GROWTH OUTLOOK FOR MSMES IN INDIA

Credit Rating for MSMEs

MSME in India

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The MSME sector is a nursery of entrepreneurship, often driven by individual creativity and innovation.

Contributes 8.5 per cent of the country’s GDP, 45 per cent of the manufactured output and 40 per cent of its exports.

The MSMEs provide employment to about 60 million persons through 26 million enterprises.

The labour to capital ratio in MSMEs and the overall growth in the MSME sector is much higher than in the large industries.

The geographic distribution of the MSMEs is also more even. Thus, MSMEs are important for the national objectives of growth with equity and inclusion. 

Challenges faced by MSME Lack of adequate and timely credit High cost of credit Limited access to equity Capital Limited access to global markets Lack of trust or confidence among stakeholder Low technology levels and lack of access to

modern technology Lack of skilled manpower for manufacturing,

services, marketing, etc. High Collateral requirement

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What is ‘Credit Rating’??

Credit rating is an independent third–party comprehensive assessment of the overall condition of an entity.

It takes into account not only the financial condition of the entity but also several qualitative parameters that have bearing on its creditworthiness .

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Factors in MSME Rating Look beyond financials i.e. qualitative parameters Real world dynamics and characteristics of

Industry Management and ownership structure Organization structure Effectiveness of existing checks and controls Key human resources Business environment Relationships with trade partners Operational efficiency and capabilities Performance in comparison to other similar sized entities

in the same industryFinMen Consultancy

The Benefits

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For Rated Entities Easy Access to Fund as most of Bank tie up with

Agency Facilitate quicker and less costly bank finance Better financial terms from bank Marketing Tool Confidence while negotiation with financial institutions Better market visibility of the company Improve the comfort level with prospective/existing

lenders Reduce the time involved in obtaining loan approvals Credibility and confidence building with business partners Self Improvement Tool

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For Lenders: Provide an objective, independent and

reliable opinion on credit quality Serve as an additional input in the credit

decision making process Assist in risk pricing and capital allocation Determining the terms of lending – interest

rate, collateral, tenure Reduce time and cost in data analysis Detailed rating rationale enhancing credit

assessment of ClientFinMen Consultancy

Government Initiatives - MSME Sector

Govt has appointed National Small Industrial Development Corporation (NSIC) as Nodal Agency to facilitates Credit Rating.

Subsidies by the government in the form concessions in Rating Agencies Fees upto 75%

75% of the exhibition fees held within the country or outside the country shall be borne by the NSIC.

While filling up the government tenders, the earnest amount shall not be applicable. So one can apply as many applications at a time.FinMen Consultancy

Definition of MSMEs in India

 

Manufacturing Enterprises – Investment in Plant & Machinery

 

Description INR Whether Eligible for Subsidy from Government

Micro Enterprises Upto Rs. 25Lakhs YES

Small Enterprises above Rs. 25 Lakhs & upto Rs. 5 Crores YES

Medium Enterprises above Rs. 5 Crores & upto Rs. 10 Crores No

Service Enterprises – Investment in Equipments  

Description INRWhether Eligible for Subsidy from Government

Micro Enterprises Upto Rs. 10Lakhs YES

Small Enterprises above Rs. 10 Lakhs & upto Rs. 2 Crores YES

Medium Enterprises above Rs. 2 Crores & upto Rs. 5 Crores YES

 

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Rating Agency in India CRISIL ICRA CARE India Ratings (Fitch) Brickwork Ratings SMERA ONICRA

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Rating Process

Publication of Rating

Acceptance of Rating by client

Communication of Rating to client

Rating Committee assigns rating

Finalisation of analysis considering industry context and inputs from independent sources

Site visit by CRA analyst and meeting and discussion with management as required

Reciept of additional information from client, if required

Review of information and documents

Client submits application for rating along with requisite fees and information

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NSIC Rating Scale

Performance Capability

High Financial Strength

Moderate Financial Strength

Low Financial Strength

Highest SE 1A SE 1B SE 1C

High SE 2A SE 2B SE 2C

Moderate SE 3A SE 3B SE 3C

Weak SE 4A SE 4B SE 4C

Poor SE 5A SE 5B SE 5CFinMen Consultancy

SME Rating ScaleSME Rating DefinitionSME 1 HighestSME 2 HighSME 3 Above

AverageSME 4 AverageSME 5 Below AverageSME 6 InadequateSME 7 PoorSME 8 DefaultFinMen Consultancy

Important Links CRISIL Ratings ICRA Ratings CARE Ratings India Ratings Brickwork Rating SMERA Ratings ONICRA MSME Ministry NSIC Devl Comm Secretary AIMA

www.crisil.com www.icra.in www.careratings.com www.indiaratings.com www.brickworkratings.

com www.smera.in www.onicra.com www.msme.gov.in www.nsic.co.in www.dcmsme.gov.in www.aima-msme.in

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THANK YOUDisclaimerThis document is only for educational purpose. For further information, please contact: Manish Jain AIMA – Co Chairman Banking & Finance Committee Managing Partner – FinMen ConsultancyPhone No. +91 22 66348001Email Id : manish.jain@finmen.inwww.finmen.in

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Questions? ? ?

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