Small & Medium Enterprises Sector contribute about 40% of total manufacturing and 34% of total exports and is crucial to India's economic growth, employment generation and entrepreneurial development. A Policy Package for Stepping up Credit to Small and Medium Enterprises was announced in the Parliament on August 10, 2005 in order to achieve a minimum 20% year-on-year growth in credit to the SME Sector by the Public Sector Banks. The objective is to double the flow of credit to the SME sector by 2009-10, i.e within a period of 5years. The progress of MSME lending by PSBs for the year ending March, 2009 shows a growth o 29.58% over March 2008. Year on year growth in June 2009 over June 2008 has been 29.40%. MSME Act, 2006 has also been enacted by the Government to give more strength to the MSME Sector. The target has since been achieved. The year-on-year growth has been more than 20% since 2007.
In the Budget Announcement 2008-09, it was announced to create two funds of Rs.2,000 crore each in SIDBI one for risk capital financing and the other for enhancing refinance capability to the MSME sector. RBI had initially allocated Rs.1600 crore for the MSME (Refinance) Fund and Rs.1000 crore for the MSME (Risk Capital Fund). Recently, RBI has enhanced the MSME (Refinance) Fund from Rs.1600 crore to Rs.3600 crore and SIDBI has started getting fresh funds in this regard. On December 7, 2008 in the package containing measures for stimulating the economy, it was announced that to facilitate the flow of credit to MSMEs, RBI has announced a refinance facility of Rs.7000 crore for SIDBI which will be available to support incremental lending, either directly to MSMEs or indirectly via banks, NBFCs and SFCs.