SME Growth Fund: Modi Cabinet approves ₹ 10,000 crore fund for small and medium businessmen, know which MSMEs will get direct benefit

Giving a big boost to Micro, Small and Medium Enterprises (MSMEs), which are considered the backbone of the country’s economic development, the Union Cabinet approved a grant of ₹ 10,000 crore. ‘SME Growth Fund’ The establishment has been approved. Till now, most of the focus of government schemes was on providing loans to early stage micro enterprises, due to which there was a huge shortage of long-term growth capital (growth equity) for the companies that had reached the middle stage to increase their production capacity and adopt modern technology. To overcome this structural deficiency, the Central Government has designed this Alternative Investment Fund (AIF). Its direct objective is to make Indian small and medium enterprises a major part of the global supply chain and competitive at the international level, rather than limiting them only to the domestic level.

The SME Growth Fund has a completely different and modern model compared to traditional bank loans:

• Equity Based Partnership: Under this fund, eligible units will be given ‘equity capital’ (capital in the form of stake) instead of loan. Its biggest advantage is that the businessman will not have the immediate pressure of paying huge EMIs and interest every month.

• Patient Capital: The government and fund managers will invest with a long-term perspective, allowing companies to focus on their research, product quality and plant modernization without financial stress for 5 to 7 years.

• No Collateral Obligation: Unlike a bank loan, there will be no compulsion to pledge one’s personal or immovable property, which will provide an open opportunity to young and innovative entrepreneurs to prove their business ability.

According to Union Information and Broadcasting Minister Ashwini Vaishnav, more than half of this ₹10,000 crore fund has been reserved for manufacturing-based enterprises:

• Priority to manufacturing MSMEs: Production units in auto components, textile, pharmaceuticals, electronics hardware, precision engineering and chemical sectors will be given priority.

• Benefits of Free Trade Agreements (FTAs): Export-oriented companies capitalizing on the export opportunities created under the trade agreements recently signed by India with UAE, Australia, UK and other countries, will be directly supported by the fund to enter the global market.

• Focus on clusters of Tier-2 and Tier-3 cities: To ensure that capital is not limited only to big metros like Delhi, Mumbai or Bengaluru, special allocation will be given to industries operating in industrial clusters like Lucknow, Kanpur, Coimbatore, Indore, Rajkot, Surat and Jalandhar. This will lead to balanced regional development and generate employment at the local level.

Traditional bank loans vs new ₹10,000 crore SME growth fund

Along with the fund, the government has also launched a scheme to provide professional support to small businessmen in tier-2 and tier-3 cities. ‘Corporate Mitras’ The system has also been announced to be put on the ground:

1. Compliance and Financial Audit: Small entrepreneurs are often unable to access foreign investment or institutional capital due to complex legal processes, tax regulations and lack of financial reporting. Certified Corporate Mitras will help in making the balance sheets of these units investor-ready.

2. Technology Upgradation: A team of technical experts will provide guidance to install automation, AI tools and IoT based machinery in traditionally running factories.

3. TReDS solves cash crisis: The invoice discounting platform is being further strengthened to clear the outstanding dues of MSMEs in a timely manner so that the companies do not face cash crunch.

SMEs who want to access equity capital from this ₹10,000 crore growth fund will have to fulfill the following basic conditions:

• Enterprise and DPIIT Registration: The applicant unit should have a valid ‘Udyam Registration’ (Udyam Certificate) and recognition from the Department for Promotion of Industry and Internal Trade (DPIIT).

• Financial Track Record: The company must have a stable financial record for the last 2 to 3 years and must have positive operating profit (Positive EBITDA) recorded in the balance sheet.

• Scalable Business Model: The unit should have a clear Capacity Expansion Plan, which shows how much production, exports or technical capacity will increase after receiving capital.

• Means of Application: Eligible companies will be able to submit their detailed business proposal and pitch deck through SIDBI’s Venture Capital platform and ‘Jan Samarth’ portal. After technical assessment and financial due-diligence, the fund manager will allocate capital by determining equity valuation.