CII-CRISIL Report recommends action points to increase MSME ratings
The Reserve Bank of India (RBI) is initiating a process for putting in place a framework for accreditation of credit counsellors who are expected to serve as facilitators and enablers for micro and small entrepreneurs.
RBI Deputy Governor S S Mundra released a CII-CRISIL report encapsulating the concept at the 2nd National Conference on MSME Funding on August 23 in New Delhi. MSME sector is a nursery for entrepreneurship and a school for innovation which needs to be nurtured well, he said on the occasion.
“Since MSMEs are typically enterprises with little credit histories and with inadequate expertise in preparing financial statements, credit counsellors will assist the borrowers in preparing their project reports and also help banks make better informed credit decisions”, Mundra told media.
MSMEs create employment opportunities and are also crucial for the agenda of financial inclusion. However, funding has always been an area of concern for the small players. This small scale sector is not the best with collaterals and thus has a hard time convincing formal institutions for loans.
Therefore to strengthen the operations and provide them (MSMEs) an opportunity to enhance their organizational strengths, the way of Credit Ratings has been adopted wherein companies are rated by Credit Rating Agencies (like CRISIL) as per the Performance & Credit Scheme (PCRS) for Micro & Small Enterprises launched by MSME Ministry in 2005 and being implemented by the National Small Industries Corporation (NSIC).
As per the released report of CII-CRISIL, ratings have just been accepted by 0.25 per cent of MSMEs in India due to low level of awareness. Thus the report recommends action points to increase acceptability of ratings:
- Stronger incentives should be offered in addition to funding for MSME to undertake rating
- Greater transparency in information sharing should be mandated for MSME
- Trade bodies should popularize MSME ratings with awareness sessions
- MSME ratings should be mandatory for banks considering loans
- Banks should encourage their unrated MSME clients to obtain ratings
“Credit ratings can boost financial discipline, disclosure and governance practices among MSMEs, thereby reducing lending risks. Good ratings enhance the acceptability of the rated units in the market and provide them access to quicker and cheaper credit”, said Shreekant Somany, Chairman, CII National MSME Council.
The report also highlights steps that MSME should undertake to improve ratings, including more comprehensive information, capacity building, deepening product portfolios, and improving compliance and quality controls, among others.
A good rating enhances acceptability in the market and also makes access to credit quicker and cheaper and thus help in economizing the cost of credit. Also it gives banks and lending agencies a better risk assessment, due diligence by third parties, more efficient monitoring and assessment of their credit portfolios, improvement in the quality of assets, etc.
