Highlights

VENTURE CAPITAL: To promote investments in agri-business projects with the participation of banks

a. Equity participation in agri-projects upto 10% of the total project cost, or 26% of the total project equity or Rs.75 lakhs whichever is lower.

b. In special cases, higher equity possible for Projects located in hilly and North Eastern States and in Projects recommended by State agencies/ State SFACs.

Project Development Facility(PDF) :

To provide financial assistance to farmers, Producer Groups, Agripreneurs, Units in Agri-Export .Zones, Organizations and Agriculture graduates forthe preparation of bankable Detailed Project Reports (DPR).

Eligibility Criteria for funding

a. Project should be in agriculture or allied sector namely horticulture, floriculture, medicinal and aromatic plants, minor forest produce, sericulture, organic farming, vermi compost, apiculture, plantation crops and fisheries. However, poultry and dairy projects will not be covered under the scheme.

b.Project should provide assured market to farmers/ producer groups.

c. Project should encourage farmers to diversify into high value crops, to increase farm incomes.

d.Project should be accepted by banks for grant of term loan.

Farming is the single largest private sector economic activity in the country. The growth potential in this key sector is immense in view of the changes taking place in food consumption and there is growing demand for high value processed products. Successes in such endeavours will require innovations and partnerships. Private agribusinesses provide first point market for the farm sector and growth depends principally on private initiatives. A significant portion of agribusiness activity is the result of small and medium enterprises. Such enterprises are necessarily widespread in location to capture opportunities that arise all along the farm to table supply chain. Key constraints that impede development of new agribusiness projects are access to information and access to credit. Agribusiness entrepreneurs are generally first generation who have business skills but their financial resources are limited. In order to facilitate agribusiness development in the country SFAC venture capital scheme will:
1. Assist agripreneurs to make investments in setting up agribusiness projects through equity participation, and
2.Provide financial support for preparation of bankable. Detailed Project Reports (DPR) through a Project Development Facility (PDF).

2. Objectives:

1. To facilitate setting up of agribusiness ventures in close association with banks.
2. To catalyse private investment in setting up of agribusiness projects and thereby providing assured market to producers for increasing rural income & employment.
3. To strengthen backward linkages of agribusiness projects with producers..
4. To assist farmers, producer groups, and agriculture graduates to enhance their participation in value chain through Project Development Facility.
5. To arrange training and visits, etc. of agripreneurs setting up identified agribusiness projects.

A. Venture Capital Assistance

SFAC would provide equity to qualifying projects on the recommendations of the bank financing the project. This equity capital will be repayable back to SFAC after the project has repaid the term loan of the financing bank. SFAC would provide financial assistance to agri-business projects by way of equity participation on the fulfilment of the following conditions.

1. Qualifying projects under Venture Capital

ii) Project should provide assured market to farmers / producer groups.

iii) Project should encourage farmers to diversify into high value crops, to increase farm incomes.

iv) Project should be accepted by banks for grant of term loan.

1. The quantum of SFAC venture capital assistance will depend on the project cost and will be the lowest of the following: -

•  10% of the total project cost assessed by the bank

•  26% of the project equity

•  Rs. 75.00 lakhs.

1. Higher venture capital assistance can be considered by SFAC to deserving projects on merit and / or to project that are located in remote and backward areas, North-eastern and hilly States and projects recommended by State agencies.
2. Beneficiary will submit the project proposal in the form DPR to area lending bank.
3. On receipt of project proposal, bank will apprise, assess and sanction requisite amount of term loan /working capital required by the beneficiary for execution of the project..
4. Bank will also workout the amount of Venture Capital, as per criteria laid down at para 3 (a, b, & c) and communicate it to SFAC with its recommendation.
5. SFAC will make said amount available to the recommending bank on case to case basis for disbursement to the beneficiary either in lump sum or in stages, as may be considered appropriate by the bank.
6. Term Loan / working capital and equity amount from SFAC as Venture Capital assistance will be extended to the beneficiary through a single-window of the project financing bank.
7. Financial assistance from SFAC would be in the nature of equity, till the banks term loan is fully repaid by the project and would automatically be converted into a term loan on the last date of such repayment.
8. The venture capital after it becomes term loan could be repaid to SFAC in lump sum or in four quarterly instalments with the amount of interest at the same rate as the term loan.
9. During the pendency of loan, the bank will be having charge over the primary / collateral securities available with the beneficiary. After repayment of bank term loan, available securities will be automatically charged to the SFAC for recovery of its Venture Capital.
10. The bank will provide SFAC with full details of the terms and conditions under which the term loan is sanctioned including repayment schedule fixed for the loan.
11. The bank will also keep SFAC posted of the progress in implementation of the project and repayment of its term loan from time to time and its performance on yearly basis after the project becomes operational.
12. The funds received from SFAC will be kept in a separate account by the bank and released to promoters for the project implementation, as and when required.

B. Project Development Facility

•  SFAC will provide financial support to farmers, Producer Groups. Agripreneurs. Units in Agri-Export Zones, and Agriculture gradates (called beneficiary) in the preparation of bankable Detailed Project Reports (DPR) through empanelled consultants / institutions. SFAC will provide for the cost of preparation of DPR upto a ceiling of Rs. 5.00 lakhs depending upon size, location, activity and coverage on a case basis.

•  The beneficiary desirous of seeking assistance for preparation of DPR can approach nearest branch of the commercial bank along with the details / pre-feasibility of the proposed project for the recommendation of the bank.

•  The bank on being satisfied about the feasibility of the intending project will recommend it to SFAC for providing financial assistance for the preparation of DPR. Intending projects must be over RS. 50 lakhs (Rs. 25 lakhs in case of NE states and other hilly areas) in size.

•  Based on the activity and location of the project, SFAC will entrust preparation of DPR to one of the consultants on its panel.

•  SFAC will release cost of DPR preparation to the area Lending Bank with an intimation to the consultant.

•  Bank will release 25% of cost to empanelled consultant at the first stage, 50% on receipt of DPR and 25% within fortnight of receipt of DPR after having satisfied itself about the quality of DPR. Consultant will submit three copies of DPR, one each for beneficiary, bank and SFAC.

•  The DPR received from SFAC or directly from the consultant will be examined in detail by the lending bank for sanction of term loan and release of venture capital. A copy of the term loan sanction advice to the borrower will also be addressed to SFAC for its record.

•  PDF will also provide financial assistance to State SFACs for undertaking promotional activities for agribusiness development PDF will also arrange training and visits etc., of the entrepreneurs setting up the identified Agri-business projects.

•  SFAC's Project Development Facility will engage the services of National institute of Agricultural Marketing (NIAM), Jaipur; National Institute of Agricultural Extension Management (MNAGE), Hyderabad; Industry Associations such as CII, FICCI, ASSOCHAM, PHD, State SFACs, SAUs and others to vigorously publicize the benefits of the Venture Capital Assistance Scheme to prospective entrepreneurs and producer organizations.

Eligible Persons

Assistance under the scheme will be available to Individuals, Farmers, Producer Groups, Partnership / Proprietary firms, Self help groups, Companies, agripreneurs, units in agri-export zones, and Agriculture graduates Individually or in groups.

For professional management and accountability the groups have to preferably form into companies or producer companies under the relevant act.

5. Role of Central SFAC
•  On receipt of Proposal from bank indicating sanction of term loan and requirement of VCA, SFAC will submit the proposal to its investment committee for approval after field visit and satisfying itself about the viability and linkages with farmers etc.
•  SFAC after seeking approval of its investment committee and sanction by its Managing Director will release VCS to the bank.
•  SFAC will seek approval of its executive Committee in cases where higher Venture Capital Assistance is proposed to be considered.
•  SFAC's Project Development Facility will investigate such proposals, which may include site visits, referred by bank needing clarification to determine if projects are qualifying or not and report to Bank within 30 days of receipt of reference.
•  In case SFAC receives proposals of PDF & VCA directly from intending groups, these will be directed to nodal officers of concerned bank.
•  Central SFAC will strengthen the State SFACs and assist them in undertaking promotional activities, campaigns, printing of guidelines in local language, identification of qualifying projects and in organising producer groups.
•  SFAC will have Memorandum of Understanding with all participating lending banks as per Indian Bank Association approved model, (Annexure II).
•  SFAC will have a separate agreement with the applicant for facilitating the recovery of its equity amount extended under Venture Capital assistance. (Annexure III)

6. Role of State SFACs
•  As extended arms, State SFACs as federal unit have been established in 17 States to aggressively promote agribusiness project development in their respective States. (Annexure IV)

•  State SFACs in consultation with Central SFAC will prepare a plan for agri-business project development in their respective States.

•  State SFACs after due diligence and ascertaining the backward linkages as per the objectives will recommend agri-business projects to Central SFAC for equity participation.

•  State SFACs with assistance under PDF facility will organize awareness and publicity campaigns, arrange training of entrepreneurs for setting up identified projects, publish guidelines of the scheme in local languages, undertake promotional activities and organize producer groups.

•  Help producer groups in framing pre-feasibility reports and facilitate interaction with local banks for their recommendation.

•  Function as repositories of information maintaining a data base of potential areas, producer groups and marketable surplus of various crops available.

•  Provide venture capital to small projects out of interest earned on the Corpus fund and refer large projects to Central SFAC .

•  As a Member of SLBC, raise the issues concerning agribusiness project development in their respective States during the SLBC meetings.

•  Monitor the projects through their implementation stage and developments / deficiencies will be reported to Central SFAC for initiating remedial action.

7. Role of Agripreneurs
For the success of the Venture, the agribusiness projects should be grounded within a predetermined time schedule as fixed in the sanction of term loan.

•  For the release of Venture Capital, agripreneurs will have to enter into a agreement with SFAC for the purpose of refund of equity fund and also transfer of charge on securities which would take place after the repayment of the term loan to the financing bank.

•  Agripreneurs will submit implementation schedule of the Project to SFAC and participating bank which will be closely monitored by SFAC.

•  Deviation, if any, in the implementation schedule should be immediately notified to the Bank and to SFAC.

•  Agripreneurs will submit utilization certificate of Venture Capital assistance in GER 19 A duly certified by Chartered Accountant to SFAC and the participating bank, at the end of each financial year. (AnnexureV)

•  Agripreneurs will submit yearly physicl progress reports, audited accounts and balance sheet to SFAC and the participating banks.

8. Eligible Financing Institutions  

Nationalized Banks, SBI & its subsidiaries and other commercial banks  

9. Monitoring and Reporting

With a view to minimize paper work and ensure that SFAC is provided with all the relevant details of individual projects financial by the bank with Venture Capital support provided by SFAC, units assisted for preparation of DPR, and also progress in project implementation from time to time, the following reporting schedule will be observed.

•  Report on utilization of venture capital assistance (VCA) / project development facility (PDF)

The Bank will submit a report on the working of the units financial by them in respect of VCA out of the funds received from SFAC. A report on progress in project implementation vis a vis utilization of equity amount already given to the party through bank under VCA would also be sent to SFAC.

•  Report on the working of assisted units

The Bank will submit a report on the working of the units financial by them under VCA to SFAC on a half yearly basis indicating whether the operations are in line with the projections and whether the borrowers are adhering to repayment commitments.

1. Reporting of Exceptions

The bank would also keep SFAC informed of any significant developments with regard to operation of the projects, its implementation and unsatisfactory features if any noticed by them. The bank will also keep SFAC informed of any recovery action initiated by them in the event of failure of the unit to perform or inability of the borrowers to meet financial commitments.

1. Project Specific Information

In addition to the above standard reporting by it bank, it would also provide SFAC with project specific information, if any, sought by it from time to time.

1. Field visits
As part of due diligence, before sanction of Venture Capital Assistance, SFAC will undertake field visits to ascertain backward linkages with the farmers, feasibility of the site, availability of raw material etc. SFAC's Officers will undertake field visits independently or in association with the lending bank or State Government / State SFAC to monitor the implementation of the project.

10. Implementation period

The scheme will be implemented during 2005-06 and 2006-07 in the tenth plan with a central assistance of Rs. 48.00 crores.

11. Implementing Agency

The scheme will be implemented by Small Farmers' Agribusiness Consortium (SFAC), a registered society under Department of Agriculture & Cooperation, Ministry of Agriculture.

12. General awareness, publicity and training programme.

Services of National Institute of Agricultural Marketing, (NIAM), Jaipur; National Institute of Agricultural Extension Management (MANAGE), Hyderabad; Industry Associations such as CII, FICCI, ASSOCHAM, PHD, State SFACs, SAUs and others will be engaged under PDF to vigorously publicize the benefits of the Venture Capital Assistance Scheme to prospective entrepreneurs and producer organizations. Services of banking institutions will also be engaged for sensitising the Branch Managers and other functionaries about the scheme.

    a. List of empanelled Consultants under Project development facility of SFAC

    b. Model Format of Memorandum of Understanding

     c. Agreement to be entered in between SFAC and the Borrower