National Equity fund scheme


The Agriculture Directorate set up under the Directorate General Resettlement, Ministry of Defence is responsible to promote agricultural and industrial activities for the resettlement of the retired Defence personnel, war-widows, widows of ex-Servicemen and disabled Service personnel. The prospective ex-Servicemen entrepreneurs intending to set up manufacturing and service sector activities in urban areas, are advised to avail financial assistance under the National Equity Fund (NEF) Scheme. The upper ceiling of loan under the Scheme is Rs.50 lakh per project. The maximum soft loan assistance is provided upto Rs.10 lakh per project. A Credit Guarantee Fund Trust for Small Industries (CGTSI) has also been formulated to minimise the risk of lending institutions in respect of collateral or third party guarantee. To encourage ex-Servicemen entrepreneurs, the DGR, Ministry of Defence has created a fund to provide price subsidy on first-cum first-serve basis. The details on these Schemes are given in the following lines:


The objective of NEF Scheme is to provide equity type support to entrepreneurs for setting up new projects in tiny/small scale sector, for undertaking expansion, modernisation, technology upgradation and diversification by existing tiny, SSI and service enterprises and for rehabilitation of viable sick units in the SSI sector which fulfil the specified eligibility criteria, irrespective of location. Assistance from NEF helps the small-scale units in strengthening their equity base and thereby improving their acceptability for term financing by primary lending institutions (PLIs)

Eligible institutions

State Financial Corporations, Twin-function Industrial Development Corporations, Scheduled Commercial Banks and select Urban and State Co-operative Banks.

Eligibility criteria

  1. New projects in the tiny and small scale sectors for manufacture, preservation or processing of goods.
  2. Existing tiny and small scale industrial units, including those which have availed of NEF assistance earlier, undertaking expansion / modernisation / technology upgradation/diversification etc.
  3. All new and existing service enterprises, including those which have availed of NEF assistance earlier (except Road Transport Operators).
  4. Sick units in the tiny and small scale sectors including service enterprises which are considered potentially viable. The rehabilitation proposal should conform to the norms prescribed under SIDBI's Refinance Scheme for Rehabilitation of Sick Industrial Units.
  5. Projects which avail of any margin money or seed / special capital assistance under the schemes of Central or State Government, State Financial Corporations and other State-level institutions or banks (except Central/State Investment Subsidy which may be retained for meeting working capital requirements) will not be eligible for assistance.
  6. Availment of refinance in respect of term loan for the project by SIDBI is a pre-requisite for extending equity type assistance under the Scheme

Project cost

Project cost (including margin money for working capital ) should not exceed Rs.50 lakh in the case of new projects. In the case of existing units and service enterprises, the total outlay, including the proposed outlay on expansion / modernisation / technology upgradation / diversification or rehabilitation should not exceed Rs. 50 lakh.

Debt equity ratio:

65:35 or 1.857 : 1 (excluding State Investment Subsidy). However, a flexible approach may be followed in case of rehabilitation proposals.

Promoter's contribution

Minimum 10% of project cost.

Nature of assistance

Equity type of assistance in the form of soft loan.

Terms of assistance.

    Soft Loan Assistance: Soft loan assistance is available upto 25 % of the project cost subject to a maximum of Rs.10 lakh per project.

    Rate of Interest: The rate of interest to be charged by banks/SFCs to ultimate ex-Servicemen borrowers for various project, will be as per RBI guidelines. (present rate being 15.5 % per project)

    Service Charge: The service charge of 5 % p.a. will be charged on the soft loan component. Of which, while PLIs would continue to retain service charge of 1% p.a., remaining 4% p.a. should be passed on to SIDBI.

    Repayment Period: 7 years (including moratorium upto 3 years) for the soft loan; the repayment period thereof should, however, be co-terminus with the repayment period of normal term loan for the project. Whenever borrowers are making repayments/prepayments of term loan alone, the PLIs may insist on repayment of soft loan and where-ever soft loan repayments are not received, the repayments/prepayments so received may be proportionately adjusted by the PLIs towards term loan and soft loan; payments to SIDBI may correspondingly be made.

    Security: No security (including collateral) is to be insisted upon for the soft loan.

Other terms and conditions.

  1. The total fund ` requirement of project in the form of equity assistance under NEF, term loan and working capital is to be provided by a single agency.
  2. The projects covered under the Single Window Scheme (SWS) can also be extended assistance under NEF Scheme if it satisfies the eligibility criteria under both the schemes. NEF assistance in such cases would be restricted to 25% of the cost of fixed assets (project cost less margin money for working capital).
  3. Credit risk in respect of loan assistance out of NEF is shared equally by GoI and SIDBI.
  4. In the cases of loan proposals where the eligible PLIs are satisfied of the eligibility and need to provide NEF support, they may make necessary provision in this regard ever by redrawing the financing pattern so as to provide the required component of equity support out of NEF to all deserving small scale units.
  5. Like any other interest/charge, service charge has to be recovered from the borrowers by the eligible PLIs and retained by them. PLIs are not to dispense with recovery proceedings on account of absence of charge on assets etc. and take similar steps for recovery of NEF as in the case of recovery of term loans. The legal expenses incurred for recovery of arrears of NEF assistance will be fully borne by SIDBI. All other terms and conditions applicable to term loan in this regard are applicable mutatis mutandis to NEF assistance.
  6. In the event of default in the repayment of installments of the soft loan or service charge, or any postponement thereof allowed by SIDBI/Bank/Corporation, such installment(s) and arrears of service charges, unless otherwise agreed to by SIDBI, shall carry interest at a rate which shall not exceed the rate of interest applicable to normal loans lent and advanced by SIDBI at the time of such default or postponement (present rate being 15.5% p.a.)
  7. The revised NEF Scheme will be applicable in respect of loans sanctioned by Primary Lending Institutions on or after December 21, 2000.

Procedure for availing of the assistance.

  1. A separate application is to be submitted for seeking assistance under the NEF Scheme. Entrepreneurs while applying for term loan assistance from the above said eligible institutions can indicate the amount of NEF assistance in their financing plan.
  2. Eligible applicants will submit five copies of application, duly completed to Zila Sainik Board (ZSBs), along with the project report.
  3. ZSB will retain four copies of the application and return one copy to the applicant duly endorsed.
  4. ZSB will forward one copy to Rajya Sainik Board (RSB) and three copies of the application form along with the project report to the concerned branch of the banks/SFCs, for the sanction of loan. A copy of the letter should also be forwarded by ZSBs to SIDBI and the District Lead Bank Officer, for information and necessary action. One copy of the application form duly receipted, will be returned by the bank/SFC, to the ZSB for their record. The ex-servicemen borrowers, will be intimated by the Secretary, ZSB about the sanction of loans.

Eligible project.

  1. Cottage, Tiny and SSI units: (1) Handicrafts (2) Village Industries (3)Leather Industries (4) Pottery (5) Paper Products (6) Printing book binding (7)Lithography (8)Rubber goods and related products (9) Construction/building material (10)Chemicals/chemical products (11) Petro chemical (plastic) products (12)General engineering items (13) Electronics/automobile engineering (14) Sports goods. (15) Stationery items (16) Agro industries (17) Food processing (formulation) (18) Tailoring and readymade garments (19) Sericulture (20) Coir mats, coir fibres, coir ropes (21) Activities based on tribal/forest areas, etc.
  2. Service Sector Activities: (1) Hotel Industry (2) Hospital, Nursing Home, Clinic, Diagnostic Centre (3) Operating EPABX under franchise (4) Maintenance, repair, testing or servicing of machinery of equipment of any description or vehicle of vessels or motor boats or trailers of tractors (5) Assembling, repairing or repacking any article with the aid of machinery of power (6) Providing engineering, technical, financial, managerial, marketing or other services of facilities for industry (7) Providing special or technical knowledge or other services for the promotion of industrial growth (8) Service industry such as altering, ornamenting, polishing, fishing, oiling, washing, cleaning or otherwise treating or adapting any article or substance with a view of its use, sale, transport, delivery or disposal (9) Providing services relating to information technology, telecommunication or electronics (10) Analytical and testing services-laboratories providing analytical and testing services to industrial units and having a direct bearing on the productivity of small scale industrial units (11) Laundry, provided instead of mere washing and ironing of clothes, dying and bleaching thereof are also provided (12) Dry cleaning by power launders (13) Poultry, provided production of chicken meat is also provided (14) Repairs, maintenance, testing or servicing of consumer durables falling within the category of machinery like television, air conditioner, etc., i.e. other than repairs and service of items like cooker etc (15) Drilling of borewell (16) Gas refilling (17) Tourism linked activities as getting up restaurants, tourists service agencies etc (18) Xeroxing/photocopying lamination (19) Providing telex/telecommunication facilities (20) Providing computerisation facilities (excluding those meant exclusively for training (21) Stone crushing (22) Cleaning of crude oil/chemical storage tanks (23) Photo studios engaged in processing of films, video recording studios for recording of videotapes/cassettes (24) Floriculture (25) Hair cutting saloon (26) Beauty Parlours (27) Cultivation of Capsicum/Mushroom under controlled conditions (28) Setting up of Creches (29) Tea Stalls and Mobile Cafeterias (30) Aquaculture project envisaging farming of Shrimpos, Prawns, etc (31) Setting up of E-mail service centre under franchise (32) Growing Strawberry in controlled environment (33) Publication or publishing units (34) Installation and operation of cable TV networks (35) Provision of safety lockers (36) Setting up of healthy club/gymnasium (37) Providing internet service (38) Hiring out heavy material handling equipment, cranes earth moving equipment and other similar equipment.(39) E-commerce, cyber information services (40) Tyre retreading & Coffee curing/processing activities.
    (Note: The list is only illustrative and not exhaustive.)


Availability of bank credit without the hassles of collaterals/third party guarantees would be a major source of support to the first generation entrepreneurs to realise their dream of setting up a unit of their own in the Small Scale Industries (SSI) sector. Hon'ble Union Finance Minister, in his budget speech for 1999-2000, had indicated, ' Inability to provide adequate security to banks and low recovery are often cited as a major constraint in flow of investment credit to SSI units. The problem is more acute for export oriented and tiny sector enterprises. To alleviate this problem, a new credit insurance scheme will be launched.' As a follow up measure, Ministry of SSI and ARI in consultation with Small Industries Development Bank of India (SIDBI) formulated a Credit Guarantee Fund Scheme for Small Industries (CGFSI) for guaranteeing the loans and advances up to Rs. 25 lakh extended by Scheduled Commercial Banks and select Regional Rural Banks (RRBs), without collaterals and/or third party guarantees, to small scale industrial units including those engaged in IT/software industry. To operationalise the guarantee scheme, Credit Guarantee Fund Trust For Small Industries (CGTSI) has been set up by GOI and SIDBI.

Credit Guarantee

Any collateral free credit facility (both term loan as well as working capital) extended by eligible institutions, on or after June 1, 2000, to new as well as existing manufacturing SSI units, including Information Technology and software industry, particularly in the tiny sector, with a maximum credit cap of Rs. 25,00,000/- (Rupees twenty five lakh only) per borrowing unit will be extended guarantee cover with a maximum guarantee cap of Rs. 18,75,000/- (Rupees eighteen lakh seventy five thousand only). The lender should cover the eligible credit facilities within 90 days from the date of sanction of credit facility. Guarantee will commence from the date of payment of guarantee fee and shall run through the agreed tenure of the term credit in case of term loans/composite loans and for a period of 5 years where working capital facilities alone are extended to borrowers, or for such period as may be specified by the CGTSI in this behalf.

Eligible Institutions

The scheme is confined to guaranteeing of loans extended by all scheduled commercial banks, select Regional Rural Banks and any other institutions as may be specified by GOI from time to time.

Eligible Borrowers

New as well as existing manufacturing SSI units including IT and software industry, to which credit facility (term loan as well as working capital) has been provided by eligible institutions without any collateral security including third party guarantee. The borrower should avail of the credit facility from single eligible institution only.

Eligible Activities

The Trust shall cover credit facilities extended by eligible lending institution(s) by way of term loan and/or working capital facilities to the small scale industrial units, including IT and software industries, without any collateral security and/or third party guarantees. In respect of a single eligible borrower the credit facility not exceeding Rs.25 lakh shall be eligible for coverage under the scheme. In such cases where the credit facility is exceeding Rs.25 lakh, guarantee cover will be available up to Rs. 25 lakh with maximum guarantee cap of Rs.18.75 lakh (i.e. 75% of the maximum credit facility of Rs.25 lakh only). In all such, cases entire credit facility will have to be extended without any collateral security/third party guarantee.

Maximum Risk Cover

The Trust will provide guarantee cover up to 75% of the amount in default of the credit facility extended by the lending institution to an eligible borrower, subject to a maximum cover of Rs. 18.75 lakh (Rupees eighteen lakh seventy five thousand only) per borrower. For this purpose the amount in default will be reckoned as the principal amount outstanding in the account(s) of the borrower in respect of term loan and amount of outstanding working capital facilities (including interest), subject to a maximum of fund based working capital limit sanctioned as on the date of the account becoming NPA, or such of the date as may be specified by the Trust, for preferring any claim on the Trust against the guarantee cover.

Rehabilitation Assistance

The eligible borrower unit which has been covered under the scheme and subsequently becomes sick due to factors beyond the control of management, the assistance/credit for rehabilitation extended by the lender could also be covered under the scheme for such extended period of guarantee and on such terms as may be decided by the Trust.


The loan covered under the guarantee scheme shall be secured only by primary security. For this purpose primary security will be defined as the assets created out of the credit facility so extended and/or which are directly associated with the project or business for which the credit facility has been extended. Any facility extended against collateral facility/ third party guarantee shall be disqualified for coverage under the scheme. CGTSI also reserves the right to reject any application for the guarantee cover, if it deems so.

Guarantee Fee

One time guarantee fee @ 2.5 % of the credit facilities sanctioned shall be paid upfront to CGTSI by the eligible institutions (lenders) availing of the guarantee cover.

Annual Service Fee

An annual service charge of 1% on the outstanding credit facilities of the borrowal accounts covered under the Scheme as on March 31 of each year shall be paid by the lender on or before May 31 of every year. For example, annual service fee on the outstanding credit facilities as on March 31, 2001, shall be payable by May 31, 2001.

Cost to the borrower

The lender may pass on the incidence of guarantee fee and annual service fee to the borrower. CGTSI reserves the right to revise the guarantee fee/annual service fee from time to time.

Interest Rate Payable by Borrower

The lender shall follow the guidelines issued by RBI. However, interest rate shall not exceed 3 % over and above the PLR (Prime Lending Rate) of the lender, excluding the guarantee/annual service fee.

Claim Settlement

Prior to lender preferring any claim on CGTSI, lock-in-period of 24 months from either the date of the last disbursement of the loan to the borrower or the date of the payment of the guarantee fee in respect of the particular credit facility, whichever is later, shout elapse. The lender shall, however, prefer a claim on the defaulted account, which has become NPA, immediately after recall of loan and initiation of recovery proceedings under the due process of law. CGTSI shall pay 75 % of the amount in default, subject to maximum of 75 % of the guaranteed amount, immediately on preferring of claim by the lender. The balance 25 % of the amount, as the case may be, will be paid on conclusion of recovery proceedings by the lender.

Lender's Responsibilities

The lender shall evaluate the loan applications and conduct the account of the borrowers with normal banking prudence and shall use its business discretion in selecting commercially viable proposals. This includes the bank's duty to closely monitor the account as also to safeguard the primary securities taken in good and enforceable condition. Further the lender should ensure that the claim is filed within the prescribed time limit and that there is no delay to notify the defaults, which result in CGTSI facing a higher claim.The payment of claim by CGTSI under question does not in any way take away the responsibility of the borrower to repay the entire amount of outstanding to the lender. The lender shall exercise all caution and maintain its recourse to the borrower for full amount owed by him and effective action for recovering the amount, including such action as may be suggested by CGTSI.

Appropriation of Residual Recovery

In case of default, the lenders would exercise the right to takeover the assets. However, CGTSI would have the priority in appropriation of sale of assets by the lenders before making the final settlement of the claim. Therefore, the amount realized from the sale of assets (residual recovery) must first be credited in full by the lenders to the CGTSI before finally claiming the remaining 25 % of the default/guaranteed cap amount.

Operational Modalities

The operations of the guarantee scheme are fully computerised using B2B e-business concept so as to offer real time efficient service.


To encourage ex-Servicemen to take up small scale industrial ventures for their resettlement, Directorate General Resettlement, Ministry of Defence, introduced a price subsidy scheme in 1980. Under the Scheme, SSI units run by ex-Servicemen and war widows are provided 10% price subsidy on the value of items purchased by the Ministry of Defence in open tender competition or rate-contractors basis or any other approved method adopted by the purchase organisation, subject to a maximum of Rs. 50,000/- in a financial year.

Eligible SSI units for subsidy:

  1. It should be purely an ex-Servicemen/war widows industrial units owned individually or jointly by ex-Servicemen/war widows or partnership or Private Limited Company where the ex-Servicemen should have minimum 75% share.
  2. It should be small-scale industrial unit registered with the Directorate of Industries of the State/Union Territory concerned for not more than 10 years.
  3. The unit should also be registered with DGR, Ministry of Defence.
  4. Small scale industrial units providing services (as distinct from goods) and similar to para 1 above are also eligible for grant of subsidy.
  5. It should be registered with any one of the following agencies :-

    1. Department of Defence Production and Supplies, MoD, New Delhi.
    2. Ordnance Services Directorate (MGO's Branch), Army Headquarters.

Procedure for availing subsidy

  1. Ex-Servicemen units should send contingent bill in duplicate to Directorate General resettlement (Directorate of Self-Employment), West Block IV, R.K. Puram, New Delhi-110066 along with the following documents:
    1. Photostat copies of registration certificates.
    2. Photostat copy of the supply order of the purchase organisation.
    3. Certificate in duplicate from the purchase organisation, indicating the value of stores supplied, actual price paid and the mode of supply viz. open tender/rate contract/any other approved method.
  2. Claim received in Directorate General Resettlement is first scrutinised. Sanction letter is issued if claim is justified, in the name of CDA(HQ), New Delhi. A copy of the certificate regarding final payment made against the supply order is also enclosed with the sanction letter.
  3. Directorate General Resettlement maintains registers separately for registration of the units desirous of claiming the subsidy. Also register is maintained to record the payment made to the units to ensure that the total value of the supply orders on which subsidy is authorised, does not exceed the overall ceiling of Rs. 1 crore in a financial year. It is also ensured that the total amount of subsidy sanctioned does not exceed Rs. 10 lakhs in a financial year. It is also ensured that no individual unit gets subsidy exceeding Rs. 50,000/- in a financial year and also that 5 years limit prescribed to avail subsidy is adhered to. The claims are sanctioned on first-cum-first serve basis.
  4. The sanction letter issued by Directorate General Resettlement as stated above is acted upon by CDA(HQ), New Delhi.
  5. All payments of subsidy made by CDA(HQ), are intimated to Directorate General Resettlement that will watch the progress against the sanction issued.

Period for availing subsidy

The ex-Servicemen units will be eligible for subsidy for a period of 5 consecutive financial years counting from the date of submission of the first claim, provided that the unit exists within 10 years from the date of its first registration with the Directorate of Industries of the State/Union Territory.

Amount of Subsidy:

  1. The total amount of subsidy disbursed under this scheme in a financial year will not exceed Rs. 10 lakhs. The subsidy will be payable to ex-Servicemen units within the annual ceiling (per financial year) of Rs. 10 lakhs on first-cum-first serve basis, subject to availability of funds. For this purpose, each individual's claim submitted by a unit will be treated as a separate claim by itself and will not be clubbed with earlier pending claims submitted by the same unit.
  2. 13 No ex-Servicemen unit will be allowed to receive a subsidy exceeding Rs. 50,000/- in a financial year. In respect of any claim submitted by a unit within the period of 5 years stipulated as mentioned above, but which could not be disposed of within the financial year of its submission, the subsidy can be granted in the following financial year provided that the claim satisfies all other conditions prescribed for the grant of subsidy.

Submission of claim

For being considered for grant of subsidy, each claim should be submitted within a period of three months from the date of the certificate given by the purchase organisation. If the issue of such a certificate gets delayed for reasons beyond the control of the SSI units, advance intimation in this regard should be given to Directorate General Resettlement.

Budegetary provision

The budget provision is made on year to year basis. The funds will be kept at the disposal of the CDA(HQ), who will make the payments of subsidy on the basis of the sanction letters issued by the Directorate General Resettlement.

SEMFEX-II Scheme for provision of Soft Loan Assistance for Margin Money for Small Road and Water Transport Operators

PROGRESS UNDER THE SCHEMES Since inception and upto 31 Mar 2003 (TABLE - I)
Scheme Case Sanctioned Amount(Rs. Lakh)
SEMFEX- II 5048 2029.00
SEMFEX- III 732 651.40
NEF 17 44.31
Total 5797 3624.71
  1. As you aware, NABARD has been providing Soft Loan Assistance for Margin Money to eligible borrowers under SEMFEX-II for all the schemes under Farm Sector and Non Farm Sector except Small Road and Water Operators (SRWTO) Scheme.
  2. The Directorate General Resettlement, Ministry of Defence, Government of India has requested us to consider extension of Soft Loan Assistance for Margin Money (SLAMM) scheme to borrowers under SEMFEX-II availing loans for purchase of vehicles under SRWTO scheme also. On a review, it has been decided to enlarge the scope of the SLAMM Scheme to the borrowers of SRWTO Scheme under SEMFEX-II, on a very selective basis, subject to the condition that Banks shall avail refinance from NABARD for the financing done for purchase of vehicles and that the margin money assistance shall not exceed 10% of the cost of the vehicles. Details guidelines of the Scheme are given in Annexure.
  3. Further, the Directorate General Resettlement has requested to reduce the service charge of 3% per annum levied in respect of SEMFEX-II borrowers. With due regard to the services rendered by ex-Servicemen in defending the motherland, Banks may consider, at their discretions, reducing/waiving of service charges to be levied under the Scheme.
  4. You may please issue suitable instructions to your Regional/Controlling Offices/ branches for implementation of the Scheme.