Question

 

From the different types of lending institutions discussed in the Lesson for this week, select one type for further exploration. In your initial posting, respond to the following:

Identify the lending institution type you selected.

Define the purpose of this lending institution, in reference to helping entrepreneurs.

Determine the advantages and disadvantages for this type of lending institution

Evaluate your option to use this type and explain why or why not.

 

Answer 1

There are different type of Financial Institute of which I have picked up SFC for my exploration.

State Financial Corporation’s (SFCs) - Meaning & Purpose :- As the scope of IFCI was limited, thus it was felt that financial institutions should also be set up in each state to provide sufficient finance to medium and small scale industries for promoting industrial development there. To meet the requirement, State Financial Corporation’s (SFCs) were set up in different states.

The Government of India also passed the State Financial Corporation Act in 1951 and made it applicable to all states of India. The authorised capital of such corporation can vary within the maximum and minimum limit of Rs 50 lakh and Rs 5 crore.

The sum is divided into shares of equal value of which 25 per cent of the shares can he held by public and the remaining 75 per cent of the shares are normally held by State Government, the Reserve Bank, the scheduled banks, insurance companies, investment trusts, co-operative banks and other financial institutions.

The corporation can raise capital by selling bonds and debentures and can also accept deposit from public for five years. The management of SFCs is similar to that of IFCI.

Following are some of the important functions of State Financial Corporations:

(a) To guarantee loans raised by industrial units which are repayable within 20 years;

(b) To grant loans and advances to industrial units for a period not exceeding 20 years;

(c) To underwrite the issue of stocks, shares, bonds or debentures of industrial concerns; and

(d) To subscribe debentures floated by industrial concerns,

In India, there are at present 18 State Financial Corporations working in different States of India. Total amount of assistance advanced by all these corporations between the period 1971 to 1993 was to the tune of Rs 15,630 crore. Total amount of loan sanctioned by SFCs which was to the tune of Rs 2790.7 crore in 2000- 01 which however declined to Rs 1134 crore in 2003-04.