Small Industries Development Bank of India (SIDBI) has sanctioned funds aggregating ₹650 crore to two small finance banks (SFBs) — AU SFB and Jana SFB — so that they can support small-sized non-banking financial companies (NBFCs) and micro finance institutions (MFIs) which, in turn, can provide financial assistance to small businesses and micro entrepreneurs.

SIDBI, in a statement, said it has already released ₹530 crore to the aforementioned SFBs.

Referring to the double intermediation measure, Sivasubramanian Ramann, Chairman & Managing Director, SIDBI, said, “The move is expected to benefit more than 40 small-sized NBFCs / MFIs which will help in mitigating the hardships they face in garnering resources.”

The assistance has been extended out of the special liquidity facility of ₹16,000 crore sanctioned by the Reserve Bank of India to SIDBI to meet the challenges being faced by the MSMEs due to the prevailing Covid-19 pandemic.

Informal sector

The development financial institution noted that the relatively smaller NBFCs and MFIs normally cater to the informal MSME sector — especially new to credit businesses, small retail trade, micro credit and other small household businesses — in the hinterland due to their unique advantage of ‘next-door’ presence and accumulated knowledge about their clientele over a period of time (as compared to banks and larger NBFCs).

SIDBI observed that the Covid-19 pandemic has adversely impacted the businesses of MSMEs, leading to a slow-down in the income generation activities of these small businesses and micro enterprises. This has further adversely affected the collections and liquidity position of the NBFCs and MFIs.

Smaller NBFCs / MFIs, in particular, have always faced challenges in accessing adequate institutional funding and generally source their funds support from other larger and well-established non-banking companies / SFBs.