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Venture Capital Funds for Backward Classes

Venture Capital Funds for Backward Classes

Venture Capital Funds for Backward Classes

The  Government of India under the Ministry of Social Justice and Empowerment has initiated the Venture Capital Funds scheme to promote entrepreneurship and to provide financial assistance for the Backward Class (BC) entrepreneurs. The Industrial Finance Corporation of India will act as Sponsor, Settler and Asset Management Company (AMC) or Nodal Agency to implement the scheme. Under this scheme, assistance up to Rs.5 crores for a period up to 8 years will be provided to Backward class entrepreneurs. In this article, we look at the Venture Capital Funds for Backward class entrepreneurs in detail.

To know about Venture Capital Funds for Scheduled Caste

Objectives of the Scheme

The objectives of the Venture Capital Fund scheme for BC are mentioned below:

  • It is a social initiative to be performed to promote entrepreneurship amongst the Backward class who are determined towards innovation and growth technologies.
  • To provide financial assistance to the BC entrepreneurs, who will build wealth and value for society and promote profitable businesses.
  • The assets so provided will produce forward or backward linkage. It will further make a chain effect in the locality.
  • To increase the financial structure for BC entrepreneurs and to motivate them for further growth of BC communities economically.
  • To provide direct and indirect employment generation opportunities for the Backward Class (BC) communities in India.

Eligibility Criteria

The eligibility criteria for the entrepreneurs to avail assistance under the scheme are as follows:

  • The units or projects being set up in the manufacturing and services sector ensuring asset creation out of the funds deployed in the group is eligible for the scheme.
  • While choosing the entrepreneurs, women and disabled Backward Class (BC) entrepreneurs are preferred.
  • The companies were applying for the assistance of below Rs.50 lakhs, should hold 51% stake holdings by BC entrepreneurs for the past 6 months before requesting assistance under the scheme.
  • For companies applying for the assistance of above Rs.50 Crore, should hold 51% stake holdings by BC entrepreneurs for the past 12 months before requesting assistance under the scheme.
  • Proofs of being Backward Class (Caste Certificate) will have to be enclosed by the entrepreneur at the time of submitting the proposal.

Quantum of Assistance

The minimum quantum of assistance under the venture capital scheme for BC will be of Rs.20 lakhs and the maximum quantum of assistance will be Rs.50 crore per entrepreneur.

Note: The maximum aggregate assistance should not be more than 2 times of the current net worth of the company.

Repayment Period

The maximum repayment period for the entrepreneur loan is 8 years, including a moratorium for first-time assistance, and the repayment can be made in equated monthly instalments (EMI).

Instruments for Investment

Equity, optionally convertible preference shares, compulsorily convertible preference shares, compulsory debentures, non-convertible debentures, etc. are the instruments required for investments.

Funding Pattern

Investment under the fund will be classified as follows:

Financial assistance up to Rs.1 Crore: Investment under these criteria will be funded maximum up to 75% of the project cost, and the remaining 25% of the project cost has to be contributed by the promoters.

Financial assistance above Rs.1 Crore: Investment under these criteria will be funded maximum up to 50% of the project cost. At least 25% of the estimated project cost has to be financed by the bank or other institutions. And the remaining 25% of the project cost has to be contributed by the promoters.

Note: Proposals forwarded by Banks or other institutions with the sanction of 25% of the total project. In this case, the approved project report will have to be enclosed compulsorily.

Moratorium Period

The moratorium period will be for 36 months from the date of investment in the company. However, the coupon payment or interest would commence from the date of investment in the company at a regular interval as identified by the Investment Committee of the fund.

Rate of Interest

The rate of interest for financial assistance to entrepreneurs are given below:

ParticularsRate of Interest
Equity instruments15% per annum
Debt or Convertible Instruments8% per annum

Note:

  • For disabled or women entrepreneurs, the interest will be at the rate of 7.75% per annum.
  • For companies owned by a BC Women entrepreneur, should hold at least 51% of the share in the company and must be a managing director of the company.
  • In the case of disabled entrepreneurs, the guidelines issued by the Department of Empowerment of persons with disabilities for qualifying as disabled will be followed.

Security

  • The assets of the project being assisted or funded under the scheme shall be charged for security. The project assets including the building, land, plant & machinery and rights on patents or licenses
  • In the case of the companies applying for the assistance of more than Rs.5 Crore, Pari-pasu charge on assets with the Financial Institutions (FIs) or Banks is required.
  • 2nd charge of the assets formed out of the investment was the 1st charge is held by the Financial Institutions (FIs) or Banks.
  • In addition to the charge on post-dated cheques, assets and promissory notes will be accepted.
  • The promoters personal guarantees of the along with buyback agreement is required.
  • The Pledge of Shares owned by promoters and forming at least 26% stake and up to 51% of the Issued and Paid-up capital will be accepted. However, the percentage of pledged shares could be determined from time to time.
  • In the case of mortgage is not available, the borrower can arrange for collateral and corporate guarantees from the friends, family, associates and group companies.

Documents Required

The specified documents to be submitted along with the application form are as follows.

  • MOA and AOA of the company.
  • Caste Certificate (Backward Class) of the Promoters.
  • KYC documents such as three years’ IT returns of the company (including promoters PAN card, Address proof, two Passport Photographs etc.).
  • Certified Shareholding Pattern of the Company.
  • Chartered Accountant certified the Net worth statement of promoters.
  • Latest Sanction letter of the current banker, if any.
  • Quarterly results post last available annual report.
  • Copy of due diligence report of the banker, if any.
  • Copy of last three years Annual Report of the company.
  • Any other documents, if required at the time of proposal submission.

Application Procedure for Venture Capital Assistance

The eligible applicant who wants to apply for the venture capital assistance has to approach the Venture Capital Funds Limited and collect the application form from the bank. Complete the application with the mandatory details, attach the required documents and submit to the same organization.

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