International Joint Ventures and Merger & Acquisitions

How MSMEs Can Raise Equity Through the Self-Reliant India (SRI) Fund?

June 19, 2025

The Self-Reliant India Fund is a government backed initiative that helps MSMEs raise capital for growth and expansion. This article provides a comprehensive overview of the how the fund functions, who qualifies, step-by-step process of securing the funding through this unique public-private investment model.

Introduction


Micro, Small and Medium Enterprises have a presence PAN India, from small rural areas to major big cities. They play a major role in creating jobs, contributing to GDP and boosting exports. As per reports, there are currently over 6 crore MSMEs in India which provide employment to more than 11 crore people.


But despite their contribution, most MSMEs face one big problem, that is lack of funding, especially when it comes to equity financing. Most MSMEs are either bootstrapped or take collateralized loans, which often isn’t enough to grow in a competitive market.


Major reasons why MSMEs struggle to raise Equity

  • Legal Structure: Many MSMEs in India are registered as sole proprietorships or partnerships, which makes it challenging to allow outside investors.

  • Small ticket size: The investment amount required by MSMEs is usually small while the transaction and management costs continue to be high, making it unattractive for big investors.

  • Trust Issues: There is often a gap in information and understanding between the business owner and the investor. Also, it has been observed that the entrepreneurs are hesitant to give up decision making power.

  • Limited Returns: Traditional investors look for high growth and fast returns, which MSMEs may not always offer.


Also, most venture capital funds focus on tech startups and not on traditional businesses like manufacturing or local services. While listing on the stock exchange could be a great step forward, many MSMEs avoid it due to complex rules and compliance burdens.


To counter these problems and give MSMEs a real chance to grow, the Government of India launched the Self-Reliant India Fund under the management of NSIC Venture Capital Funds Limited. This fund aims to support MSMEs with growth equity capital so they can expand, hire more people, develop new products and reach global markets.


Objectives of the SRI Fund


The Self-Reliant India Fund has been established on clear mission to help MSMEs grow by giving them the funding they need at the right time. Instead of offering loans, which can be a financial burden for a MSME looking to expand, this fund provides capital in exchange of equity ensuring that businesses can grow without putting much pressure on cash flows.


SRI Funds aims to:

  • Boost equity funding for MSMEs: The Fund supports Daughter Funds, which then invest in promising MSME’s. This helps small businesses get access to long-term equity financing, something that has not been that common in the past.

  • Encourage MSMEs to grow and expand faster: Many MSMEs remain small not because they lack ideas but because they lack money. The SRI Fund has been established to break this barrier and help such businesses grow faster and contribute more to the economy.

  • Promoting self-reliance and supporting future champions: MSMEs that are involved in producing goods, technologies or services that reduce India’s dependence on imports or boost local innovation will get special attention. The fund focuses not only on the businesses which are growing but instead on which have the potential to become large national or global companies.


How the SRI Fund works


The SRI Fund follows a “Fund of Funds” model. This means that the government doesn’t directly give money to the companies, instead, it invests in private funds called Daughter Funds, and these funds then invest in MSMEs.

  • The Mother Fund: The Government of India has created a Mother Fund with a total budget of INR 10,000 crore. This fund is managed by an SPV fully owned by NSIC. The Mother Fund is responsible for selecting and supporting Daughter Funds. 

  • Daughter Funds: These are private investment funds such as venture capital or private equity which are registered with SEBI. The SRI fund gives money to the daughter funds in 4:1 ratio, which means for every INR 4 they raise from investors like banks, financial institutions, etc., the SRI fund will contribute INR 1.


Once a Daughter Fund is ready, they start carefully evaluating MSMEs potential and growth plans before investing. The investments are made in the form of equity or quasi-equity (like convertible debt). This setup helps bring together government support and private sector expertise, multiplying the overall impact and ensuring the funds reach the right businesses.


Eligibility Criteria for MSMEs


SRI Fund doesn’t ensure that every MSME gets the funding, instead, it makes sure that businesses that can truly grow and succeed receives this funding amount. There are certain eligibility conditions, which are: 

a) Must be a registered MSME


Your business must fall under the official definition of an MSME, as defined by the MSMED Act. This includes criteria like investment in plant and machinery, turnover and employee count. You should also be registered at the Udhyam Portal.


b) Proven Business Performance


The fund is looking for businesses that:

  • Have been in operation for at least a few years.

  • Show a positive growth trend, for example a good CAGR over the past three years.

  • Have a well-defined business plan and cash flow forecast.

  • Are looking for growth capital to expand, not just to survive.

  • Focused towards social and economic impact like the number of jobs being created and reducing regional inequality.


c) Not Overleveraged


MSMEs that are already heavy in debt or financially unstable may not qualify. The fund prefers businesses that are financially sound but just need a capital boost to take the next step.

d) Excluded Entities

Some types of organizations are not eligible for funding under the SRI scheme. These include:

  • NBFCs

  • Microfinance Institutions

  • Non-profit organizations

  • Self-Help Groups

  • Other financial intermediaries

 
The focus is strictly on supporting businesses that produce goods or services, not those that lend money or offer financial products.


How MSMEs can get Involved


If you are an MSME looking to raise equity through the SRI Fund, the process may seem unfamiliar but with the right guidance, it can open up significant growth opportunities.


Here’s how you can get started:


a) Get Investor Ready


Before approaching any fund, your business should have valid MSME registration, financial records for at least three years, a clearly defined growth strategy, proper documentation and projections showing how capital will be used.


b) Identify Suitable Funding Partners


It is important to find and identify the right daughter fund to proceed further. Depending on your sector, size and funding requirement, we can:

  • Help shortlist relevant funds

  • Introduce your opportunity to suitable fund managers

  • Support you through the evaluation and due diligence process.



c)
 Build a Strong Proposal and Support Beyond Capital


To raise equity the key aspect is to find the right partner, building a long-term relationship and eventually securing funds. It is important to understand that fund managers evaluate MSMEs carefully before investing. We guide you through every step, from fund identification to negotiation and post-investment compliance.


Conclusion


The Self-Reliant India Fund is more than just a funding scheme. It is a major step towards reshaping how India’s MSME grow, scale and thrive. By offering equity and quasi-equity capital instead of traditional loans, it gives businesses the freedom to focus on expansion, innovation and long-term sustainability.


But accessing this opportunity requires more than just interest, it demands preparation, clarity and a strategic approach. If your business is ready to scale and you are exploring smart capital options under the SRI Fund, we are here to help you take the next step.


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