Management Notes

Reference Notes for Management

Which of the following is a function of SIDBI?

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.

Small Industries Development Bank of India (SIDBI) is a specialized financial institution that primarily focuses on supporting and promoting the growth of small and medium-sized enterprises (SMEs) in India.

SIDBI plays a crucial role in fostering entrepreneurship and economic development by providing various financial and non-financial services to SMEs. Let’s discuss each of the provided options in detail and explain why D is the correct answer while also addressing why the other options are not accurate.

A. Extension of Seed Capital:

SIDBI is actively involved in extending seed capital to startups and small businesses. Seed capital is the initial funding required to establish and develop a new business or innovative project. SIDBI supports entrepreneurial initiatives by offering seed capital in the form of equity or debt financing to help SMEs get off the ground.

This financial support is essential for early-stage ventures to cover expenses like product development, market research, and initial operations. Seed capital is often provided through various SIDBI programs and schemes aimed at promoting innovation and entrepreneurship.

B. Discounting of Bills:

The discounting of bills is a financial service offered by SIDBI to SMEs. Bill discounting, also known as invoice discounting, is a method by which a company can receive immediate cash flow by selling its outstanding invoices (bills) to a financial institution or bank at a discounted rate.

SIDBI facilitates bill discounting for SMEs, helping them improve their liquidity and maintain a healthy working capital position. This service is particularly valuable for SMEs that may face challenges in receiving timely payments from their customers, as it allows them to convert their accounts receivables into immediate cash, thereby supporting their operational and financial needs.

C. Providing Factoring Services:

Factoring is a financial service that involves the purchase of a company’s accounts receivables (invoices) by a factoring company or financial institution at a discount. SIDBI provides factoring services to SMEs, helping them manage their cash flow effectively and reduce credit risk.

Factoring services enable SMEs to receive immediate cash for their outstanding invoices, ensuring that they have the resources needed to meet their financial obligations and continue their business operations. Additionally, factoring can assist SMEs in minimizing the impact of bad debt and credit defaults, as the risk is transferred to the factoring company.

D. All of the Above:

The correct answer, D. All of the above, is accurate because SIDBI indeed performs all of these functions. SIDBI is dedicated to the growth and development of small and medium-sized enterprises in India, and it offers a wide range of financial and non-financial services to support their needs.

The extension of seed capital, discounting of bills, and providing factoring services are integral components of SIDBI’s efforts to empower SMEs and foster entrepreneurship.

In summary, SIDBI is a vital institution in India’s economic landscape, focusing on the growth and development of small and medium-sized enterprises. Its functions include extending seed capital to startups and SMEs, offering bill discounting services to enhance their cash flow, and providing factoring services to manage credit risk and improve liquidity.

These activities collectively contribute to the promotion of entrepreneurship and economic development in India, making “D. All of the above” the correct answer.

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