Blog

By Sangeeta Sharma – Credit Advisor & Trainer | MSME Coach

If you run an MSME, you’ve probably been here before:
You’ve just received a big order enough to keep your machines humming for weeks and your reputation soaring. But there’s one problem. You need to buy lakhs worth of raw material immediately and your customer’s payment is still weeks away and you don’t have time to ask your bank for 1 single order.

So, what do you do?

• Dip into your working capital and risk delaying other payments?
• Take a short-term loan at a high interest rate?
• Or let the order slip through your fingers because you can’t fund it in time?

This is the cash flow stress every growing MSME faces.

The National Small Industries Corporation (NSIC) knows this challenge inside out and has built a solution that’s part procurement partner, part financier. With its Raw Material Assistance Scheme, NSIC steps in to buy the raw materials on your behalf, giving you the breathing space to fulfill orders, get paid, and keep your business running without financial strain. And you know what is the best part? It’s not just for entrepreneurs, bankers also benefit from this scheme by reducing credit risk and helping their clients grow sustainably.

Why MSMEs Struggle to Procure Raw Material?

For MSMEs, cash flow is king. A delayed payment from one customer can mean:

• Missing out on bulk purchase discounts
• Paying higher prices due to small quantity buying
• Struggling to deliver orders on time
• Losing credibility with buyers

Bankers see the flip side financing raw material purchases often means higher exposure and repayment risk, especially when the client is waiting for their own customer to pay. Without a bridge solution, MSMEs either over-leverage themselves or lose growth opportunities.

The NSIC Solution – Finance + Supply Chain Support

The NSIC Raw Material Assistance Scheme is designed to fill this gap.
Here’s how it works:

1. You choose the raw material and supplier — indigenous or imported.
2. NSIC procures the material directly from approved suppliers.
3. Material is delivered straight to your premises.
4. You get a credit period (usually up to 180 days for indigenous supply) to repay NSIC.

Result: Your working capital stays free for other needs while you still fulfill orders on time.

Who Can Apply?

You’re eligible if:

• You’re a registered MSME (Udyam is Mandatory for MSME in India).
• You’ve been in commercial production for at least 1 year.
• You have a good repayment track record.
• You meet NSIC’s internal credit norms.

Note: No trading activity is allowed under the scheme.

What Can You Procure?

• Indigenous materials: Steel, aluminum, polymers, paper, chemicals, etc.
• Imported materials: NSIC can open Letters of Credit (LC) for global sourcing.

Bonus: NSIC has tie-ups with large suppliers like SAIL, RINL, IOCL, and GAIL, giving MSMEs bulk purchase rates normally reserved for corporates.

What is the Process?

Step by step process is:

1. Application – Submit your request with raw material details.
2. Credit Appraisal – NSIC evaluates your business and sets a limit.
3. Purchase Order – NSIC orders directly from the supplier.
4. Delivery – Supplier delivers directly to your unit.
5. Credit Period – You repay NSIC within the agreed time.

Funding Terms

• Margin Money: Usually 10–25% of the order value.
• Security: Post-dated cheques, bank guarantees, or collateral.
• Interest Rate: Competitive, generally 9–10.50% for indigenous supply.
• Credit Period: Up to 180 days (indigenous); varies for imports.

What are the Documents Required?

• A passport-size photograph of each of the Proprietor/Directors/Partners/Society office bearers.
• Identity proof i.e. PAN Card, Aadhaar Card etc.
• Residence proof i.e. Utility Bill (Latest Telephone/postpaid mobile /Electricity bill), Property or Municipal Tax receipt, Bank Account or post office savings bank account statement, Passport, Driving Licence, Voter’s Identity Card.
• Self-attested photocopy of Udyam Registration Certificate/UAM, GST Registration Certificate,
• Self-attested statement of personal assets and liabilities along with the residential address of Proprietor/Directors/Partners/ Society office bearers.
• A copy of the Board Resolution in case of Pvt./Public Ltd. Co., Power of Attorney in case of a partnership firm & a Governing Body
• Resolution in case of Society authorizing the signatory to sign and to deal with NSIC in respect of financial assistance required, for and on behalf of the applicant unit.
• Specimen signatures of authorized signatory attested by the bank.
• Copy of sanction letter for credit limit sanctioned by the FIs/ banks.
• Audited/Provisional financial statements of the unit i.e. (i) Last year’s Audited financial statements. (ii) Provisional current-year financial statements. (iii) For startup MSME unit Current year Estimates financial statements duly certified by its Auditors or Chartered accountants
  Bank statement of the unit for the last six months.
• Copy of the latest Electricity Bill.
• Conduct a Report of Accounts of the unit with Banks (Other than Bank Guarantee issuing Bank) and Financial Institutions in cases where the status/ conduct of loans is not available in the credit information report.
• Certificate/ undertaking from the unit that their name(s), name of the company/its owners/associates/sister concern/ members/directors, in any way does not fall in the list of CIBIL/RBI defaulters list or any sort of case is there against them.
• Copy of orders in hand, in case of enhancement of limit beyond five crores.

Documents Required for Renewal of Cases:

1. Unit’s request letter for renewal of limit and declaration that there is no change in constitution, promoters & address.
2. In case there is any change in the constitution, promoters & addresses, and relevant supporting documents are to be obtained.
3. Copy of the latest and valid Bank Sanction letter.
4. In case of renewal is due after the due date of filing of income tax return, a copy of the Audited Annual Accounts for the last financial year. In case, audited annual accounts are not finalized, a self-attested declaration of financial parameters of the last financial year of Appraisal form along with the latest available Audited Annual Accounts.
5. Projected/Estimated annual accounts of the Current Financial Year or self-attested financial parameters as per the appraisal note.

Why Entrepreneurs Should Consider It?

• Cash Flow Freedom – Avoid large upfront payments.
• Bulk Purchase Savings – Lower prices, better quality.
• Timely Deliveries – No delays due to material shortage.
• Growth Without Strain – Take bigger orders confidently.
• Competitive ROI– ROI is low as compared to banks
• Low Margin- Margin requirement is lower as compared to bank
• Assistance against the security of Bank Guarantee

Rate of interest in respect of assistance availed on or after 01.02.2023:

Particulars	Effective Rate of Interest(% per Annum)	Effective Rate of Interest(% per Annum)
Normal Interest (Compounded on monthly rest) Upto 180 Days	Micro	Small & Medium
(i) Units having valid SME 1 rating*	9.00	9.50
(ii) Units having valid SME 2 rating*	9.50	10.00
(iii) Other units	10.00	10.50

*Note: The concessional rate of interest for the good-rated MSMEs, as mentioned at Sl. No. (i) and (ii) in the table above shall be applicable only to those cases, where the units make timely repayments of the Corporation’s dues. The units which have not re-paid its dues within the stipulated 180 days, shall not be eligible for the concessional rate of interest. Such units shall be charged the rate of interest mentioned at Sl. No. (iii) above.

4. Additional rate of interest on delayed payment (beyond 180 days), over and above the normal rate of interest, would be as under:

In case any outstanding is more than 180 days

1.25% per quarter

Processing Fee:

Processing Fee	Micro	Small & Medium
On new sanctions	1.0% per annum	1.0% per annum
On Renewal	0.5% per annum	1.0% per annum

Note: Security in the form of Bank Guarantee from Approved Banks.

Why Bankers Should Recommend It?

• Lower Credit Risk – NSIC manages procurement and recovery.
• Strengthened Client Trust – Offering this solution makes you a business partner, not just a lender.
• More Orders Fulfilled – Healthier client turnover improves repayment capacity.

Real-Life Style Case Studies

Case Study 1 – From a Banker’s Desk

Ravi Mehta, a relationship manager at a public sector bank, had an MSME client who had a packaging unit with a ₹2 crore turnover. They got a ₹40 lakh order but needed ₹15 lakh worth of paper rolls immediately.

The NSIC Advantage: Instead of a limit enhancement, Ravi suggested NSIC’s scheme. Within three weeks, NSIC procured the paper rolls and gave 180-day credit.

The Result:

• Order delivered on time
• Payment cycle matched with credit terms
• Stronger banker-client relationship without extra lending risk

Banker’s takeaway: Sometimes the smartest move is connecting clients with solutions outside your own loan book.

Case Study 2 – From an Entrepreneur’s Floor

Priya Shah, owner of a small auto component unit, bagged a ₹75 lakh export order but needed ₹30 lakh worth of steel. Banks wanted additional collateral she didn’t have.

The NSIC Advantage: On her CA’s advice, she applied to NSIC. Steel was purchased from SAIL at bulk rates, delivered in 10 days, with 180-day credit.

The Result:

• Export order delivered ahead of schedule
• Saved ₹2 lakh via bulk procurement rates
• Repeat orders doubled her quarterly turnover

Entrepreneur’s takeaway: NSIC isn’t just finance- it’s speed, scale, and negotiating power.

How to Apply?

• Offline: Visit nearest NSIC branch office.
• Online: Apply via the NSIC Website.
• Processing Time: Typically 15–30 days after complete documentation.

My Views:

The NSIC Raw Material Assistance Scheme is more than funding it’s a business growth tool.
For MSMEs, it removes cash flow bottlenecks.
For bankers, it provides a safer route to help clients scale.

Whether you’re running a factory floor or managing a loan portfolio, knowing about and using this scheme can be a real competitive advantage.

Your Next Step

Entrepreneurs: If raw material costs are choking your cash flow, contact your nearest NSIC office or visit the online portal today.
Bankers: Add this scheme to your MSME advisory toolkit your clients will thank you for it.

Frequently Asked Questions:

• How the limit is sanctioned for procurement of material on credit?
  A limit is sanctioned keeping in view the raw materials requirements of the unit, financial position of the unit and available security of equivalent value in the form of bank guarantee.

• Whether there is any ceiling of the limit to be sanctioned under the Scheme?
  Maximum exposure to a single unit under the scheme is ₹1000 Lakhs in case of manufacturing unit and ₹600 lakhs in case of service unit. Maximum exposure to an Infrastructure unit will be ₹500 lakhs whether individual or group. The ceiling for maximum exposure to all associate/sister concerns or connected accounts belonging to a ‘GROUP’ is fixed at ₹2000 lakh for manufacturing units, ₹1500 Lakh for service units and ₹500 Lakh for Infrastructure unit.

• What is the validity of the limits sanctioned under the Scheme?
  One year. Thereafter, the limit can be renewed for one year provided conduct of the account was satisfactory during last year.

• Whether payment is released to the MSME?
  No. NSIC releases the payment to the supplier as requested by the MSME.