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Government readies Rs 10,000 crore VC fund for MSMEs

The Times of India:  June, 2014

New Delhi: The government is readying a Rs 10,000 crore venture fund for micro, small and medium enterprises (MSMEs) in a bid bolster the flow of funds to the sector that accounts for 45% of manufacturing activity and 40% of exports.

Sources said that the proposal was discussed with the finance minister Arun Jaitley during a presentation made by the department of financial services on Thursday. They added that the new VC fund aimed to boost startups will be based on priority sector lending by banks and will have a seven-year tenure.

The fund will replace the Rs 5,000 crore India Opportunities Venture Fund (IOVF) that was launched by Sidbi in 2012. The sources said that the fund, with a three-year tenure did not take off prompting the government to plan a new fund.

In fact, even the Reserve Bank of India had certain concerns, which is now prompting the government to underwrite the losses.

Funding to MSMEs has been a major area of concern as entrepreneurs often find it tough to raise equity.

The new fund may be announced in the Budget, scheduled for the first week of July, said sources, since the broad contours have been worked out by the finance ministry. In any case, MSMEs, given the large job potential, is a key focus area of the government.

In fact, even commerce & industry minister Nirmala Sitharaman tweeted on Friday that she has asked her officials to focus on labour-intensive sectors as it is key to job creation in manufacturing.