Sidbi launches Rs2,000-cr India Aspiration Fund to support start-ups

The Small Industries Development Bank of India (Sidbi) on Tuesday announced the opening of India Aspiration Fund (IAF), a venture capital fund with an initial capital of Rs2,000 crore ($306 million) to help finance local start-ups.

The initial corpus of IAF will be augmented with infusion of more funds as and when necessary.

Life Insurance Corporation of India, the nation's biggest insurer and one of the biggest investors, will partner with the India Aspiration Fund, and co-invest along with Sidbi in venture-capital funds, officials said.

Launching the scheme on Tuesday, finance minister Arun Jaitley said the country is witnessing a start-up revolution and to harness the potential of India's innovators and entrepreneurs, a vibrant financial ecosystem was essential, where the IAF is intended to play a vital role in this financial ecosystem.

The India Aspiration Fund, a fund-of-funds managed by Sidbi, is expected to catalyse thousands of crores of equity investment into start-ups and micro and small enterprises (MSMEs), helping to create employment for lakhs of people, mostly educated youth, over next four to five years.

This is outside the Rs10,000 crore Sidbi `Make in India Loan' for enterprises (SMILE) scheme which was announced in the budget in February, under which MSMEs will be provided soft loans in the nature of quasi-equity and term finance on relatively soft terms so as to enable them to meet the required debt-equity ratio norm as also for pursuing growth opportunities.

Indian start-ups, mainly those in e-commerce, have of late been attracting billions of dollars in foreign capital.

While foreign capital is needed, minister of state for finance Jayant Sinha said, local venture capital needed to be strengthened to help finance start-ups outside e-commerce.

He said the fund-of-funds can increase its capital to "as much as required" and there is no limit to such funding.

Sidbi's business domain consists of micro, small and medium enterprises (MSMEs), which contribute significantly to the national economy in terms of production, employment and exports.

The MSME sector is an important pillar of Indian economy as it contributes greatly to the growth of Indian economy with a vast network of around 30 million units, creating employment of about 70 million, manufacturing more than 6,000 products, contributing about 45 per cent to manufacturing output and about 40 per cent of exports, directly and indirectly.

In addition to extending direct assistance to MSMEs in niche areas, viz, energy efficiency, cleaner environment and receivable finance for addressing delayed payments besides units in service sector, Sidbi also extends direct risk capital assistance to MSMEs in the form of sub-debt to address various needs such as promoter's margins requirement, intangibles etc.

This is treated as quasi equity enabling them to raise additional term loans. Sidbi also provides equity assistance to units including new age start-ups through venture capital funds.