On-lending In keeping with its mission, SIDBI Foundation identifies, nurtures and develops select potential MFIs as long term partners and provides credit support for their micro credit initiatives. The eligible partner institutions of SIDBI Foundation, therefore, comprise large and medium scale MFIs having minimum fund requirement of Rs. 10 lakh per annum. Large and medium scale MFIs having considerable experience in managing micro credit programmes, high growth potential, good track record, professional expertise and committed to viability are provided financial assistance for on-lending. Under the present dispensation, annual need based assistance is provided to enable MFIs to expand their scale of operations and achieve self sufficiency at the earliest. Lending is based strictly on an intensive in-house appraisal supplemented with the capacity assessment rating by an independent professional agency. Liberal security norms have also been adopted to reduce procedural bottlenecks as well as to facilitate easy disbursements. Capacity Building The long-term future of the micro-finance sector depends on MFIs being able to achieve operational, financial and institutional sustainability. The constraints and challenges vary with the different types and development stage of MFIs. Most MFIs are currently operating below operational viability and use grant funds from donors for financing up-front costs of establishing new groups and covering initial losses incurred until the lending volume builds up to a break-even level. The MFIs are generally constrained in reaching a break-even level and finally achieving sustainability, primarily due to a narrow client and product base, high operational and administrative costs for delivering credit to the poor, and their inability to mobilise requisite resources. Moreover, lack of technical manpower, operational systems, infrastructure and MIS are prevalent. In view of the above, to scale up micro-finance initiatives at a faster pace, a special effort is required for capacity building of the Micro Finance Institutions. In this background, SFMC has in the past under the DFID collaboration (which has since come to an end on March 31,2009) provided need based capacity building support to the partner MFIs, in the initial years, to enable them to expand their operations, cover their managerial, administrative and operational costs besides helping them achieve self-sufficiency in due course. Liquidity Management In view of the fact that liquidity is a major concern of many of the middle level MFIs and a small working capital support can go a long way in their better liquidity management and thus pave way for faster growth, SFMC has introduced a special short term loan scheme, Liquidity Management Support (LMS) for the long term partners. Equity Provision of equity capital to the NBFC-MFIs is perceived as an emerging requirement of the micro finance sector in India. SIDBI provides equity capital to eligible institutions not only to enable them to meet the capital adequacy requirements but also to help them leverage debt funds. Keeping in tune with the sectoral requirements, the bank has also introduced quasi-equity products viz., Optionally convertible Preference share capital; Optionally convertible debt and Optionally convertible Subordinate debt for new generation MFIs which are generally in the pre-breakeven stage requiring special dispensation for capital support by way of a mix of Tier I and Tier II capital. Transformation Loan The Transformation Loan (TL) product is envisaged as a quasi-equity type support to partner MFIs that are in the process of transforming themselves / their existing structure into a more formal and regulated set-up for exclusively handling micro finance operations in a focused manner. Being quasi-equity in nature, TL helps the MFIs not only in enhancing their equity base but also in leveraging loan funds and expanding their micro credit operations on a sustainable basis. The product has the feature of conversion into equity after a specified period of time subject to the MFI attaining certain structural, operational and financial benchmarks. This non-interest bearing support facilitates the young but well performing MFIs to make long term institutional investments and acts as a constant incentive to transform themselves into formal and regulated entities. Micro Enterprise Loans In order to build and strengthen new set of intermediaries for Micro Enterprise Loans, the Bank has formulated new scheme for Micro Enterprise Loans. Institutions/ MFIs with minimum fund requirement of Rs. 25 lakh p.a. and having considerable experience in financial intermediation/ facilitating or setting up of enterprises/ providing escort services to SSI/ tiny units/ networking or active interface with SSIs etc. and having professional expertise and capability to handle on-lending transactions shall be eligible under the dispensation. The institutions would be selected based on their relevant experience, potential to expand, professional management, transparency in operations and well laid-out systems besides qualified/ trained manpower. Lending to be based strictly on an intensive in-house appraisal supplemented with the credit rating by an independent professional agency. Relaxed security norms more or less on line with micro credit dispensation to be adopted to reduce procedural bottlenecks as well as to facilitate easy disbursements. Micro Enterprise Loans Scheme - Direct Credit The Micro Enterprise Loan Scheme - Direct Credit provides need based composite loan (ranging from Rs. 50,000 to Rs. 5 lakh ) to Micro Enterprises directly for acquiring capital assets and also for their working capital / marketing related requirements. The assistance is covered under the CGTMSE scheme. The scheme is currently operated by the 7 specialised Micro Finance Branches. Loan Syndication Keeping in view the increased fund requirement of major partner MFIs, the Bank has also undertaken fee based syndication arrangement where loan requirement is comparatively higher.