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Union Finance Minister Nirmala Sitharaman on Monday said that standard products cannot serve non-standard businesses as the minister urged the Small Industries Development Bank of India (SIDBI) to redesign lending models according to the unique business cycles of MSMEs and startups. 

Addressing an event here, the Finance Minister said SIDBI’s role must expand beyond that of a lender to becoming a market maker and risk-sharing partner for India’s MSME ecosystem.

“SIDBI's role must now expand from being only a lender to becoming a market maker and risk-sharing partner for India's MSME and startup ecosystem,” FM Sitharaman stated.

“I also expect SIDBI to deepen the venture capital debt market for startups so that innovative enterprises have access to patient, flexible and growth-oriented capital,” the minister stated.

Highlighting the challenges faced by different businesses, FM Sitharaman said enterprises linked to farming, tourism, exports and manufacturing do not earn uniformly throughout the year, yet are often subjected to the same repayment structures by banks and financial institutions.

“A farmer-linked enterprise does not earn every month, a resort does not earn evenly through the year, a government exporter waits for payment after shipment, and a small auto component supplier waits for invoice clearance. Then why should all of them be given the same repayment structure?” the minister said.

The Finance Minister stressed that credit products must be designed around the business cycle of enterprises instead of using a one-size-fits-all model.

FM Sitharaman said SIDBI should take the lead in creating more flexible and growth-oriented financial solutions for MSMEs.

FM Sitharaman also asked SIDBI to deepen the venture capital debt market for startups so that innovative enterprises can access patient, flexible and growth-oriented capital.

“SIDBI’s future role should include sharing risks and supporting market creation for emerging businesses,” the minister mentioned.

“By improving SIDBI’s capital, we are ensuring that the institution can raise lower-cost funds and pass that benefit on to small entrepreneurs through wider, cheaper and more accessible credit,” the Finance Minister said.