Economics · Ch 5 — Industrial Sector
Sources of Industrial Finance
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Sources of Industrial Finance
Industry needs two broad categories of finance. Fixed capital is the long-term finance required to acquire land, buildings, plant, and machinery before production can begin at all. Working capital is the short-term finance required to run day-to-day operations — purchasing raw materials, paying wages, and carrying stocks and receivables until sales revenue is realised. The appropriate source of finance differs by purpose and by duration.
| Source | Nature | Typical use / example |
|---|---|---|
| Owned funds | Equity share capital, retained earnings (ploughed-back profit) | Long-term, no fixed repayment obligation |
| Preference shares and debentures | Capital market instruments | Long-term, fixed dividend or interest obligation |
| Term-lending institutions | Development finance institutions providing long-term project loans | Historically IFCI, ICICI, IDBI at the all-India level; State Financial Corporations such as the Andhra Pradesh State Financial Corporation (APSFC) at the state level |
| SIDBI | Specialised institution for MSME finance | Term loans and refinance for small-scale units |
| Commercial banks | Deposit-taking institutions | Mainly working capital finance; also project finance |
| Public deposits | Deposits invited directly from the public by companies | Medium-term finance |
| Trade credit | Credit extended by suppliers | Short-term, informal working capital |
| Venture capital / NBFCs | Risk capital and non-bank finance | Newer, growing sources, particularly for start-ups and MSMEs |