Indian government is planning to set up a first of its kind co-investment fund to fund small and medium enterprises (SMEs). As per sources, the fund will set-uped with the help of the capital market regulator and have an initial corpus of Rs 5,000 crore which approximately more than $1 billion USD.
The SMEs fund will be backed by two state-owned financial institutions - Life Insurance Corporation (LIC) and Small Industries Development Bank of India (SIDBI). Sidbi was launched to promote youth entrepreneurship and startups inspiration.
The fund will be modelled around similar investment vehicles set up in developed nations like Germany and Austria, to address funding challenges to startups and entrepreneurs, especially in the high growth sectors like technology.
Stock Exchange Bureau of India (SEBI) is readying and finalizing framework for the fund worth Rs 5,000 crore and the announcement of same is likely in upcoming budget.
As per Business Standard, the proposal to set up a SME co-investment fund follows recent measures such as separate SME exchanges and the institutional trading platform (ITP), jointly taken by the finance ministry and Sebi in the past couple of years. ITP is a mechanism that allows an SME to list directly without an IPO.
Currently, about 60 small companies are listed on the SME exchanges of the BSE and the National Stock Exchange and currently there are approximately 30 million SMEs in India as per the definition of SME.
SMEs in India is considered as the backbone of economy contributing to 45% of the industrial output, 40% of India's exports, employing 60 million people, create 1.3 million jobs every year and produce more than 8000 quality products for the Indian and international markets.
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