Credit rating agency CRISIL, which pioneered ratings for MSMEs too in India, feels that the revised guidelines on the Performance and Credit Rating Scheme (PCRS) by the Union Ministry of Micro, Small and Medium Enterprises, will enhance the credibility of the ratings and increase its usage across the sector.

Manish Jaiswal, Business Head, CRISIL SME Ratings said that a credible credit rating improves the ability of MSMEs to access formal finance, which was vital to their investment and growth.

The new guidelines are to be implemented through the National Small Industries Corporation (NSIC). The new guidelines recommend evaluation of MSMEs on three parameters – operating performance, financial strength and overall creditworthiness.

CRISIL has so far rated firms on two scales – NSIC-CRISIL (which had two dimensions – a five-point scale to measure operational capability, and a three-point scale to measure financial strength) and CRISIL MSME Ratings (which is an eight-point, uni-dimensional scale). It has assigned over 91,000 MSME ratings till date.

The new guidelines suggested a five-point scale for measuring operating performance to assess business risks related to technology, processes, customers and management.

To gauge financial strength, revised guidelines suggested an eight-point scale to assess financial profitability, leverage and liquidity risk. The overall creditworthiness now is recommended to be measured on an eight-point scale that combines both the operating and financial parameters.

Pawan Agrawal, Chief Analytical Officer, CRISIL Ratings, said, “The new scale reflects our robust understanding of risks specific to MSMEs, gained by rating a large number of firms. In addition to an opinion on creditworthiness, the new scale provides a more granular view of operating performance and financial strength.”

Source: Business Line