Newsletter Issue 1

MSME Energy Saving Project (Phase III)Newsletter on the JICA, SIDBI Initiative to promote energy efficiency in MSMEs

June 2015

Project Partners

Contents

Message 02

JICA support for healthcare investments in India

04

03Release of ESEL 8.0

Awareness campaigns at MSME clusters

06

Innovative features on project website

09

News from the sector

10

Message

We hope youve had a good start in the new fiscal year, afresh with new ideas and energy.

The MSME Energy Saving Project, dedicated for promotion of energy saving investments in MSMEs, enters Phase III in 2015. It has been a remarkable journey of association with MSMEs in India since 2008, when the project was launched with the line of credit (LoC) from JICA to SIDBI.

The preceding phases were successful in making inroads into the MSME segment, thereby collectively creating direct investments worth more than 500 million USD by 4,200 sub-projects. Beneficiaries of financial assistance for energy saving sub-projects have reported improvement in profitability of small business through reduction in energy consumption and the incentivised rate of interest. This also raises the bar for expectation from Phase III in terms of reach among the MSMEs, sector coverage and new service offerings.

One of the most remarkable feature additions in Phase III is the inclusion of Healthcare as service sector coverage under the project. This means healthcare units can also derive benefits of the project for investment in high-end technologies and equipment.

The Eligible Medical Equipment List (EMEL) is a suggestive medical equipment list that has been released and is available on the dedicated project website, http://jica.org.in (which itself has been upgraded with enhanced interface and additional features).

Taking a step further towards making the MSME sector green, Renewable Energy Technologies (RETs) have also been introduced for full coverage under the project. Readers can find a list of such RETs in the latest Release 8.1 of the Energy Saving Equipment List

JICA and SIDBI wish to directly engage with more and more MSME stakeholders in the country in order to discuss energy efficiency financing and technical assistance to overcome associated barriers. For this purpose, awareness campaigns and focused group meetings will be organised in several energy-intensive MSME clusters and healthcare hubs, across India. More information on clusters and how to identify your nearest location for these campaigns has been provided in this document

This newsletter is also an attempt to connect with MSMEs and associated stakeholders. We also hope that you will continue to stay engaged with us through

various channels of communication and join us for the events we put together for you. Based on your feedback, we are working towards creating more meaningful opportunities of such engagement. Meanwhile, if you have any feedback or suggestions, please write in to Aditi Puri ([email protected]), our Lead Development Specialist at JICA, or to Manish Soni ([email protected]) our Editor at PricewaterhouseCoopers Pvt Ltd

Its always a pleasure to hear from you.

JICA, Japan, the largest provider of official development assistance, remains committed to sustainable development in Indias MSME sector by improving profitability through enhanced energy efficiency and reduced environmental and GHG impact.

~ Japan International Cooperation Agency (JICA)

Dear readers,

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Econ

omic

Environment

Efficiency

Cheaper finance for sustainable

development of MSME and Healthcare sector

Reduce energy bill, improve profitability of MSMEs

Minimization of CO2 Emission by promoting Energy Efficiency

3 E of the

Project

MSME Energy Saving Project (Phase III) 3

Release of ESEL 8.0

The ESEL is a comprehensive list of equipment and technologies that have significant energy saving potential, making them eligible for financing under the project. It covers a wide range of equipment and technologies useful for a number of industrial sectors in India. Only equipment with 10% (minimum) energy saving potential compared to the conventional practice can be covered in the list. The ESEL is an important tool for reviewing the sub-projects. The financial parameters for appraising the sub-projects are mentioned in the table below.

Another important feature of the list is its dynamic nature and openness for inclusion of latest equipment based on queries received by the SIDBI or MSME units.

It gets updated regularly with the addition of new and proven EE technologies and equipment based on in-depth assessment of the proposed equipment or technologys feasibility in terms of its energy saving potential as well as environment sustainability features.

During Phase III, a total of 15 sub-project proposals received from SIDBI were evaluated, covering 48 different equipment or technologies. The details with respect to energy consumption were reviewed as well as assessed, and four new inclusions in the ESEL under different industrial sectors were made.

The ESEL 8.0 (latest version) covers more than 750 energy saving and renewable energy equipment and technologies. These

include both general sector (electrical, thermal, renewable energy, etc.) as well as industry-specific (foundry, auto components, textile, etc.) equipment. The readability, layout and design have also been improved in Release 8.0 of the ESEL.

The updated ESEL Release 8.0 is available on www.sidbi.in as well as www.jica.org.in.

The ESEL now covers renewable energy technologies such as solar,

solar thermal, wind and waste to energy as eligible sub-projects for coverage under the incentive scheme. Readers are requested to contact their nearest SIDBI office

for more details.Minimum Assistance Rs. 10 lakh per project

Maximum Assistance Rs. 35 crore per project

Minimum promoters contribution

25% for existing units

33% for new units

Debt Equity Ratio Maximum 2:1

Interest Rate As per credit rating and 0.75% below the normal lending rate

Up front fee Non refundable upfront fee of 2% of sanctioned loan plus applicable service tax

Security First charge over assets acquired under the scheme; first/second charge over existing assets and collateral security as may be deemed necessary

Asset coverage Minimum Asset Coverage should be 1.4 : 1 for new units and 1.3 : 1 for existing units

Repayment period Need based. Normally, the repayment period does not extend beyond 7 years. However, longer repayment period of more than 7 years can be considered under the Line if considered necessary

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JICA supportfor healthcare investments in India

IntroductionThe launch of Phase III of the MSME Energy Saving Project also witnessed the first ever inclusion of healthcare as a service sector specialty in the project. As a result of this, healthcare projects are now eligible for incentivised finance. A small portion of the LoC has been earmarked

for financing eligible healthcare projects and their eligibility shall be assessed on predetermined criteria. This will help promoters invest in healthcare facilities such as hospitals, pathology and diagnostic labs, clinics etc., with common facilities for development, testing, as well as quality control.

Financial parametersThe healthcare project under this initiative means an investment in medical and/or diagnostic and/or laboratory equipment as well as directly associated activities, with installation (including building and interiors) by either existing or new units falling within the MSME segment.

Parameters Norms

Minimum assistance Not less than 50 lakh INR per project

Maximum assistance Not more than 35 crore INR per project

Minimum promoters contribution*

Under asset backed scheme25% for new units10% for existing units with two years net profit out of previous three yearsUnder asset light scheme30% for new units20% for existing units with two years operations with profit

Debt equity rate Under asset backed scheme, maximum 3:1Under asset light scheme, maximum 1.5:1

Interest rate Presently 75 basis points below the applicable interest rate as per credit rating

Upfront fee Non-refundable upfront fee up to 2% of the sanctioned loan plus applicable service tax

Security First charge over assets acquired under the scheme; first or second charge over existing assets and collateral security, as deemed necessary

Asset coverage Under asset backed scheme, fixed assets coverage ratio (FACR) of 1.4 for new entities1.2 for existing entities with at least three years profits1.1 for externally rated entities with top two ratings

For exclusive equipment finance1.2 for equipment installed at fixed locations

Under asset light schemeMinimum 1.3:1 with improvable security or financial collateral

Repayment period Need-basedRepayment period to not extend beyond seven years; exceptions can however be made, if deemed necessary

* Relaxation as per SIDBIs norms

MSME Energy Saving Project (Phase III) 5

Eligible Medical Equipment List (EMEL)A suggestive list of eligible equipment, EMEL, is developed to facilitate the process of financing healthcare sub-projects. The list is to be used by SIDBI to assess

the eligibility of an incoming sub-project proposal for providing financial assistance. The EMEL is dynamic in nature and gets updated every quarter based on various queries and suggestions received at the SIDBI branch offices and on the website, http://jica.org.in or through any other

channel. It is important to note that EMEL is only a suggestive list and the eligibility of projects will be assessed on a case-to-case basis by SIDBI and subsequently, by JICA.

Features and criteriaMedical equipment included in the list is shortlisted on the basis of guidelines published by the Indian Public Health Standards (IPHS) for essential medical equipment required for a typical 30 to 50 beds healthcare facility.

List of medical equipment is categorised based on various specialty departments such as imaging, cardiology, gynecology, etc. Each category consists of information fields, namely, equipment name, manufacturer and supplier/ vendor in India.

Equipment that costs less than 25, 000 INR (approx. market price) is excluded.

The list also highlights Japanese companies which provide high quality medical equipment.

This is an innovative addition to the project and is aimed incentivising investment in healthcare infrastructure facilities in order to keep pace with

the increasing population and the ever improving quality benchmarks for medical equipment.

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Awareness campaigns at MSME clusters

Awareness campaigns at MSME clusters are among the most important activities of the MSME Energy Saving Project. They provide a platform for direct interaction among the project partners and stakeholders within MSME ecosystem. Since beginning of the project in 2008, they have been considered indispensable media for creating awareness in MSME clusters on energy savings as well as augmenting the existing awareness with one-to-one communication, thus creating an enabling environment for sustained energy saving activities at the cluster level.

Awareness campaigns are organised in pre-identified cluster locations in close association with local industry bodies and stakeholder networks. The engagement with local players not only helps in creating a top-of-mind awareness, but also significantly contributes towards fostering a sense of ownership among local industrial networks for energy saving activities in the cluster. This indirectly adds up to longevity of participatory approach towards energy saving among local communities.

Phase III of the project will encompass a total of 24 awareness campaigns spread across multiple industrial sectors and MSME clusters. These have been shortlisted by project partners on the basis of the following criteria:

Energy intensity and relative energy saving potential

Ongoing complimentary and supplementary interventions in the clusters by other agencies

Special focus on relatively lesser industrialised regions

MSMEs in the cluster

industrial associations

equipment suppliers

Awareness campaigns

subject matter or

process experts

local nodal bodies for industries

MSME Energy Saving Project (Phase III) 7

Major energy intensive industrial sectors have been comprehensively covered.

Auto-components

Food processing

Ceramics

Rice mills

Forging

Pharmaceuticals and chemicals

Textiles

Chemicals

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PP

Plastics and polymers

Leather or footwear

Foundry

General engineering

So far, awareness campaigns have been successfully organised in collaboration with encouraging participation from MSMEs and cluster level stakeholders at the following locations:

Erode (textiles): March 2015

Bhiwadi (auto components): March 2015

Vadodara (plastics, forging, casting): May 2015

Thane (textile, pharma-drugs, chemicals, engineering): May 2015

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MSME clusters from the highlighted sectors are selected from different geographical regions based on the need of awareness generation as well as the potential reach to the stakeholders.

Surat(diamond processing,

textile, wood products)

Thane(textile, pharma-drugs,

chemicals, engineering)

Pune, Chinchwad (auto components,

food industry, forging, electronics)

Bangalore, Peenya (machine tools, automobiles, power

loom, electronics)

Kochi (food processing)

Hosur(automobile components, engineering)

Erode(textiles)

Chennai(plastics manufacturing units, leather products, auto components)

Cherlapally , Hyderabad (electronic, leather , foundry)

Cuttak(Rice mills, engineering and fabrication, chemicals)

Vijaywada (auto components, textile, food processing, lime calcination, wooden furniture)

Manesar(Auto components, electrical components, engineering)

Agra(foundry, leather footwear, engineering)

Noida(electronic, plastic, packaging, automobile components)

Bahadurgarh, Kundli (mixed industries, pharmaceutical, leather footwear, ceramics)

Guwahati(mixed industries)

Mahesana(textile, general

engineering, food processing)

Bhopal(engineering goods)

Bhiwadi(auto components cluster)

Chandigarh, Jagadhri (engineering goods, mixed industries)

Vadodara(plastics, forging, casting)

MSME Energy Saving Project (Phase III) 9

Innovative features on project website

With todays accelerating pace of business, it is more important than ever before to concentrate on information management in order to be able to engage with stakeholders more effectively. With user expectations having evolved with time, it is essential for the project to gather, store, manage and make information available to their stakeholders in a timely and accurate manner for better decision making.

Information and communication technology has proved to be a major tool for innovation as well as efficiency improvement. Strategic and appropriate use of IT such as implementation of a dynamic and interactive website can effectively help achieve the objectives of information dissemination and raising awareness. The availability of a user-friendly and constantly updated website for the project is essential for establishing hassle-free communication as well as information sharing among stakeholders.

There is a resultant need for a website which provides information on eligible projects, eligibility criteria for units, financial parameters, details of upcoming events, various technical and financial brochures, etc. Phase III of the project is supported by a completely new and interactive website (www.jica.org.in), which serves this purpose. The new website is a major upgrade from its predecessor. It is more content driven and has improved serviceability, given the inclusion of some important features that have been mentioned below:

Improved look and feel

Enhanced content management

Content search functionality

Mobile compatibility

Load time optimisation

Improved security and file sharing

New posts since last login

Storing user preferences

Social media integration

Blogs and discussion board

New sections:

Organisational overview

Display of latest events

Projects

Option for users to subscribe to mails from JICA and RSS feed

Audio and video content released by JICA

MSME Energy Saving Project (Phase III) 9

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News from the sector

Prime Minister launched Mudra Bank: 5.77 crore small business units to be provided access to institutional financeNarendra Modi launched the Micro Units Development and Refinance Agency Ltd (MUDRA), following the vision announced in the Budget proposed by Finance Minister, Arun Jaitley. MUDRA Bank has been created with a corpus of 20,000 crore INR as well as a credit guarantee corpus of 3,000 crore INR. It will be responsible for developing and refinancing, through a Pradhan Mantri MUDRA Yojana, all micro-finance institutions (MFIs) which are in the business of lending to micro or small business entities engaged in manufacturing, trading and service activities. MUDRA will also partner with the state and regional level coordinators to provide finance to the last mile financiers of small and micro business enterprises. It goes beyond the credit-only approach and offers a credit-plus solution for enterprises spread across the country.

The biggest bottleneck in the growth of entrepreneurship in this sector is the lack of financial support. A vast part of the non-corporate sector operates as unregistered enterprises and formal or institutional architecture has not been made available for it to meet its financial requirements. Providing access to institutional finance to such micro and small business units and enterprises will not only help in improving the quality of life of these entrepreneurs but also turn them into strong instruments of GDP growth as well as employment generation. Since the enactment for MUDRA is likely to take a while, it is proposed that it is initiated as a unit of SIDBI to benefit from SIDBIs experience and expertise. The initial products and schemes under this umbrella have already been created and the interventions have been named Shishu, Kishor and Tarun.

They have been briefly explained below:

The

measures to be taken up by MUDRA are targeted towards mainstreaming young, educated and skilled workers as well as entrepreneurs including women entrepreneurs. These encompass a myriad of small manufacturing units, shopkeepers, fruits and vegetable vendors, truck and taxi operators, food-service units, repair shops, machine operators, small industries, artisans, food processors, street vendors among others.

Shishu

Loans up to

50,000 INR

Tarun

Loans above

5 lakh INR and up to 10 lakh INR

Kishor

Loans above

50,000 INR and up to 5 lakh INR

MSME Energy Saving Project (Phase III) 11MSME Energy Saving Project (Phase III) 11

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PwC India is supporting the project activities in conducting awareness campaigns, updating energy saving equipment list, monitoring and verification of social, environmental, and energy impact assessment of installed sub- projects. etc.

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About JICAThe Japan International Cooperation Agency (JICA) is the Worlds largest bilateral development organization, operating in some 150 countries to help some of the Globes most vulnerable people. It coordinates Official Development Assistance (ODA) for the Government of Japan, and is globally the largest provider of ODA.

In India, JICA has been providing assistance to realize Japan-India cooperation by supporting economic growth, poverty reduction and environment conservation in India through a diversified portfolio, covering sectors such as transportation, water supply and sewerage, forestry, power, agriculture, health, education etc. over the last five decades.

About SIDBISmall Industries Bank of India (SIDBI) is among the top 30 development banks in the world with objectives of financing, promotion, development and co-ordination between MSMEs for orderly growth of industry in the small scale sector.

Since 25 years, SIDBI is committed to facilitate and strengthen credit flow to MSMEs and address both financial and developmental gaps in the MSME eco-system.

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