Sources of Finance for Small Scale Industries: Traditional and Modern Source!
While some of the above-mentioned sources also provide funds for small-scale industries it may be useful to make a separate mention of their sources of funds, as these industries differ from large-scale industries in such important matters as organisation, scale of production, collateral/security etc. sources are both traditional and modern and both are important.
(A) Traditional Sources:
An important traditional source of finance is the moneylender. He predominates in the rural areas, and is of some significance in urban areas also.
However, in urban areas it is the indigenous banker who does much of the financing of small industries. Considerable finance flows from these sources.
These sources are also important because these often come to the aid of these industries at critical times and that too with little fuss. Their relations with small industrialists are very close indeed.
But the financing from these sources has not been of much help in ensuring a proper use of funds or in promoting productive activities along healthy lines. Interest charges are normally very high. Repayment Conditions too are stiff. New and risky ventures get very little from these sources. As a result many of the industries depending on them have not done well.
(B) Modern Sources:
As for modem sources are concerned, there are several institutions in the field. To begin, with one may mention those almost exclusively meant for small industries (and also medium Industries). These are e.g., the State Financial Corporation, set up in several states and in operation since 1951.
At the state level there are also Industrial Development Corporations for financing small industries in then- respective states. In addition, there are several institutions and schemes of All-India level. There is, for instance the credit Guarantee Scheme (started in July 1960) and later replaced (in April 1981) by the Deposit-Insurance and Credit-Guarantee Corporation.
These are meant to ensure guarantee-support for finance of the weaker sections. There are then commercial banks offering mostly short-term credit. They have also been helpful in setting up of industrial estates.
Since these banks are largely urban-oriented oriented in their working, government established Regional Rural Banks to meet the credit needs о village industries and craftsmen. Other All-India Institutions which also provide finances to the small industries are the Industrial Development Bank, Industrial Finance Corporation, as also Industrial Credit and Investment Corporation.