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Problems and Prospects of State Financial Corporation of India

>> May 21, 2010

In finance, for providing short term and long loan to the industry, Industrial Corporation of India (IFCI) was established under IFCI Act 1948. But, this central financial institute was not fulfilling the all need of different state’s local industry. So, govt. of India passed State Financial Corporation bill in 1951 and State Financial Corporation of India (SFCI) came into the existence as Govt. body.

Now after passing the bill, every state government has power to make state financial corporation by getting the money from public by issuing shares and bonds. It can utilize this money for providing loans to local industry. Before explaining its problems and prospects, we wants to tell you that 18 states governments have established state financial corporation under the rules and regulation of SFCI Act 1951. Now we are explaining problems and prospects of it:

Problems of State Financial Corporations

1. No Independent Organization

All SFCs are dependent upon the state government rules and regulations. SFCI Act 1951 is showed just in books. But SFCs’ problem is that these institutions all decision are dependent on political environment of state. Due to this, loan is not available on the time for right person.

2. Corruption

Like other government office in India, we can also find the evil of corruption in state financial corporation. Hoarding of wealth and money, SFCs’ officer aim has become to earn by good or bad way. That is the main problem that these institutions have no transparency like banks.

3. Effect of World Bank and WTO Policies

All most all SFCs in India are tie up with World Bank and WTO agreement. Due to this, these institutions’ decisions are affected with World Bank and WTO policies. World Bank can easily give pressure for accepting his policies. It may also affect Indian small scale industry adversely.

4. Low Return from Investment in Small scale Industry

It is said that state financial corporation has given 70% loan to small scale industry. So, its return on investment is very low on loan to SSI.

5. Long Gestation Period

SFCs have also one problem, which we can say in the form of long gestation period. Small scale businessmen do not repay their loan on the time and large number of loan has been converted into bad debt. So, SFCs are suffering losses from many years.

Prospects of State Financial Corporations

1. Special Help to Women Entrepreneurs

Many state financial corporations like Delhi SFC have state new scheme for helping women who want to open their new business in India. This is good prospect of State financial corporation for development of women.

2. Highest loan provider for small scale industry

It is also achievement of SFCs that these institutions have provided more than Rs. 6300 crore to small scale industry in 2010.

3. Industrial research

Since establishing SFCI in 1951, SFCs are working 59 years in India. So, these financial institutions have huge industrial information and these institutions are also busy for collecting industrial information. A new businessman can start their industrial research by contacting these institutions if he wants to open a new business.

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