Which of the following is a function of SIDBI?
|A. Extension of seed capital.|
B. Discounting of bills.
C. Providing factoring services.
D. All of the above.
The Correct Answer Is:
- D. All of the above.
The correct answer is (D) All of the above. The Small Industries Development Bank of India (SIDBI) plays a crucial role in supporting and financing small and medium-sized enterprises (SMEs) in India.
Each of the provided options represents a key function that SIDBI performs to promote the growth and development of SMEs. Let’s explain in detail why the answer is correct and why the other options are not:
D. All of the Above:
SIDBI is a financial institution that focuses on providing various forms of financial and non-financial assistance to SMEs in India. The three functions mentioned in the answer are essential components of SIDBI’s role in fostering the growth of small and medium-sized businesses:
Extension of Seed Capital:
SIDBI provides seed capital to startups and early-stage ventures, particularly in the small and medium-sized enterprise sector. Seed capital is often used for activities like product development, market research, and initial operational expenses.
By extending seed capital, SIDBI helps entrepreneurs and new businesses get off the ground, supporting innovation and entrepreneurship in the country.
Discounting of Bills:
The discounting of bills is a financial service provided by SIDBI to SMEs. It involves the purchase of accounts receivable or invoices at a discount from businesses.
This allows SMEs to receive immediate cash flow by converting their accounts receivable into cash without waiting for the payment from their customers. It’s an important financial instrument that can help SMEs improve their liquidity and manage their working capital effectively.
Providing Factoring Services:
Factoring is a financial service that involves the purchase of accounts receivable of a business by a financial institution like SIDBI. Factoring helps businesses improve their cash flow by providing immediate funds against their outstanding invoices.
By offering factoring services, SIDBI assists SMEs in managing their cash flow and ensuring a steady stream of working capital, which is crucial for their day-to-day operations and growth.
In summary, all three functions – extension of seed capital, discounting of bills, and providing factoring services – are integral to SIDBI’s mission of supporting the growth and development of SMEs in India. These functions provide financial support and flexibility to SMEs, allowing them to thrive and contribute to India’s economic growth.
Now, let’s discuss why the other options are not correct:
A. Extension of Seed Capital:
This option is, in fact, correct and is one of the functions of SIDBI. SIDBI plays a role in providing seed capital to startups and early-stage businesses to foster entrepreneurship and innovation. It supports the growth of SMEs by offering them financial resources at a critical stage of their development.
B. Discounting of Bills:
Discounting of bills is another function that SIDBI performs. It is a financial service that can help SMEs improve their cash flow by converting their accounts receivable into immediate funds. SIDBI offers this service to help SMEs manage their working capital effectively, making it an important part of its activities.
C. Providing Factoring Services:
Providing factoring services is also a function of SIDBI. Factoring is a financial service that aids SMEs by enabling them to access immediate funds against their outstanding invoices. This service helps businesses manage their cash flow efficiently and is part of SIDBI’s efforts to support the financial needs of SMEs.
In conclusion, the correct answer is (D) All of the above, as each of the mentioned functions – extension of seed capital, discounting of bills, and providing factoring services – represents an essential part of SIDBI’s efforts to promote and support the growth and development of small and medium-sized enterprises in India.