MSMEs have limited access to external equity primarily because only a handful of players provide early stage equity capital. Even if the equity is made available, the uptake would remain low due to:

· Legal Structure of MSMEs prevents infusion of external equity;

· Smaller investment size per enterprise tends to increase transaction cost and management costs for equity investors making this segment relatively less attractive;

· Information asymmetry between promoters, investors and other stakeholders;

· Entrepreneur’s concern regarding control and management;

· Low probability of non-linear return discouraging the Venture Capital ( VC) funding.

Also, current VC ecosystem seeks technology driven enterprises and have exponential exit stipulations. It is also noted that VCs generally offer early stage funding but very few VCs are available to provide growth stage funding. This is one among the primary reasons that MSMEs have not grown beyond a limit. Also, while listing on an exchange provides a lot of benefits to MSMEs and their stakeholders, but MSMEs often shy away from listing due to increased disclosure requirements and compliance burden. Listing can help the MSMEs grow faster and more sustainably over the long term. Setting up an MSME fund in the name of SRI (Self-Reliant India) Fund would squarely address these challenges, give them a thrust to break their barriers, encourage corporatisation and allow them to grow to their full inherent potential. With

Government intervention, the SRI Fund scheme would be able to channelize diverse variety of funds into underserved MSMEs and address the growth needs of viable and high growth MSMEs. 2.

Objectives:

SRI Fund, in the form of Category II Alternative Investment Fund (AIF), will be oriented towards providing funding support to the Daughter Funds for onward provision to MSMEs as growth capital, in the form of equity or quasi-equity, for: i. Enhancing equity/equity like financing to MSMEs and listing of MSMEs on Stock’s Exchanges ii. Supporting faster growth of MSME Businesses and thereby ignite the economy and create employment opportunities; iii. Supporting enterprises which have the potential to graduate beyond the MSME bracket and become National / International Champions; iv. Supporting MSMEs which help making India self-reliant by producing relevant technologies, goods and services.

Tenure of Fund:

· Considering the nature of MSME and difficulties expected in exiting, a longer fund life of 15 years may be kept

· Commitment Period: upto 6 years from the date of last closing .

· The FoF would be a revolving fund as earnings of the fund from investments made in AIFs would be re-invested.