State Financial Corporations (SFCs)

While SIDBI works at the national level, every state needs a financing body of its own for small and medium industry. This role is played by the State Financial Corporations (SFCs).

The SFCs were set up by the State Governments under the State Financial Corporations Act, 1951, a central law that allowed each state to establish its own corporation. Their main purpose is to provide long-term and medium-term finance to small and medium enterprises within the state — the size of unit that is often too small for the all-India financial institutions but too large or too long-term for ordinary short-term lending.

Main functions of the State Financial Corporations:

1. Term loans. Granting medium- and long-term loans (repayable over several years) to small and medium industrial units for buying land, constructing buildings, and purchasing plant and machinery.
2. Underwriting and subscribing to the shares and debentures of industrial concerns, thereby helping them raise capital.
3. Guaranteeing loans raised by small and medium units from other sources.
4. Special encouragement to priority groups — extending help on easier terms to units set up in backward areas and by first-generation entrepreneurs, women, and technically qualified persons, to spread industry more evenly across the state.

Because they operate within a state, SFCs are close to the local entrepreneur and understand local conditions better than an all-India body can. They therefore form the backbone of term-lending to the small and medium sector at the state level.