Project Management. Chapter19. Institutional finance to enterprise. chapter19 1

Transcription

1 Project Management Chapter19 Institutional finance to enterprise chapter19 1

2 Institutional finance to enterprise All India Financial Institutions - Complete list Industrial Development Bank of India (IDBI) Industrial Finance Corporation of India (IFCI) Export - Import Bank of India (Exim Bank) Industrial Reconstruction Bank of India (IRBI) now (Industrial Investment Bank of India) National Bank for Agriculture and Rural Development (NABARD) Small Industries Development Bank of India (SIDBI) chapter19 2

3 Institutional finance to enterprise All India Financial Institutions - Discount and Finance House of India Ltd. (DFHI) Securities Trading Corporation of India Ltd. (STCI) Power Finance Corporation Ltd. Rural Electrification Corporation Ltd. Indian Railways Finance Corporation Ltd. Infrastructure Development Finance Co. Ltd. Housing and Urban Development Corporation Ltd. (HUDCO) Indian Renewable Energy Development Agency Ltd. (IREDA) chapter19 3

4 Institutions that help enterprises NSIC facilitates credit facilities to small-scale industries for their technology modernization programmes and marketing activities through Equipment Financing and Marketing Financing Schemes. Under the Equipment Financing the Corporation is offering Term loan scheme and Hire purchase Scheme. For financing the Marketing Activities (short term) NSIC facilitates financing for marketing actives such as Raw Material Assistance, Internet Marketing, Exports and Bill Discounting. The main features of the financial services offered are: chapter19 4

5 Institutions that help enterprises Financial assistance for the equipment and marketing activities under one roof with speed and efficiency. Prompt clearance of the proposals with minimum processing time and without cumbersome paper work. Assistance in preparing the proposals and completion of document formalities. Market oriented interest rates and service charges with liberal terms of margin, level of assistance and repayment schedules. Arrangement with commercial banks for sanction of loan proposals received by NSIC from small enterprises. chapter19 5

6 Institutions that help enterprises ORGANISATIONAL STRUCTURE OF SIDO Small Industries Development Organization (SIDO) an apex body at Central level for formulating policy for the development of Small Scale Industries in the country, is headed by the Additional Secretary & Development Commissioner (Small Scale Industries) under Ministry of Small Scale Industries Govt. of India.SIDO is playing a very constructive role for strengthening this vital sector which has proved to be one of the strong pillars of the economy of the country. It functions through a network of the field offices namely 30 SISIs, 28 Br. SISIs, 4 RTCs, 7 FTSs, various training and production centers and specialized institutes spread over different parts of the country. chapter19 6

7 Institutions that help enterprises It is rendering the services in the following areas :- Advising the Govt. in policy matters concerning small scale sector. Providing techno-economic and managerial consultancy, common facilities and extension services. Providing facilities for technology up-gradation, modernization quality improvement & infrastructure. Human resources development through training and skill up-gradation. Providing economic information services. Maintaining close liaison and vital linkage with the Central Ministries, Planning Commission, chapter19 7

8 Institutions that help enterprises Financial Institutions, State Govts. & similar other developmental organizations/agencies related to the promotion and development of SSI Sector. Evolving and coordinating policies for development of ancillaries. Monitoring of PMRY Scheme Monitoring the working of different Tool Rooms & PPDC's chapter19 8

9 Venture Capital Fund Venture capital is a type of private equity outside investors to new, growth businesses. Generally made as cash in exchange for shares in the invested company, venture capital investments are usually high risk, but offer the potential for above-average returns. A venture capitalist (VC) is a person who makes such investments. A venture capital fund is a pooled investment vehicle (often a limited partnership) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans. Venture capital can also include managerial and technical expertise. Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships. chapter19 9

10 This form of raising capital is popular among new companies, or ventures, with limited operating history, who cannot raise funds through a debt issue. The downside for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to a portion of the equity. Roles within a VC firm Venture Capital Fund Venture capital general partners (also known in this case as "venture capitalists" or "VCs") are the executives in the firm, in other words the investment professionals. Typical career backgrounds vary, but many are former chief executives at firms similar to those which the partnership finances and other senior executives in technology companies. chapter19 10

11 Venture Capital Fund Investors in venture capital funds are known as limited partners. This constituency comprises both high net worth individuals and institutions with large amounts of available capital, such as state and private pension funds, university financial endowments, foundations, insurance companies, and pooled investment vehicles, called fund of funds. Other positions at venture capital firms include venture partners and entrepreneur-in-residence (EIR). Venture partners "bring in deals" and receive income only on deals they work on (as opposed to general partners who receive income on all deals). EIRs are experts in a particular domain and perform due diligence on potential deals. chapter19 11

12 Venture Capital Fund EIRs are engaged by VC firms temporarily (six to 18 months) and are expected to develop and pitch startup ideas to their host firm (although neither party is bound to work with each other). Some EIR's move on to roles such as Chief Technology Officer (CTO) at a portfolio company. According to the National Venture Capital Association the typical individual believes that a venture capitalist is a rich individual ready to invest in a new business venture, an investment into a "change-the-world" idea. On the contrary the investors look for a high interest yielding opportunity. chapter19 12

13 Venture Capital Fund Venture Capital may be a viable source of financing for a business. While they generally invest in businesses that are more established and ongoing, some do fund start-ups. In general they tend to invest in high-technology businesses such as research and development, electronics and computers. Venture Capitalists deal more in large sums of money, numbering into the millions of dollars, so they are generally well suited to businesses that are going grand from the start or have grown and require gigantic expansion. chapter19 13

14 Structure of the funds Venture Capital Fund Most venture capital funds have a fixed life of 10 years, with the possibility of a few years of extensions to allow for private companies still seeking liquidity. The investing cycle for most funds is generally three to five years, after which the focus is managing and making followon investments in an existing portfolio. This model was pioneered by successful funds in Silicon Valley through the 1980s to invest in technological trends broadly but only during their period of ascendance, and to cut exposure to management and marketing risks of any individual firm or its product. chapter19 14

15 In such a fund, the investors have a fixed commitment to the fund that is "called down" by the VCs over time as the fund makes its investments. There are substantial penalties for a Limited Partner (or investor) that fails to participate in a capital call. Venture Capital Investing Venture Capital Fund Venture capital investing involves the provision of capital to business enterprises in the early stages of the development of new products or services. Venture capital investing was especially prominent throughout the 1990s, with the boom and the subsequent collapse of speculative interest in computer and information technology, Internet and communications sectors chapter19 15

16 Venture Capital Fund Raising substantial venture capital Venture capital is not generally suitable for all entrepreneurs. Venture capitalists are typically very selective in deciding what to invest in; as a rule of thumb, a fund may invest in as few as one in four hundred opportunities presented to it. Funds are most interested in ventures with exceptionally high growth potential, as only such opportunities are likely capable of providing the financial returns and successful exit event within the required timeframe (typically 3-7 years) that venture capitalists expect. This need for high returns makes venture funding an expensive capital source for companies, and most suitable for businesses having large up-front capital requirements which cannot be financed by cheaper alternatives such as debt. chapter19 16

17 Venture Capital Fund That is most commonly the case for intangible assets such as software, and other intellectual property, whose value is unproven. In turn this explains why venture capital is most prevalent in the fast-growing technology and life sciences or biotechnology fields. If a company does have the qualities venture capitalists seek such as a solid business plan, a good management team, investment and passion from the founders, a good potential to exit the investment before the end of their funding cycle, and target minimum returns in excess of 40% per year, it will find it easier to raise venture capital. chapter19 17

18 Factoring Factoring is often used synonymously with accounts receivable financing. Factoring is a form of commercial finance whereby a business sells its accounts receivable (in the form of invoices) at a discount. Effectively, the business is no longer dependent on the conversion of accounts receivable to cash from the actual payment from their customers, which takes place on typical 30-to-90-day terms. Businesses benefit from the acceleration of cash flow by obtaining cash from the factor equal to the face value of the sold accounts receivable, less a factor's fee. Factoring is considered off balance sheet financing in that it is not a form of debt or a form of equity. This fact makes factoring more attainable than traditional bank and equity financing. chapter19 18

19 Factoring There are usually three parties involved when an invoice is factored: Seller of the product or service who originates the invoice. Debtor is the customer of the seller (i.e., the recipient of the invoice for services rendered who promises to pay the balance within the agreed payment terms). Factor (the factoring company) chapter19 19

20 Factoring Types of factoring Notified, or full service factoring With notified factoring, the debtors are aware of the finance facility as there will be a notice of assignment contained on each invoice and the factoring company normally does the credit control, that is, collects the outstanding debts. Confidential, or invoice finance With invoice finance (sometimes called confidential or non-notification factoring), the factoring facility is undisclosed, with the seller usually retaining the credit control function. chapter19 20

21 Factoring Recourse factoring Recourse factoring is now the most common type of factoring transaction. This factoring transaction allows the factor to go back to the seller if payment is not received (normally after a 90 day period). The credit risk does not transfer to the factor during the recourse factoring process. Normally, in the event of non-payment by the customer, the seller must buy back the invoice with another invoice (credit worthy). Recourse factoring is typically the lowest cost for the seller because the risk for the factor on the funding transaction is lower. [ chapter19 21

22 Factoring Non recourse factoring Non recourse factoring is the traditional method of factoring and puts the risk of non-payment, in the event the debtor becomes insolvent, fully on the factor. If the debtor cannot pay the invoice due to insolvency, it is the factor's problem to deal with and the factor cannot seek payment from the seller. The factor will only purchase solid credit worthy invoices and often turns away average credit quality customers. The cost is typically higher with this factoring process as the factor assumes a greater risk. chapter19 22

23 Modernization assistance to small and medium scale units To support existing tanneries for undertaking modernization programme for positive environmental impact, becoming competitive, effecting better capacity utilization, achieving productivity gains, and reducing wastage etc. ELIGIBILITY CRITERIA All existing tannery units undertaking viable modernization programme will be eligible for assistance. modernization will include the following: - measures for technology predation and productivity improvement. - Measures for machinery/ facilities up gradation. chapter19 23

24 Modernization assistance to small and medium scale units Measures, at individual tannery stage, for adoption of waste treatment technologies including primary treatment of waste. Modernization programmes funded by IDBI/SIDBI/SICs/Banks(eligible for refinance from SIDBI/IDBI) as well as those undertaken by existing tanneries from their own resources will be eligible for assistance. Financial assistance under the Scheme shall be available only for such projects in which the loan by the Bank/Financial Institution has been sanctioned on or after the date of notifying the Scheme. chapter19 24

25 Modernization assistance to small and medium scale units In the case of self-financed modernization undertaken by the units, financial assistance under this Scheme shall be available only for such projects where the order for purchase of machinery has been placed on or after the date of notifying this scheme and subject to necessary documents being field while making the application for assistance under this Scheme. The project should need to: Demonstrable increase in unit value realization and/or Increase in production capacities and/or. Better compliance of pollution control norms. chapter19 25

26 Modernization assistance to small and medium scale units PURPOSE Financial assistance would be available for undertakes following activities:- Replacement of pit technology, Installation of controls and float recycles, Layout and re-organization of tanneries, Installation of instrument process control systems, Acquiring in-house chrome recovery and reuse facilities, chapter19 26

27 Modernization assistance to small and medium scale units Upgrading of finishing facilities, Non-conventional energy applications, Creation if in-house R& D and testing facilities, Automation of process and Control systems, Replacement of obsolete machines, Any other activities as decided by the Steering committee Existing tannery units have option to go for single multiple activities. chapter19 27

28 Financial Norms The all India financial Institutions have stipulated a promoters contribution Norm of 20% (of the total cost) for industrial estate. In respect estates costing less then 300lakhs,the following margins have been stipulated. 15% margin for estates set up by technicians entrepreneurs 20% to 30% margin for co operative estates where the sheds are entirely looked by small scale units 30%to 35 % margin for estates set up by joint stock companies whose shareholder occupy a morality of sheds 40%-50% margin for estates set up by proprietary and partnership firms chapter19 28

29 Venture Capital Guide IDBI TDICI Size of fund (Cores) Assistance per project (Cores) Nature of assistance Promoters contribution Terms of assistance No of projects assisted Amount Sanctioned Key Industries NA Rs 2.50 Conditional Loan Initialy6% thereafter17% cores - a) Rs 20 b)rs100 Rs 2 Conditional Loan 10% of project cost Medical applied Research chapter19 29

30 Venture Capital Guide Grindlays Canfina Size of fund (Cores) Assistance per project (Cores) Nature of assistance Promoters contribution Terms of assistance NA - Conditional Loan NA NA - Conditional Loan NA No of projects assisted Amount Sanctioned Key Industries cores MEG NA chapter19 30

31 Venture Capital Guide RCTC SBI corp Size of fund (Cores) Assistance per project (Cores) Nature of assistance Promoters contribution Terms of assistance No of projects assisted Amount Sanctioned Key Industries NA Need base Conditional Loan To be decided on risk Initialy6% thereafter14% 168 2cores - NA Upto Rs 3 Conditional Loan - NA Watches,seamless metals chapter19 31

32 Institutional finance to enterprise End Of Chapter 19 chapter19 32