Performance and Credit Rating Scheme for MSME, Benefits of Rating Scheme for MSME and Subsidy for Credit Rating Fees

Introduction

An substantial part of the Indian economy is played by the MSME sector. For small enterprises, the rapidly shifting economic environment has created both opportunities and challenges. Despite all the chances and improvements, MSME enterprises are nevertheless vulnerable to losses, and many end up shutting down the business early. The Performance and Credit Rating scheme has been developed by the government to stop such incidents from happening and to provide them with appropriate advice regarding technology, management, and financial management.

Performance and Credit Rating Scheme for MSME

In collaboration with industry associations, the Indian Banks’ Association (IBA), and rating agencies, the Performance & Credit Rating Scheme was developed with the goal of educating small scale units, or what are now known as micro & small enterprises, about the strengths and weaknesses of their current operations and giving them the chance to strengthen their organizational strengths.

The Scheme has received positive reviews, from the different parties involved. Indian Banks’ Association (IBA) informed its member banks about the programme. That the government hopes the rating product to help SSI units in obtaining credit from banks more quickly and in effectively terms. The scheme’s rating process is run through accredited rating organizations.

Benefits of Rating Scheme for MSME

• Rating is an unbiased, reliable third-party assessment of the qualifications and creditworthiness of MSMEs.
• Rating helps MSE units to identify the advantages and disadvantages of their current operations and implement improvements to strengthen their organizational performance.
• A high grade makes it possible for MSEs to acquire capital on more favorable terms and at lower interest rates. It also enables banks to respond to MSME proposals for loan more quickly.
• A positive rating increases the MSMEs’ favorability among buyers and customers.
• Assist purchasers in evaluating MSMEs’ capabilities and capacities prior to signing purchase agreements.
• Banks and financial institutions will be able to make faster lending choices and better utilize their risks with the aid of an impartial assessment of the application unit’s strengths and limitations.

Insights on Credit Rating Report

The Performance & Credit Rating Scheme’s nodal agency is National Small Industries Corporation (NSIC). The plan allows for the rating of MSMEs by rating organizations that are registered with SEBI and designated as External Credit Assessment Institutions (ECAI) by the RBI.

After receiving an application, a credit rating agency would evaluate the company, conduct a site inspection, and generate a credit rating report. The unit’s performance and credit worthiness would be combined to determine the credit rating. Operational, financial, commercial, and management risk are all variables taken into account in the MSMEs assessment system. The MSME credit rating report can be broken down into the following three sections:

• Scale of Overall Ratings

1. MSE with the highest credit worthiness compared to other
2. Strong creditworthiness compared to other
3. Good credit standing compared to other MSEs
4. Superior creditworthiness compared to other MSEs
5. Standard credit worthiness compared to other
6. Below Typical creditworthiness compared to other MSEs
7. Poor credit standing compared to other MSEs
8. Poor credit standing compared to other MSEs

• Scale of Operational Performance

• Highest
• High
• Average
• Week
• Poor

• Scale of Financial Performance

• Highest
• High
• Good
• Above Average
• Average
• Below Average
• Weak
• Poor

Fee levied by the Credit Rating Agency 

The fee that must be paid to the rating agencies will be determined by the MSMEs’ three different categories of turnover. The table below shows the percentages of Turnover and Ministry of MSME contributions to the fee levied by the Rating Agency.

Conclusion

The rating acts as a reliable third party assessment of the qualifications and creditworthiness of MSME. It makes it possible for MSMEs to obtain financing from banks and other financial organizations with comparatively little difficulty and at advantageous interest rates. Rating also makes it easier for vendors and buyers to evaluate the skills and capacity of MSMEs before deciding whether to finalize a purchase agreement with them, which supports the overall expansion of the MSME sector.