had most of the experience. Thus, government went in favour of aligning with countries like France and Italy which have vast experience in food processing industry.

He said that the foreign expertise will bring in both large investments and new technology to the food processing industry in India and will help the nation in developing mega food processing parks with the help of foreign capital and technology. The Food Processing Ministry has demanded ECB (external commercial borrowing) facility being extended for bringing equipment to the mega food processing parks by the companies involved in its development.

Highlighting the lack of capital financing in the food processing industry and reluctance by the financial institutions and the banks to fund SMEs in the food processing industry, he also stressed for the need of venture capital fund to inject growth into this sector, while mentioning the Rs 10 bn funding provided by the apex body NABARD.

SIDBI to receive $600 mn loan from World Bank and Japanese Agency

The Financial institution Small Industries Development Bank of India (SIDBI) is receiving loan worth $600 mn from two international development agencies to provide credit to Micro and Small & Medium Enterprises. These loans are expected to be received by the Indian financial institution during the period 2010-11.

World Bank, one of the providers of this loan, amounting to $300 mn, would be utlised by SIDBI solely for the purpose for providing credit to MSME and SME sector. The SME sector will account for the larger pie of $200mn while remaining will go to the MSME sector.

The other $300mn, which will be provided by Japan International Cooperation Agency (JICA), would be utlised by SIDBI for financing energy efficient projects of Micro and Small & Medium Enterprises. Such disbursement will be given to MSMEs which have incorporated energy efficient technology and require capital to further finance their projects. These loans will be soft loans and would be made available to the companies at concessional rate.

Both of these financing arrangements by SIDBI is going to benefit MSME and SME sectors, which are always in dearth of funding and have been suffering a lot for past two years due to financial meltdown. The measure to provide soft loan on long term basis will boost these companies not only financially but also technologically as they will be able to adopt new and efficient technologies for their production and services.

Factoring Services Mooted for SMEs

The Ministry of MSME has mooted the idea of allowing financial Factoring services for Micro and Small Medium Enterprises. It is in discussion with Finance Ministry on proposal for factoring services.

Factoring services are still niche domain in credit financing in India and is largely domain of a few international banks, though financial institutions like SIDBI along with nationalized banks have undertaken study of providing factoring services to various small and medium enterprises.

Factoring services involves raising capital through leveraging its accounts receivable (credit sales) to gain access to cash. The financial institution providing factoring services uses its own mechanism to provide upto 80% of accounts receivable to the client. But, such kind of services is yet to take-off for SMEs.

The ministry is examining the legal and regulatory aspects on the proposal, which would require legislative amendments in terms of taxation and financing.

The credit-deprived Small and Medium Enterprises (SMEs) are likely to benefit from the concept 'factoring services' as it would be an alternative window for SME financing in India. Dinesh Rai, Secretary, Ministry of MSME recently motioned that the Ministry of Financial Services are not too much in favor of legislative support. But, he feels that if there is no legislative support, it will be difficult for SME players to attain success in a big way.