What is Venture Capital Assistance Scheme?
Venture Capital Assistance Scheme or VCAS is ‘financial support in the form of an interest free loan provided by SFAC to qualifying projects to meet shortfall in the capital requirement for implementation of the project.’
Th primary aim of the scheme is to target Agri Business entrepreneurs through financial participation. It targets following people :
- Self Help Groups
- Producer Groups
- Agriculture Exporters
- Units in agriexport zones
- Agriculture graduates either individually or collectively to start a agribusiness projects.
- Partnerships or Proprietory Firms.
So, to understand this scheme three important points must be remembered :
- It is to meet shortfall in capital requirement and not complete financing.
- AGet least 50% of Term loan should have been disbursed before execution of documents for VCA.
- Project Report is required and hence proper vetting will be also needed which will be discussed later.
- The word Qualifying Projects is very important as Government or the respective Ministry shall laid down the list of eligible projects.
- Provide financial support for preparation of bankable Detailed Project Reports (DPRs) through Project Development Facility (PDF).
List of Qualifying Projects:
(i) Project should be in agriculture or allied sector or related to agricultural services. Poultry and dairy projects will also be covered under the Scheme.
(ii) Project should provide assured market to farmers/producer groups.
(iii) Project should encourage farmers to diversify into high value crops, to increase farm incomes.
(iv) Project should be accepted by Notified Financial Institution for grant of term loan.
Minimum Cost of Project:
Minimum cost of project should be Rs. 15 lakhs. In North Eastern and Hilly States minimum cost is Rs. 10 lakhs.
Quantum of Financing:
The quantum of Venture Capital Assistance will depend on the project cost and will be the lowest of the following:
- 26% of the promoter’s equity
- INR 50.00 lakhs.
Provided that for projects located in North-Eastern Region, Hilly States (Uttarakhand, Himachal Pradesh, Jammu & Kashmir) and in all cases in any part of the country where the project is promoted by a registered Farmer Producers Organisation, the quantum of venture capital will be the lowest of the following:
- 40% of the promoter’s equity
- INR 50.00 lakhs.
Who will Finance VCA Scheme?
All funding will be done through SFAC, i.e. Small Farmers Agri Business Consortium which has both State and Central level operations. Small Farmers Agribusiness Consortium (SFAC) is an Autonomous Society promoted by Ministry of Agriculture, Cooperation and Farmers’ Welfare, Government of India.
Eligible Financial Institutions:
Financial Institutions, notified by the RBI where ownership of the Central/State Government is more than 50% such as national banks, SBI and its subsidiary, IDBI, SIDBI, NABARD, NCDC, NEDFi, RRBs and state financial corporation can recommend proposal after sanction of Term Loan.
Success of VCA Scheme:
21 projects related to VCA scheme were discussed and Rs. 441.06 lacs were sanctioned as on 10.01.2020. NABCONS had conducted a study and had found following penetration of the scheme:
- VCA had played a catalyst role in bringing catalyst to the agribusiness with an average contribution of 49.02 lakhs, nearly 9.02% of the project cost.
- The average equity investment in terms of margin money of the entrepreneur is about 168.85 lakhs that account for 30.98% of the project cost.
- Ownership structures that availed the scheme were like: 37% partnership firms, 37% were private limited companies, 17% to the proprietorship concerns, and remaining 9% are public limited companies and co-operative societies.
- During the period of study it was observed that average annual income per unit of the operating agribusiness units has been estimated to be Rs. 202.26 lakhs. (NABCONS, 2007-2012)
- Promoter’s request letter addressed to the Managing Director SFAC, New Delhi on original letterhead of firm or company.
- Up-to-date statement of account of Term loan and Cash Credit (if sanctioned)
- Bank’s approved Appraisal or Process note bearing signature of sanctioning authority with terms of sanction of term loan.
- Equity Certificate: a) C.A. certificate in case of Partnership or Proprietorship firms. b) Form – 2 (PAS – 3), FORM – 5 (SH – 7) and other documents in lieu of FORM – 23 filed with ROC for Company.
- Farmer’s list/backward linkage duly supported by agreement.
- Affidavit of promoters that they have not availed VCA in the past.
- Unsecured loans raised by the promoters (If any). CA Certificate to be enclosed.
- Copy of last Bank’s inspection report.
- Bank’s confirmation that they will not release primary & collateral security without SFAC consent.
- Justification for margin on working capital taken in the project cost.
Advantages of VCA Scheme:
- Generally it takes 60-90 days to process the case.
- Suitable for new agribusiness starters.
- It is an interest free loan, hence cost of capital reduces.
Disadvantages of VCA Scheme:
- Large enterprises needs more capital, hence not suitable.
- It is tedious for fresh entrepreneurs who doesn’t understand complicated financial arrangements.
- Despite cost free loan, it just finances a part of the project, hence burden to avail the remaining term loans remains on the entrepreneur.
- Sometimes sanctioning of funds can take longer period of time.
Case of Sri Laxmi Devi Cashews for study: (NABCONS, 2007-2012)
- Location: Mangalore, State:- Karnataka
- Plant Capacity: 1125 tonnes/annum
- Financing Bank: Corporation Bank
- Cost of the project is Rs. 120.00 lakhs
- Bank Loans is Rs. 56.00 lakhs
- SFAC-VCA is Rs. 15.00 lakhs
- Margin Money is Rs. 38.82 lakhs
The project received following benefits:
- VCA reduced the interest burden
- Unit was blessings to the farmers as there was no other units in nearby vicinity. Hence sanctioning of fund was needed
- Project removed middlemen in trading and farmers were able to get at an increased price.
Major Observations found:
- Entrepreneurs had ample experience in the industry
- No formal arrangement with farmers is found.
The main objective is to present this study during this time of pandemic when India is moving towards self reliance is to enable the agribusiness entrepreneurs to take an informed decisions before they avail VCA benefits. The scheme although has certain advantages cannot be denied that it has certain demerits too. An entrepreneur can decide depending upon his financial plan and position that how he wants to finance his working capital using this scheme. It has been elaborated in detail and hope all entrepreneurs and MSME industry finds it useful.
Nilava Nandi, Manager (Global Compliance and HRM),
Filter manufacturing Industries Private Limited