The Self-Reliant India Fund (SRI) is a government-backed fund that was set up in May 2020 as part of the Atmanirbhar Bharat COVID-19 relief package. The fund has a corpus of Rs. 50,000 crore and is intended to provide equity infusion to MSMEs in order to provide them with access to credit facilities from VC or private equity firms.
With the initial investment of Rs 10,006 crore in the mother fund, the government of India is the sole anchor of the SRI fund. The corpus is expected to be further enhanced to Rs 50,000 crore with Rs 40,000 crore from daughter funds over the course of the 15-year tenure, while the commitment period is 13 years.
MSMEs are the backbone of the Indian economy, accounting for over 90% of all enterprises and 40% of manufacturing output. However, they have historically faced challenges in accessing credit and funding. This is due to a number of factors, including their small size, lack of collateral, and perceived risk.
How does SRI work?
The SRI fund is a two-tiered structure, with a mother fund and daughter funds. The mother fund is managed by the National Small Industries Corporation (NSIC) and invests in daughter funds (Category I and II Alternative Investment Funds). The daughter funds will invest in Udyam-registered MSMEs, focusing on equity or quasi-equity investments. The targeted return for daughter funds is an Internal Rate of Return of 12 percent PA. This structure allows the SRI fund to leverage the expertise of the NSIC and private equity resources to provide MSMEs with the capital they need to scale up and grow
Equity infusion helps MSMEs access credit and funding in a number of ways. First, it can provide MSMEs with the capital they need to grow their businesses. This can increase sales and profits, making MSMEs more attractive to banks and other lenders. Second, equity infusion can help MSMEs to improve their balance sheets. This can make it easier for MSMEs to obtain debt financing, as lenders will be more confident that the MSMEs will be able to repay the loans. Third, equity infusion can help MSMEs to attract new customers and partners. This is because investors in MSMEs are often willing to provide introductions and referrals to potential customers and partners. It should be noted that the SRI Fund cannot directly invest in MSMEs.
The SRI Fund can help MSMEs to overcome liquidity and other financial challenges by providing them with equity infusion. This can help MSMEs to grow their businesses, expand their operations, and access new markets. It can also help them to improve their creditworthiness and access more traditional forms of debt financing.
In addition to providing equity infusion, the SRI Fund can also help MSMEs to access other forms of funding, such as debt financing and venture capital. The fund can also provide MSMEs with technical assistance and mentoring, which can help them to improve their business plans and operations.
The SRI fund has 44 daughter funds, including TATA Capital Healthcare Fund, Aavishkaar India Fund, Avaana Sustainability Fund, and ICICI Ventures’ India Advantage Fund S5 I. The fund’s investment manager is SBICAP Ventures, SBI’s private equity arm.
The Road Ahead
The SRI Fund is a significant step forward in the government’s efforts to support MSMEs. The fund has the potential to improve the access of MSMEs to credit and funding, which will help them to grow their businesses and create jobs.
As of March 31, 2023, the Self-Reliant India Fund (SRI) had made a capital commitment of Rs. 5,120 crore to 42 of the empanelled daughter funds. To date, the total equity infusion has reached Rs 4,885 crore, including the Central government contribution of Rs 529.40 crore.
In terms of employment generation and gender parity, MSME Minister Narayan Rane said that the fund had provided employment for over 25,000 people so far, out of which 20 percent were women. Speaking in the Lok Sobha in February 2022, the Minister said, “Assuming an average investment of Rs. 10 crore per MSME, approximately 5,000 MSMEs are likely to be benefited.”
The SRI Fund represents a significant step forward in the government’s efforts to support MSMEs. The fund has the potential to improve the access of MSMEs to credit and funding, which will help them to grow their businesses and create more jobs, an acute necessity in a country with one of the largest working-age populations in the world.
Sources: