An interview with Ms. Chitra K. Alai, General Manager, SIDBI


Surana & Surana International Attorneys, conducted a case study on the ease of doing business (for MSMEs) in the defence sector in India, and we narrowed down on some of the financial constraints faced by MSMEs in the defence sector, which are the following:

  • No Cost No Commitment (NCNC): During the field trials, if a prototype does not qualify as per the requirements of the Ministry, there is no reimbursement for the effort of the MSME in developing the prototype/ sample. Furthermore, damages incurred during field trials (including transit) are not considered, even if the damage was as a result of the negligence of the officers. This leaves the MSMEs with huge financial losses and no mode of recovery.
  • Liquidated damages: A 0.5% rate of liquidated damages is levied for every week of delay by the Ministry, which cannot be borne by the MSMEs.
  • Prototype development is a huge burden for MSMEs due to lack of timely funds.
  • Payment structure and Payment schedule: No advance payment is made and 100% payment is made only after supply and training which takes time, no fixed time period for receiving the payment.
  • Financial support: Bank don't consider government letters for the purpose of loan; no financial aid for prototype development, certification, and testing; no soft loans available; MSMEs cannot afford EMD and the support provided by umbrella bodies like NSIC are not adequate as their cash flow gets affected when they bid for multiple projects at the same time; MSMEs require support for bank & performance guarantees.

Considering the above, the Small Industries Development Bank of India (SIDBI) can to an extent play a significant role in alleviating certain financial constraints faced by MSMEs in a difficult sector such as the defence sector. To understand the same, the YellowBox team presents this interview with Ms. Chitra K. Alai, General Manager, SIDBI.

1. What is RXIL and TReDS? How is it different from the existing platforms?

  • Receivables Exchange of India Ltd (RXIL) is a joint venture between SIDBI and NSE, set up to operate a Trade Receivable e-Discounting System (TReDS) for factoring of the invoices of the MSMEs in compliance with TReDS guidelines issued by RBI. RXIL is a RBI licensed entity.
  • TReDS is an institutional mechanism for facilitating the financing of trade receivables of MSMEs through multiple financiers.
  • TReDS is an electronic platform / Electronic Bill Factoring Exchanges, whereby MSME bills against large companies can be accepted electronically and auctioned, to ensure prompt realisation of receivables at competitive rates.
  • MSME sellers, corporate and other buyers, including the Government Departments and PSUs, and financiers (both banks and NBFC factors) will be direct participants in the TReDS.
  • The bankers joining the platform as financiers can offer their bids/ discount rates against each factoring unit (invoice / bill of exchange) and the MSME seller is free to accept any of the bids.
  • Upon acceptance of the bid, the factoring unit will be financed by the concerned banker/financier.
  • The platform facilitates not just timely realization of receivables of MSMEs, but also enables an MSME to choose the most competitive bid to factor the receivables. Further, Factoring is done without recourse to sellers. – This is advantageous to MSMEs.

Thus, TReDS brings in transparency, improved governance, early realization of MSME receivables, improved liquidity, hassle free e-factoring and improves the bottom line of the MSMEs.

2. What is the minimum eligibility for MSMEs to avail benefits under SIDBI schemes and platforms such as RXIL/ TReDS? Also, please specify the documentation required.

  • For term loans from SIDBI, there are set eligibility criteria for availing assistance viz. track record and experience of the promoters, project viability and financial background. Need based term loans are granted to MSMEs at very competitive rates. SIDBIs SMILE Scheme for term loans and soft loan assistance is the most competitive in the market as on date. Details of the scheme is given in Annexure.
  • As far as registering on RXIL is concerned documentation includes minimal KYC as per requirements of RBI/ Statutory authorities and other legal documentation as applicable for such assistance. However, the whole process is fairly simple and most one time documentation to verify the credentials of the MSME and their operations on the platform. However, the main challenge is to make the large buyers participate on the platform.

3. How do you think implementation of RXIL and TReDS in the defence sector will benefit MSMEs in particular?

  • There’s lot of impetus on defence sector by Government of India under Make in India Initiative where 20% of procurement is to be from MSMEs. This is the first thrust on MSME development.
  • RXIL is a transparent platform set up to mitigate the delayed receivables and improve working capital cycle of MSMEs. Government departments have also been advised by their respective ministries to onboard RXIL.
  • It facilitates early realization of receivables at competitive Rate of Interest in a most transparent and seamless manner in electronic platform.
  • Timely realization of receivables would make the MSMEs more vibrant, growth and quality oriented and it would bring the overall costs down too. TReDs is the way forward to bring automation in the receivables process and MSMEs don’t have to deal with many banks for limits under this window. Its unsecured and hence more attractive to MSMEs.

4. Start-ups have been given a lot of prominence by the Government in recent times. Are start-ups eligible to participate on this platform? If not, what benefits can SIDBI offer start-ups? Does SIDBI already have schemes and facilities for start-ups?

  • There’s absolutely no bar for valid MSMEs to participate on the RXIL platform. Start-ups are eligible too if they are suppliers to government departments, PSUs registered on the platform.
  • With a strong purpose to support, develop and nurture ideas of modern entrepreneurs that are instrumental in transforming the Indian economy, SIDBI has been playing an important role in developing the Venture Capital (VC) eco-system in the country. Through its holistic offerings comprising of credit and support ecosystem with tailor-made initiatives, SIDBI operates thoughtfully designed initiatives that meet the requirements of a modern entrepreneur at every stage of his journey, from idea generation to venture formation to scaling up a business. SIDBI’s initiatives have been instrumental in creating a vibrant entrepreneurial support ecosystem where a strong capital flow is made available along with relevant handholding to ventures. To provide financial resources for Start-ups / MSMEs, SIDBI has been contributing to corpus of various Alternative Investment Funds (AIFs) / Venture Capital Funds (VCFs) for over two decades, which in turn invest at both early & growth stages in Start-ups / MSMEs. SIDBI has committed cumulatively more than INR 3600 crores to over 110 funds under its Fund of Funds operations.
  • SIDBI does not invest directly in Start-ups, but participates in the capital of Alternative Investment Funds (AIF) registered with Securities and Exchange Board of India (SEBI). SIDBI, thus, contributes to the corpus of Alternative Investment Funds (AIFs) for investing in equity and equity-linked instruments of various Start-ups at early stage, seed stage and growth stage.
  • Please visit SIDBI website which gives an overview of Nurturing Start Ups.