MSME in Self Reliant India Fund: The government had announced the Rs 50,000 crore Fund of Funds called Self Reliant India (SRI) Fund in May 2020 (post Covid) to support its aim to enable credit access for MSMEs. Registered with the Securities and Exchange Board of India (SEBI) as a category-II Alternative Investment Fund (AIF), the fund operates through a mother-fund and daughter-fund structure for equity or quasi-equity investments in MSMEs by venture capital and private equity firms. Here’s a low-down on the fund and how it supports MSMEs:
How does the SRI fund work?
Employing a fund-of-funds strategy, the SRI fund invests in SEBI-registered Category I and Category II AIFs called daughter funds which in turn invest in MSMEs. The government is the sole anchor investor in the fund with the initial support of Rs 10,006 crore as the mother fund. The corpus is expected to be enhanced to Rs 50,000 crore with Rs 40,000 crore from daughter funds during the 15-year tenure of the fund while the investment or commitment period is 13 years.
How many daughter funds are empanelled?
According to NSIC Venture Capital Fund (NVCFL) – the implementing body of SRI fund, there are 44 daughter funds viz., TATA Capital Healthcare Fund, Aavishkaar India Fund, SVL-SME Fund, Gaja Capital India Fund, Avaana Sustainability Fund, ICICI Ventures’ India Advantage Fund S5 I and more. The investment manager of the fund is SBICAP Ventures – the private equity arm of State Bank of India (SBI).
How much investment has been made in MSMEs?
As of March 31, 2023, the SRI fund had made a capital commitment of Rs 5,120 crore to 42 of the empanelled daughter funds. Till earlier this year, Rs 3,000 crore was invested in more than 140 MSMEs, SBI Chairman Dinesh Khara had said at an event on January 23rd this year. Importantly, SRI fund cannot directly invest in MSMEs.
In terms of employment, according to MSME Narayan Rane present at the same event, the fund had supported employment for more than 25,000 people so far, out of which, 20 per cent were women. The minister had said in the Lok Sabha in February 2022 that the SRI fund is expected to benefit around 5,000 MSMEs. “Assuming an average investment of Rs 10 crore per MSME, approximately 5,000 MSMEs are likely to be benefited,” Rane had said.
Any minimum investment amount to be made by daughter funds into MSMEs?
Yes, the daughter funds have to invest at least five times the amount of capital contribution received from SRI Fund in MSMEs. The daughter fund must ensure that the MSMEs it is investing in are registered with the Udyam portal of the MSME ministry.
How much return is targeted for daughter funds from investments in MSMEs?
The target return for daughter fund is a gross IRR (internal rate of return) of 12 per cent per annum. Gross IRR is referred to the return on investment without taking into account any management fees and costs.
How much is the management fee for daughter funds under SRI fund?
Management fees for daughter funds should not be more than 2 per cent per annum.
Are there preferred sectors for investment under SRI fund?
According to NVCFL, SRI is a sector-agnostic fund to support MSMEs in agriculture, pharma, auto, chemicals, etc., undertaking manufacturing or services business except for investments in gambling, self-help groups, and any illegal or unlawful activities.
What type of MSMEs will be targeted for investments?
As per the fund’s guidelines, MSMEs with a “defined business plan for growth indicating positive funds flow,” will be targeted. Moreover, compound annual growth of the business for the previous three years will also be considered. “The Fund will also factor in non-monetary aspects, in terms of employment, reduction in regional disparity, overall economic development and establishing supply chains with depth and resilience.” The investment made and equity diluted is based on the assessment of the MSME borrower.