Micro, small and medium enterprises (MSMEs) are an extremely important segment of the Indian economy. They are key contributors to the gross domestic product (GDP), accounting for a significant proportion of exports. They are also significant employment generators. As per latest estimates, more than 51 million working enterprises employed over 117 million people and contributed nearly 37% to India’s GDP by March 2015.
October 20, 2016
Key 6 Benefits Of MSME Ratings
MSME rating has been introduced with a view to inculcate a sense of financial discipline and operational efficiency among micro and small enterprises, which is crucial for their growth and transformation into larger entities. The ratings provide both tangible and intangible benefits to stakeholders. Key benefits to MSMEs are:
Access to adequate, timely credit at competitive cost – An independent unbiased opinion on credit risk by CRISIL, through rating, showcases the capabilities of the rated enterprise. It provides significant comfort to banks and enables the rated entity to raise adequate amount of debt. A good rating carries weight with lenders, and may help MSMEs get faster credit at competitive interest rates. The Indian Banks’ Association (IBA) has endorsed NSIC-CRISIL ratings and informed member banks as well. CRISIL has working arrangements with more than 40 banks and financial institutions, many of which extend concessional pricing to borrowers based on these ratings.
Independent third-party and unbiased evaluation – Rating plays a significant role in helping the rated entity identify gaps in its financial performance and operational capabilities. An unbiased independent assessment can provide direction, which can be of significant value to an MSME enterprise in course correction and help expand its operations.
Benchmarking/ comparison with other MSMEs – Due to the unorganised nature, lack of adequate and quality research and low information availability in the sector, MSMEs often tend to operate without any clear performance indicator vis-à-vis their peers. Ratings benchmark MSMEs with other MSMEs – not with large corporates –thereby giving a specific understanding to the rated entities on where they stand in relative terms in the MSME space.
Enhanced credibility among stakeholders – For lenders, suppliers, customers, employees and other stakeholders, it is very difficult to assess the credibility of an MSME given the low level of information available on their performance track record. This restricts the ability of MSMEs to reach out to new customers across geographies, as stakeholder interest tends to be limited for lack of credibility checks. A rating enhances the credibility of the rated entity by building trust among new stakeholders and also providing additional comfort to existing stakeholders, which can be used to negotiate better trading terms.
Better visibility – Rated enterprises get a free listing on CRISIL’s website. The rating list is also published by CRISIL in SME Connect3, (a quarterly publication circulated among lenders and MSMEs) which reaches all the leading banks and financial institutions, as well as over 70,000 MSMEs.
Useful as a marketing tool – The ratings are a useful marketing tool as enterprises can display their rating on their websites, brochures, advertisements and marketing material, enabling them to reach out to a larger stakeholder base.