Funding Charges Model
for Participation Finance Scheme:
(As per notification No.DNBS.204/CGM (ASR)-2009 dated January 2, 2009, the RBI)

A) The Basis:-
1) The Applicant shall share the profits of the business with the AICL in proportion to the equity capital of the Applicant/Borrower and the amount of funds provided by the AICL.

2) The Equity capital of the Applicant/Borrower shall be determined every quarter/month and the profits accruing shall be added to the capital. Similarly, the funds provided by AICL shall be determined after repayments every quarter/month.

3) Profits shall be shared only if the applicant has earned profits. In case there are losses in any year suffered due to reasons beyond the control of the Applicant, the Applicant is not liable to make any payment to AICL towards Funding Charges. However the Applicant shall be liable to pay repayment installments.

4) In case of ‘Losses’ in any year, the non-sharing of profits by the AICL is not kept as outstanding for future recovery.

5) The past losses are adjusted from the current year’s profits to determine the profit to be shared for the current year.
B) Determination/Computation:-
1) The accounts of the business shall be inspected by AICL executives to ensure that proper accounting does take place and everything is in order. The profit is declared by the entrepreneur and the AICL accepts the same unless some marked differences are noted in financial reports submitted by the Applicant/Borrower. In such case the accounts are subject to detailed inspection by AICL representatives and discussions shall be held with the CA of the entrepreneur for clarifications. Any discrepancy noted shall be corrected and such revised figure is accepted.CA certification shall not be mandatory. This model is adopted as integrity of Applicant/ Borrower is ensured before sanctioning of loan through local references.
2) From the above profit, first the managerial remuneration at 15% or more as decided by AICL is allocated to the Applicant/Borrower and the balance profits are to be shared between the applicant and AICL in proportion to the Equity capital of the applicant and the amount of funds provided by the AICL.
3) No managerial remuneration is allowed in the case of a loss in any year and such management remuneration cannot be carried forward for subsequent years.
4) The Applicant/Borrower shall not give any amount during gestation period of the business and such period may be decided by the AICL.
5) The non-sharing of profits will continue as long as the project becomes operational and generates revenue unless the AICL is satisfied that the delay caused is intentional / due to mismanagement of the owner. In such case AICL shall demand reasonable compensation or direct forthwith to repay the funds borrowed.

C) GENERAL:-
1) The company permits prepayments with prior permission of the Board without any penalties. However when the prepayment amounts to sudden settlement without adequate notice, the Board shall ask the entrepreneur to pay a mutually agreed compensation based on earning capacity of the business.
2) The AICL has examined the normal profitability of investments of funds in variety of the businesses/services and is of the considered opinion that under the Participation Finance Scheme the Applicant/Borrower are likely to share much less than 24% of the participation finance provided by the AICL. The annualised rate of return on investment to AICL in any case shall not in any case exceed 25% of amount provided by AICL.”
3) The AICL shall make changes in the terms of finance effective only prospectively.
4) A processing fee of .5 % of sanctioned amount subject to maximum of Rs. 5000 is charged on sanctioning of application. No penalties are levied for certain non-compliances.