Addressing Capital Constraints Utilizing SPVs Created Under GOI's Enterprise Cluster Initiatives

Like any other enterprise, microenterprises, too require risk capital. While equity is the foremost form of risk capital, and could come from internal or external sources, microenterprises face severe constraints in accessing it. Credit guarantee schemes address the need for risk capital partially as these facilitate the flow of loan funds into microenterprises. However, by their nature, guarantees are invoked in cases of default and are not useful in making good cashflow short falls which microenterprises experience, leading to difficulties in paying back installments regularly. As a result, microenterprises remain constrained for funds and are unable to adopt modern technologies and practices. It is here that the government support for cluster development can be leveraged. The support for creation of SPVs and CFCs represents government’s equity in the enterprise clusters and can potentially address the lack of risk capital. Moreover, this can also be used to attract more equity for the SPV from institutional sources in the private and public sectors.