Cluster business development units and development of a SIDBI energy project management unit (SIDBI)

Nov 18, 2009

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An overview of Indian MSME

MSE Sector Contribution to Indian Economy 40% of Industrial Production 32% share of exports More than 1000 products

Second largest sector after agriculture More than 13.3 million units Largest employer after agriculture in India.

Accelerates the growth of Economy Recorded growth rate of 13% in FY 2008 (12.6% in FY 2007) Growth higher than GDP & industrial growth

Source : SIDBI annual report

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An overview of Indian MSME

FEATURES –

Very small in size (majority are MSE units)

Majority of units are proprietorship / family owned concern

Obsolete technology, production process

Lack of awareness of on energy efficient production options / technology

Lack of adequate finance for investments

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Indian MSMEs : Challenges • Slow down in world economy - Severely affecting export based MSMEs in

leather, textile, gems & jewellary, auto components, etc.

• Financial crisis - Liquidity crunch for MSMEs

• Dereservation of products - Threat from large corporates

• Opening up of Economy - Increased overseas competition

• Environmental protection issues - Threat to shut down / relocate • Small economic size - High production cost / uncompetitive in market

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Indian MSMEs : Opportunities

• Opening up of global market – Explore new markets

• Outsourcing by large units - Opportunity to scale up

• Recession - Right time for technological upgradation / improvement in production

processes

• Survive & Grow - Reduce cost to be competitive

• Growth Mantra - Investment in Energy Efficient (EE) equipment/manufacturing

processes as a tool to cut cost, protect margin and remain competitive.

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Approach for EE lending in MSMEs

• MSMEs are in all major industries & spread across the country in

clusters. About 77% of 13.3 million MSMEs exist in clusters

generating 72% of total employment and 61% of total investment

in the MSME sector.• MSMEs at each cluster/industrial sector has its own specific

characteristic.

• To promote the EE in MSMEs, Cluster based approach could be an

effective solution

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Lending potential for EE in MSME clusters

Cluster based approach – Pre-requisite

Identification of energy intensive MSME clusters – out of list of 388 clusters

listed by UNIDO about 150 could be described as highly energy intensive and 162

with medium energy intensity

Energy saving potential of the cluster / Financial health of the sector

Availability of proven / commercial technologies suitable for the cluster

Replicability potential – service providers

Strong local association

Definition of Energy Efficiency

• Energy Efficiency (EE) encompasses all changes that result in a reduction in the energy used for a given energy service (heating, lighting...) or level of activity. This reduction in the energy consumption is not necessarily associated to technical changes, since it can also result from a better organization and management or improved economic efficiency in the sector (e.g. overall gains of productivity). by World Energy Council

• This definition indicates at both - investments as also no investment / low investments for achieving EE.

No Investment / Low investment solutions

• Lack of documentation of best practices (even basic practices)

• Unwillingness of MSMEs to use experts :-– Low awareness– Non availability of experts at the field level – Unskilled manpower– High costs associated / non benchmarking of fees

( example of SMERA)– ‘AUDIT’

Investment solutions

• Only a few Banks have schemes to fund EE financing• Sometimes EE proposal would involve replacement

of certain fixtures / tools etc. which may result in asset coverage dilution

• MSMEs looking for certain pull factors like concessional interest rates

• Capacity building of bank officials

Promotional efforts

• Awareness creation – – 40 workshops under JICA – Handbooks on EE – 4 no.

• Partnership with BEE – 25 clusters – shelf of EE technologies

• Capacity building of BDS providers/ energy experts• Cooperation with WB – use of Ind. assn/SPV for EE

lending• Create a national level integrated mechanism to

promote & Finance EE

Energy Efficiency in BDS Clusters

• Activities include:o Exploratory – awareness, workshop / seminar, feasibility studyo Experimental – Walk through audits, trainings etc.o Deeper implementation – energy audits, ISI, BEE rating etc.

• More than 50 activities covering about 1000 MSMEs are planned upto March 2010.

• Focus on documentation• Linkages with other schemes like ISI, Star rating

etc.

WB – GEF project

• To co implement with BEE • To generate 500 investments in energy

efficiency in MSME sector from 5 clusters• Budget allocation of about $ 9 mio for 5 years• To work with

– MSMEs– Banks / FIs– BMOs– Intermediaries – both financial and technical

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SIDBI’s Assistance for EE Projects

• Under KfW LoC SIDBI provided assistance to MSMEs in textile processing, foundry, forging, ceramics, tanning, CETP for investing in energy efficient clean production technologies to the tune of US$ 21 million (Rs. 103 crore).

• LoC from JICA, Japan of JPY 30 billion for promoting EE projects in MSME

sector. – sanctioned approx. 927 MSME proposals for EE projects totaling

approx.US$ 55 million (Rs. 255 crore) under JICA– refinance facility to banks at concessional rates to encourage them to lend

for EE projects in MSE sector.

• New LOCs from KfW and AFD for financing energy efficiency in MSME sector

Thank You

Energy Management professionals - distribution

State No. of EA/EM

Maharashtra 1445

Gujarat 672

TN 639

UP 508

AP 439

DELHI 358

HARYANA 213

ORISSA 198

PUNJAB 85

UTTARANCHAL 41

HP 3

ASSAM 41

CHANDIGARH 26

OTHERS

TOTAL 6287

•Concentration in Western zone•PUNJAB – LOW PENETRATION•HP & UTTARANCHAL – LOT OF NEW DEMAND

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