empowering msmes - role of banks & financial institutions, it, skill development & rating...
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Empowering MSMEs
Role of Banks & Financial Institutions, IT, Skill
Development & Rating Agencies
Analysis and Report by Resurgent India Limited
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Contents
MSME : Sector Overview
Role of Banks and Financial Institutions in Financing MSMEs
Overall Flow of Financing to MSMEs
MSME Debt Finance from the Formal Sector
Role of Banks
Role of NBFCs
Challenges in MSME Financing
Enabling Environment for Growth of Finance to the MSME Sector
Legal and Regulatory Framework
Policies of Financial Regulator
Financing through SIDBI
Role of Information Technology in MSME Sector
Skill Development of the MSME Sector
Role of Credit Rating Agencies
Benefits of Rating
Agencies for Credit Rating
Process of Credit Rating
Conclusion
About FEDERATION OF INDUSTRY TRADE AND SERVICES
About RESURGENT INDIA
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MSMEs are nurseries for entrepreneurship, often driven by
individual creativity and innovation, and make significant
contribution to country’s GDP, manufacturing output, exports and
employment generation. Moreover, MSMEs are imperative for
achieving the national objective of growth with equity and inclusion.
Timely financial assistance is one of the key factors for the growth
and prosperity of the MSME sector in India. However, due to factors
such as poor financials, lack of experience and collateral and other
institutional factors, MSMEs are regarded as high risk and therefore
are unable to get adequate and timely financial assistance. Although
several steps have been taken to benefit the flow of credit to the
MSME sector, a lot more is desired by the MSMEs in order to
overcome the challenges faced by the sector.
Today Information Technology has become the corner stone of
every successful business and globalization has forced MSMEs to
think beyond their traditional methods of doing business. Tools such
as Enterprise Resource Planning (ERP) have emerged as necessary
platforms for MSMEs not only to streamline their own business but
also to remain competitive. However, the growth in the number of
MSMEs has not reflected in the growth of MSMEs adopting IT/ITeS.
Lack of IT support and awareness of available technologies are some
of the hindrances faced by MSMEs in adopting IT Services.
Skill Development is another thrust area for improving the
competitiveness of MSMEs. Skill development not only helps in
improving productivity but also fosters entrepreneurship. Despite
India’s large pool of human resources, MSMEs continue to lack
skilled manpower required for Manufacturing, Marketing, Servicing
etc. Most MSMEs are not able to afford the skilled labor. This makes
Skill Development essential for MSMEs to reach the next level of
growth.
Given the importance of MSMEs in achieving the socio-economic
objectives of the country, this sector needs special attention of the
state governments and policy makers.
MESSAGE FROM MD/CEO,
RESURGENT INDIA
LIMITED
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MSME – Sector Overview
Indian economy is dominated by a vibrant set of enterprises, which are prestigiously known as
Micro, Small and Medium Enterprises (MSMEs) for their scale of operations. The role of MSMEs in
economic and social development of country is widely acknowledged. They are nurseries for
entrepreneurship, often driven by individual creativity and innovation, and make significant
contribution to country’s GDP, manufacturing output, exports and employment generation. The
labour-capital ratio in MSMEs is much higher than in larger industries. Moreover, MSMEs are better
dispersed and are important for achieving the national objective of growth with equity and inclusion.
Looking to the significance of SME sector, it is estimated that if India wishes to have growth rate of
8-10% for the next couple of decades, it needs a strong SME sector, without which it would be
difficult to realize. In this backdrop, MSME is considered to be fast growing sector of economy. The
sector is gaining more importance to realize theme of 12th Five Year Plan (2012-2017) approach
paper “faster, sustainable & more inclusive growth”. So, this sector offers opportunities of
entrepreneurship to younger generation, new areas of MDPs for management institutes, business
prospects to lending institutions, issues to regulators & policy makers and areas of research to
scholars for making the sector more vibrant and faster.
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Today there are about 36 million MSMEs in the country and this sector has shown an average
growth of 18% over the last five years. However, only 1.5 million MSMEs are in registered segment
while the remaining 24.5 million that constitute 94% of the units are in unregistered segment.
MSMEs are broadly classified into two sector i.e. manufacturing and services. The units engaged in
manufacturing or producing and providing or rendering of services has been defined as micro, small
& medium under MSMED Act on basis of original investment in plant & machinery and equipment.
The latest 4th all India Census of MSME sector has revealed that of the total working enterprises,
95.05% belong to micro enterprises, 4.74% to small enterprises and balance 0.21% are medium
enterprises. Also it is observed that 45.38% enterprises are operating in rural areas. Though MSE
sector, micro in particular, is of great importance in respect to generating employment and
contributing inclusive growth of the economy, this segment of industry is deeply credit constrained.
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Role of Banks and Financial Institutions in Financing MSMEs
The overall demand for finances in the MSME sector is estimated to be INR 32.5 trillion. The majority
of these are in the form of debt. The demand for debt varies among enterprises in the sector, with
different expectations and capabilities. The micro and small sub-segments together account for the
majority of the debt demand. As they mostly operate in industries such as retail trade, repair and
maintenance, restaurants and textiles and have a significant demand for working capital. The
average credit requirement for Small enterprises is estimated to be INR 4-4.5 million and cash
continues to be a preferred form of transactions. Medium enterprises are more structured and have
a predictable demand for debt and prefer formal source of finance. The average credit size is higher.
Overall Flow of Finance to the MSME Sector
Major reforms for the MSME sector have taken place in the form of introduction of schemes which
have benefitted the flow of credit to the sector.
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Supply of Finance to the MSME Sector (in INR Trillion)*
Working with the assumption that all finance demand by the MSME sector is met by either formal or
informal sources, the estimate for overall supply of finance to the MSME sector is INR 32.5 trillion
($650 billion). This comprises informal finance, self-finance and finance from the formal financial
sector. However, what is characteristic of the finance flow is that informal sources and self-finance
together make up most of the finance channelled into the sector. An estimated INR 25.5 trillion
($510 billion), or nearly 78 percent of the sector’s debt demand, is fed by these two sources, while
formal sources cater to just over 22 percent of the demand at INR 7 trillion ($140 billion). Formal
sources of finance, i.e. banks and non-banking institutions, account for INR 6.97 trillion ($139.4
billion) of the overall formal finance supply, and commercial banks are the largest formal sources of
finance, primarily providing debt capital to the MSMEs . The study estimates that the supply of
formal equity to the sector is INR 0.03 trillion ($0.6 billion) .The study estimates that informal
sources account for an estimated INR 24.4 trillion ($488 billion) in finance to the sector. Informal
sources include both institutional sources such as moneylenders and chit funds, and non-
institutional sources such as family, friends, and family business. In addition, entrepreneurs also
leverage personal resources and contribute equity to the enterprise. Self-equity contributions are
estimated to account for INR 1.1 trillion ($22 billion) of finance flow into the sector.
Flow of MSME Debt Finance from the Formal Financial Sector
The MSME sector receives INR 6.97 trillion ($139.4 billion) debt from banking and non-banking
institutions. Banks and government financing agencies constitute the largest share of formal debt to
the MSME sector, and are estimated to provide INR 6.4 trillion ($128 billion) to these enterprises.
The balance INR 0.57 trillion ($11.4 billion) of formal debt is supplied by non-banking finance
companies (NBFCs). Unlike in many developing countries in Latin America where large banks are
down-scaling to serve the Small and Medium Enterprise (SME) market, in India large banks have
been the largest formal source of finance to MSMEs for decades. It is surprisingly noticed that about
5% MSMEs have been covered by institutional funding given and approximately 95% of units
remains to be brought into banking fold.
The figure below depicts the structure of formal debt supply to the sector:
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Structure of Formal Debt Supply to the MSME Sector (in INR trillion)*
Role of Banks
Although banks have a higher risk perception of the MSME sector, they continue to be the key
players in formal financing. The higher share of bank supply can be attributed primarily to Priority
Sector Lending (PSL). PSL guidelines require banks to allocate sizeable share of their credit portfolio
to micro and small enterprises. The existing PSL guidelines have set targets (i.e. share of credit
portfolio) for micro and small enterprises financing. The Nair Committee Report (February 2012) on
Priority Sector Lending (February 2012 has recommended that all domestic and foreign banks
allocate 7 percent of their credit portfolio solely for financing micro enterprises.
The Nair Committee has also recommended that foreign banks should have priority sector
commitment of 40 percent of Annual Net Bank Credit (ANBC), with a sub-target for the micro and
small enterprise sector at 15 percent of ANBC. If implemented, this policy is expected to have a
significantly positive impact on the participation of foreign banks in the MSME finance over the
medium term. With continuous policy focus on financing to micro and small enterprises, the share of
large banks in the MSME finance landscape is also expected to grow in the future.
NBFCs, unlike banks, are not required to comply with the PSL guidelines. However their participation
in the MSME sector is driven to a large extent by unmet finance demand of these enterprises, and
the ability of NBFCs to develop innovative financial products and deliver finance in a cost – effective
manner, with greater flexibility and quicker turnaround times. In order to encourage banks to
increase their direct lending to the MSME sector, an RBI regulation in April 2011 excluded loans
sanctioned by banks to NBFCs for on-lending to micro and small enterprises from priority sector
targets. However, the Nair Committee Report has recommended that commercial bank loans to
NBFCs for on-lending to specified segments may be considered for classification under priority
sector, up to a maximum of 5 percent of ANBC, subject to certain due diligence and documentation
standards. Although the new recommendations allow a small window for indirect lending, there are
other attractive priority sector segments (such as microfinance) that are also vying for the same pool
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of funds. Hence, it is not clear if these recommendations will specifically increase indirect financing
for the MSMEs via NBFCs.
Breakdown of Debt Flow by Type of Financial Institutes (in INR Trillion)
Analysis of the MSME credit portfolios of banks suggests that all bank groups do not contribute
equally to the overall MSME sector. Data from RBI suggests that public banks account for 70 percent
(INR 4.5 trillion; $90 billion) of the banking debt to the MSME sector, while the private and foreign
banks account for 22 percent (INR 1.4 trillion; $28 billion), and small banks such as regional rural
banks, urban co-operative banks account for 8 percent (INR 0.5 trillion; $10 billion) of banking
finance.
The study estimates that commercial banks serve an estimated 8.4 million – 8.5 million MSMEs;
financial institutions such as small banks, NBFCs, MFIs and others, serve the balance MSMEs
receiving formal finance. The above estimates take into account the fact that medium and small
enterprises may have multiple banking relationships. This estimate is considerably higher than that
of the MSME Census 2007 on the number of enterprises served, however it builds on the RBI data
available on the total number of micro and small enterprise accounts currently served, and the
average credit disbursed per enterprise (Refer Appendix A). Public banks serve the largest section,
an estimated 6.9 million MSMEs, while other banking institutions serve an estimated 1.5 – 1.6
million units.
The reason for the variance in the banks’ share in MSME debt finance is because of the inherent
differences in: (a) knowledge of the MSME sector (b) size of the branch network (c) internal risk
management policies and (d) operational efficiencies. These characteristics also determine the type
of enterprise banks prefer to finance, the risk segment or pricing range for financial products,
targeting mechanism and outreach strategy.
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MSE Finance by PSBs - A decade analysis (2000-2011)
The wonderful growth in absolute term had been registered in credit to MSE sector by Public Sector
Banks during last decade indicates that this sector has huge business potential for banks. Credit to
MSEs has increased over 8 times from Rs.46045 Crores in 2000 to Rs.369430 Crores in 2011 but
percent share of MSE credit to net bank credit (NBC) has consecutively declined from 14.60% in 2000
to 7.80% in 2007. There was sharp increase in percent share of MSE credit to net bank credit from
7.80% in 2007 to 11.10% in year 2008 with marginal hike to 11.30% in year 2009. This higher growth
during the above review period had mainly happened owing to change in the definition of MSEs as
per the provisions of MSMED Act. The investment limit of small (manufacturing) unit was raised
from Rs.1.00 crore to Rs.5 crore and small (services) was added to the sector with an investment in
equipments & instruments up to Rs. 200 lacs. Also the coverage of service enterprises were
broadened by taking tertiary sector into MSE sector such as small road and water transport
operators, small business, professional and self employed and all other service enterprises as per
definition provided under the Act. Further this ratio accelerated to 13.10% in 2010 that might be
because of regulatory change of taking retail trade into service sector. The advances to this sector
further increased to 14.81% in the year 2011. The credit acceleration in the sector had significantly
noticed in absolute growth but proportion of MSE credit in net bank credit has been more or less at
same level of 14% which was way back in year 2000 despite widening the coverage of the MSE
sector. It reveals that real growth in finance to MSE sector is not adequate in the light of significant
contribution of the sector in economy such as employment, manufacturing and export of the
country. Low share of MSE credit does not only hamper equitable growth of economy but also fails
the banks to fulfil their social commitment to the growing society. Banks should therefore, come out
with a strategy to improve the percent share of MSE credit to their net bank credit which is stagnant
between 13-14% since a long period.
Finance to Micro Enterprises: 5 Years analysis (2007-2011)
The latest 4th all India Census of MSME sector has revealed that of the total working enterprises,
95.05% belong to micro enterprises, 4.74% to small enterprises and balance 0.21% are medium
enterprises. Also it is observed that 45.38% enterprises are operating in rural areas. Though MSE
sector, micro in particular, is of great importance in respect to generating employment and
contributing inclusive growth of the economy, this segment of industry is deeply credit constrained.
Analysis of finance to Micro Enterprises by banking industry revealed some of the important findings
mentioned below.
Prescribed share of credit not provided to Micro Enterprises: their share in bank credit is
really ironical because micro gets merely 5-6% place in net credit of domestic banks which is
very negligible
Over 50% banks have less than 7% finance to Micro Enterprises
Sector gets lesser credit under proposed norms of 7% lending to Micro Enterprises
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Absolute credit surged by 124% (CAGR -31%) : Outstanding credit to the sector by all
scheduled commercial banks (SCBs) had surged by 124% from Rs.213539 crores in year 2008
to Rs. 478527 crores in year 2011 (Table-22).
Enhancement of existing limits contributed higher growth - Target fresh credit: Y-o-Y
growth during review period is showing uneven trend, however, it was 19.94% in year 2009
which further grew by 41.44% in year 2010 and the growth rate was declined to 32.08% in
year 2011. The abnormal acceleration in year 2010 might be occurred owing to the inclusion
of retail trade in service sector and thereafter, normal growth was observed in year 2011.
Sector responds faster - Annual growth rate higher than industry rate : Banks in India are
mandated to register at least 20% YoY growth in credit to Micro & Small enterprises and 10%
annual growth in number of micro enterprises accounts which is now recommended to grow
at least by 15% in terms of number of account every year. Public sector banks have
registered higher growth rate as compared to the stipulated norms of 20% such as 26.64 %
in 2009, 44.36 % in 2010 and 33.70% in 2011. The growth rate of private sector banks was
negative (-0.54%) in year 2009 which further geared up to 38.94% in year 2010 and then
declined to 35.93% in year 2011 which shows compliance of lending norms in terms of
growth rate. However, foreign banks grew their advances by 16.62% & 17.07% in year 2009
& 2010 respectively but had negative growth (-0.78%) in year 2011 which require corrective
measures by foreign banks to adhere to the norms for growth of credit to MSE sector.
93% Financial Exclusion - Key to 12th Plan theme of inclusive growth
It is observed that 92.77% MSME beneficiaries have no finance, 5.18% avail finance from
institutional sources and 2.05% through non-institutional sources. It is an indicator for the
banks that they need to focus on SMEs to achieve national agenda of financial inclusion
because exclusion over 92% of MSME units is indeed a matter of concern in the history of
independence for over 64 years and about 43 years of banks nationalization in our country.
Also the study validates the observation that MSMEs are undoubtedly like big bazar group to
be tapped by formal credit delivery channel because 93% of MSMEs still rely on self finance.
So this sector will be key to realize theme of inclusive growth of 12th Plan.
Role of NBFCs
Non Banking Finance Companies NBFCs :
Non Banking Finance Companies NBFCs provide an estimated INR 0.57 trillion ($11.4 billion) of debt
finance to the MSME sector. The size of credit disbursed ranges from INR 0.3 million ($6000) for
micro enterprises to INR 50-100 million ($1 million – $2 million) for medium enterprises[81]. A large
share of the finance is used for asset purchase. Analysis of the NBFCs’ MSME portfolio and primary
research suggests that enterprises in transport business dominate the portfolio. Engineering, vendor
supply chains and retail trade are among the other key industries served by NBFCs. NBFCs are
companies registered under the Companies Act 1956 and engaged in business of loans, leasing and
hire-purchase. NBFCs function akin to a bank, with few key differences such as: (a) NBFCs are not
part of the payment and settlement mechanism, i.e., NBFCs cannot issue transaction instruments
such as cheques (b) NBFCs don’t have the facility of deposit insurance and credit guarantee.
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NBFCs are governed by a separate set of regulations with lower compliance overheads, affording
them several operational advantages and the flexibility to adopt innovative business models.
Although NBFCs enjoy considerably lower regulatory overheads, they experience challenges in
raising debt, as all NBFCs cannot accept public deposits
Micro Finance Institutions (MFIs) Microfinance institutions are often incorporated as NBFC-MFIs, and
are mostly active in the unregistered and unorganized microenterprise segment. MFIs are gradually
scaling up from providing individual loans to providing business loans for micro enterprises. The
average size of credit disbursed by MFIs ranges from INR 0.015 million ($300) to INR 1 million
($20,000) per enterprise. Primary research suggest that MFIs accept immovable property such as
land, building and/or hypothecated assets as collateral.
MFIs have extensive fleet-on-street structures for ground operations that enable them to reach
unserved regions. With extensive outreach and experience in joint liability operations, MFIs often
have a better understanding of the enterprise potential and financial performance, helping them in
their customer acquisition strategies.
The study estimates that MFIs supply INR 0.02 trillion ($0.4 billion) of debt to the micro enterprise
segment. In line with broad sector financing trends, short-term working capital accounts for a larger
share of the portfolio. Despite the huge market potential, the current activity of MFIs is limited due
to constraints in accessing capital and other stringent regulatory requirements.
MFI activity in micro enterprise financing is limited to loan sizes of INR 0.05 million ($1,000), or less,
due to recent changes in the regulation. The new regulations for MFIs require them to be structured
as MFI-NBFCs, which will not have more than 15 percent of the loan portfolio in loan assets of INR
0.05 million ($1,000) and above. In other words, 85 percent of the loan portfolio of MFIs must
comprise loan assets, specifically for income generating activities and not exceeding the INR 0.05
million ($1,000) limit.
Typical Debt Finance Process and Challenges :
Fund-based products account for an estimated 80 percent of the current flow of formal finance to
the sector
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List of Key Fund-Based Products Offered to the MSME Sector
Products Financial Institution
Tenure Collateral Credit Size
Overdraft*
Commercial Banks 1 year; revolving credit, renewed annually
Primary Security – Hypothecation of stocks in trade and receivables Collateral Security – A minimum value of the loan amount in the form of mortgage of immovable property and/ or other liquid security
50% – 60% of the amount of receivables
Cash Credit* Commercial Banks 3 months – 1 year; revolving credit, renewed annually
Primary Security – Hypothecation of stocks in trade and receivables Collateral Security – A minimum value of the loan amount in the form of mortgage of immovable property and/ or other liquid security
50% – 60% of the amount of receivables
Short-Term Loan
Commercial Banks NBFCs
3 months – 1year; revolving credit, renewed annually
Mortgage of fixed assets such as land, building, factory
-
Long-Term Loan
Commercial Banks NBFCs
1-5 years Mortgage of fixed assets such as land, building, factory
60-80% of the cost of the collateral
Asset-Based Financing
Commercial Banks NBFCs
3-7 years Secured by an asset (e.g., a purchase order, contract, accounts receivable, invoice, letter of credit, inventory, machinery, equipment
80-90% of the cost of asset
Credit Cards* Commercial Banks 1-3 years No collateral required, only a third-party guarantee for a lower limit on the card, and hypothecation of stock in trade, receivables, machinery, office equipment etc. for an upper limit (beyond INR 0.5 million)
Maximum limit of INR 1 million
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List of Key Non-Fund Based Products Offered to MSME Sector
Product Financial Institution
Description
Letter of Credit
Commercial Banks NBFCs
Letter of Credit is extended to MSMEs and is mostly used by export-oriented MSME units; however importers too are increasingly making use of products like ‘Buyer’s Credit’. Credit is available for procuring raw material, manufacturing the goods, processing and packaging and shipping the goods. Letters of credit are available against 25%-35% cash margin and mostly on a 100% collateral security in the form of residential property, corporate guarantees or liquid securities
Bank Guarantee
Commercial Banks NBFCs
Bank Guarantees are extended for advance payment, tender money security deposit, for getting orders, for procurement of raw materials among others.
Current Account
Commercial Banks Commercial banks provide the facility of the current account transaction to their MSME customers. The MSME units have to maintain a quarterly average balance in their current accounts. The transaction is permitted in cash, transfer and clearing. Banks also provide internet banking facility to MSME units on these accounts.
Savings Account
Commercial Banks A few of the banks also provide savings accounts to the MSME units. An enterprise has the flexibility to choose the period of deposit from 1 year to 3 years. Surplus funds over a threshold limit with an initial deposit of certain amount is automatically swept (auto-sweep) to Corporate Liquid Term Deposit (CLTD). The rate of Interest for CLTD will be the card rate applicable for the contracted tenure of the deposit. No differential rate of interest is applicable. However, no Loan /Overdraft Facilities are available under the scheme.
Remittance Commercial Banks Most of the banks provide electronic modes of retail payment to the MSMEs through National Electronic Fund Transfer (NEFT) and large value settlements through the Real Time Gross Settlement (RTGS) application
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Lack of Experience
Entrepreneurs of first generation with lack of experience, has been revealed as the foremost
reasons of poor SME credit, followed by lack of collaterals & infrastructure put together 26%
and poor financials of SMEs by 24% respectively.
Poor Financial of Enterprise
Majority of bankers don’t prefer SMEs for want of proper books of account and infusion of
own contribution into business by promoters. This peculiarity, probably has been observed
in SMEs because most of them are first generation entrepreneurs who fail to bring their own
contribution and also don’t know how to record their business transactions in their books.
Lack of Collateral
Lack of Collateral: Lenders request for collateral to mitigate risks. Now the lack of collateral
is the most widely mentioned obstacle faced by MSMEs is accessing finance. I some cases,
the enterprise is not able to provide sufficient collateral either because it is not firmly
established or it is insufficient in view of the size of the loan requested.
Institutional Factors & others
Low technology innovations and inadequate product branding/marketing tie-up are
observed important non-financial factors of default. Also transaction cost is very high and
the handling of MSME financing is an expensive business. The cost of appraising a loan
application or of conducting a due diligence varies as per the size of financing.
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Enabling Environment for Growth of Finance to the MSME Sector
The three main pillars of the enabling environment that the study has analyzed are: (a) legal and
regulatory framework (b) government support (c) financial infrastructure support
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Legal and Regulatory Framework
Micro, Small, Medium Enterprise Development Act, 2006 :
The Micro, Small, Medium Enterprise Development Act, 2006 (MSMED Act) defines the
micro, small and medium enterprise segments, and promotes focused and coordinated
development of policy for the sector.
The MSMED Act led to the setting up of policymaking and monitoring bodies – the National
Board for Micro, Small and Medium Enterprises and MSME Advisory Committee – which
facilitate coordination and inter-institutional linkages among various government
departments related to the MSME sector.
To ensure that the proposed development schemes such as scheme for capacity building,
financial assistance for bar-code etc. receive adequate financing, the MSMED Act proposes
setting up of dedicated government funds.
The MSMED Act also has provisions to address the endemic problems of delayed payments
to MSMEs by large enterprises. Section 15 specifies that buyers make payments to the
MSMEs on mutually agreed dates, and in case dates are not specified, the debtor is required
to pay within 45 days. Section 16 elaborates the penalty in case of delayed payments i.e.
buyers are liable to pay compound interest to the MSME on the payment amount that is
three times the bank rate specified by the RBI (interest is to be paid from the day
immediately after the mutually-agreed date.)
Gaps and Challenges in the MSMED Act:
The definition of MSME in the MSMED Act provides no information on financial
maturity or scale of MSMEs. Financial institutions therefore find it difficult to target
units on the basis of this definition and prefer to use size of annual sales as a metric
to identify MSMEs. These definitions tend to vary across financial institutions.
Due to inconsistency in the definition of MSME across financial institutions and
government, the data on the MSME sector collected and collated by the
government agencies does not always help in segmenting enterprises and providing
targeted services and products.
While the MSMED Act attempts to address the issue of delayed payments through
specific provisions, strict enforcement of these provisions is often not observed in
the sector.
Credit Information Companies (Regulation) Act 2005
The government has enacted the Credit Information Companies (Regulation) Act 2005 (CIC Act) to
facilitate the formation of credit bureaus and strengthen the finance information infrastructure.
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The CIC Act led to the formation of four credit bureaus in the country. Experiences in
developed countries suggest that access to credit information on historic conduct of the
enterprises tends to reduce the information asymmetry and increases the flow of formal
finance.
The Act regulates the information that credit bureaus can collect and process, however it
also provides RBI the flexibility to expand the type of information captured.
Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002:
The SARFAESI Act is a legal framework that protects creditor rights and facilitates recovery of non-
performing assets without the intervention of the judicial system. The Act is applicable to all loan
assets created by a commercial bank, and broadly provides three alternative methods of recovering
non-performing assets, namely, (a) securitization (b) asset reconstruction and (c) enforcement of
security.
As the MSME sector is considered to be relatively riskier, limited credit protection can
severely impede supply of finance to the sector; the SARFAESI Act provides a framework to
financial institutions to recover non-performing assets, reducing the risk of non-recovery of
dues.
The Act also provides guidance on formation of Asset Reconstruction Companies (ARCs) to
provide support to commercial banks in managing the sale of non-performing assets. SIDBI
along with other leading commercial banks has set up the India SME Asset Reconstruction
Company Limited (ISARC) to manage non-performing MSME assets of commercial banks.
Many commercial banks have also instituted One-Time-Settlement (OTS) mechanisms that
allow banks to settle transactions with non-performing assets without going into a long-
drawn process as prescribed in the SARFAESI Act.
Policies of Financial Regulator
To ensure formal finance to priority sectors such as agriculture and MSME, Priority Sector Lending
guidelines have been in place for commercial banks since 1972. Under these guidelines, domestic
commercial banks are required to allocate 40 percent of the net bank credit for priority sectors (32
percent norm for foreign banks.
• Lending to micro and small enterprises is covered under priority sector. While domestic public and
private banks do not have any sub-targets, foreign banks are required to allocate 10 percent of the
net bank credit to these enterprises.
• With regards to PSL in MSE, the RBI has accepted all the recommendations of the Prime Minister’s
Task Force Report. Key measures include: (a) commercial banks to achieve 20 percent annual growth
in credit to the sector, (b) 60 percent of the portfolio to be allocated to micro enterprise segment,
and (c) 10 percent annual growth in unique micro-enterprise accounts.
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• In a recent development, the Nair Committee on Priority Sector Lending has recommended that 7
percent of net bank credit should be allocated to micro enterprises (applicable for both domestic
and foreign banks). The Committee has also recommended that banks should increase micro
enterprise customers at the rate of 15 percent per annum.
• In order to ensure that banks adhere to the priority sector lending guidelines, the RBI requires
banks to deposit unutilized priority sector funds with a special fund managed by SIDBI and NABARD.
The provision works as penalty because the yield on the special fund is much lower than the
potential yield on other PSL-approved sectors.
Policy incentives for MSME finance by banks
I. Prescribed provisioning requirement for ‘standard advances’ under SME advances is merely
0.25% as against 1.00% in case of real estate and 0.40% for other advances, which is a
reward for banks to make lower provision towards buffer capital on SME advances
II. Collateral free loans up to Rs. One crore are secured by CGTMSE guarantee which is highly
liquid at par with cash security as compared to any other collateral in loan accounts
III. Allocation of zero risk weight to SME loans guaranteed by CGTMSE for capital adequacy
requirement
IV. Simplified computation of working capital limit for MSE units on basis of minimum 20% of
their estimated annual turnover up to the limit of Rs.500 lacs.
• In order to ensure the flow of equity to the sector, capital markets regulator Securities and
Exchange Board of India (SEBI), in consultation with the Ministry of Finance, has framed a set of
guidelines to set up a dedicated stock exchange for small and medium enterprises. Both Bombay
Stock Exchange (BSE) and National Stock Exchange (NSE) have set up and launched SME stock
exchanges in 2011.
The government provides financing support to the sector through the
Small Industries Development Bank of India (SIDBI).
SIDBI provides wholesale financing support to small financial institutions such as NBFCs that
operate in the MSME sector.
SIDBI also provides retail finance support to MSMEs, particularly in the growth stage through
schemes such as Growth capital and Equity assistance for MSME (GEMS).
In addition to providing debt finance, SIDBI has also set up SIDBI Venture Capital Limited to
supply equity to the MSME sector.
To minimize the effect of immovable collateral on access to finance for MSMEs, the
government and SIDBI have co-funded a credit guarantee fund, Credit Guarantee Trust for
Micro and Small Enterprises (CGTMSE). Financial assistance from SIDBI – SIDBI has created a
corpus Fund of INR 60 Cr for providing financial support to MSMES with special focus on
technology enterprises. Credit Guarantee Fund Trust for Micro and Small Enterprises
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(CGTMSE) scheme was launched by the GOI in 2000 to strengthen credit delivery system and
facilitate flow of credit to the MSME sector. To operationalize the scheme, GOI and SIDBI set
up the Credit Guarantee Fund Trust for MSMEs. The scheme provides collateral free funding
up to INR 1 Crore for individual MSMEs. The CGTMSE Scheme is operated through a network
of Banks and FIs called Member Lending Institutions (MLIs).
Credit Linked Capital Subsidy Scheme –
This scheme aims at facilitating technology up-gradation of MSMEs by providing 15 % capital
subsidy for purchase of Plant & Machinery / Improved technology. Maximum limit of
eligible loan for calculation of subsidy under the scheme is Rs.100 lakhs. At present, more
than 1500 well established/improved technologies under 51 sub-sectors have been
approved under the Scheme.
ISO 9000/ISO 14001 Certification Reimbursement scheme for MSMEs offers reimbursement
of expenses up to 75% (subject to a maximum of INR 75,000) incurred towards the
acquisition of ISO 9000/ISO 14001/HACCP certification.
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Role of Information Technology in MSME sector
Information technology had a great impact in all aspects of life, and the global economy is currently
undergoing fundamental transformation. Information technology has very real impact in most of
industries and usage of these technologies is revolutionizing the rules of business, resulting in
structural transformation of enterprises. Modern businesses are not possible without help of
information technology, which is having a significant impact on the operations of Small and Medium
Sized Enterprises (SME) and it is claimed to be essential for the survival and growth of economies in
general. IT/IS play decisive role in increasing the profitability of the organization. Competitiveness
among the SMEs makes them to think about the use of current available technology. Becoming an
inherent part in large organisations, IT is a mechanism that enables SMEs to respond to customer
requirements efficiently by enabling information to be transmitted. SMEs endeavour to manage the
knowledge sharing process and inter-organizational knowledge. Enterprise Resource Planning (ERP)
is best and effective available technology that can be adopted by Indian SMEs to survive the
competition. Globalisation has forced SMEs to think beyond the traditional methodology, in the
present scenario Indian SMEs are facing competition from within the country as well as from other
developing countries.
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Technology and SMEs: Since the beginning of 1991, globalization has made the organizations to
think about the adoption of available technology so that they can face the challenges of the
emerging market trends and the competition from the Asian and European SMEs, globalization led
to immense competition and companies, especially in the manufacturing sector, realized the need
for more customer focus and shortened product life cycles. Corporations had to move towards agile
manufacturing, continuous improvement of business processes and business process reengineering.
This required an integration of manufacturing with other functional areas like accounting, marketing,
HR, etc. Enterprise Resource Planning (ERP) system has emerged as a common and necessary
platform among small and medium scale enterprises not only to remain competitive in the global
business scenario but also to streamline their own internal processes to collaborate with their
foreign partners in their supply chain. ERP is generally viewed as necessary infrastructure and is also
a strategic weapon in automating business processes while providing visibility to those processes
throughout the enterprise ERP system consists a suite of software modules that lets an organization
share common data and practices across the enterprise to access information in real-time
environment. ERP if implemented successfully can have a significant impact on organizational
performance through automation and integrating the majority of business processes on small,
medium and large sized organizations. Small and medium sized enterprises (SMEs) have become a
major contributor to the economies of the countries throughout the world. Not only in developed
countries but also in the developing countries like India, during the past 50 years, the small-scale
sector has played a very important role in the socio-economic development of the country. It has
significantly contributed to the overall growth in terms of the Gross Domestic Product (GDP),
employment generation and exports
Although the number of SMEs seems to be growing, there is still need to aware SMEs about the
available technology that can be used for the business and for the proper utilisation, some of the
challenges faced in the implementation of IT/IS are :
Lack of Awareness
Most of the SMEs are not aware of the available technologies that can be implemented for the
better decision making, increasing productivity.
Lack of IT Support
IT personnel are in high demand and are often attracted to bigger companies and MNCs. It is very
difficult for SMEs to attract good IT personnel. It is even more difficult to retain them. Moreover,
good IT personnel are expensive and may not be affordable by most SMEs.
Lack of IT Literacy
Employees in SMEs started from the ground up after working with the company for many years.
Some of them are often holding supervisory and managerial positions. These employees may not be
IT literate and often have high resistance to the changes in the working process that they are
comfortable with after many years.
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Uneven IT Awareness and Management Skills
As a company grows, new managers are often introduced into the company. There will also be old
managers who are promoted from the rank and file. Some of these managers may not been trained
in the leadership and management skill. These uneven skill among the managers often caused
conflicts during the implementation.
Lack of Experience in Using Consultants
A good consultant often saves time and effort, and help to prevent pitfalls during the IT projects.
However, most SMEs are devoid of experience in working with consultants. The lack of knowledge in
the field of IT makes it difficult for them to identify good consultant for the projects. They often feel
that the consultant cost is too high and they can handle it with their own staff. If the company has
no staffs that possess experience and knowledge in the IT project, avoiding external help often costs
more to the company eventually.
Level of SMEs on the basis of IT/IS adoption:
Level 1: SMEs in the nascent stage of IT adoption having only the basic IT infrastructure in place,
such as the basic level computerization, LAN, etc. can be categorized into this level of IT/IS adoption.
These companies use IT only for basic communication and data processing.
Level 2.SMEs that have computerized certain standalone functions without any cross functional
linkages can be categorized in Level -2 of IT/IS adoption. Organisations at this level would be having
several point applications aimed to automate selective functions. There will be islands of
information with little or no integration between the applications.
Level 3.SMEs that have automated their core business functions, achieved complete process
automation and integration are considered to be in level-3 of IT/IS adoption. This will include
organisations which have integrated transaction processing environments with automation of core
business processes and functions. The firms will be using an enterprise level resource planning
application (ERP) which integrates various business processes across functional departments
Summary
Most of the Indian SMEs are either at level 1 or at level 2 in terms of technology adoption, the main
reason behind this backwardness is lack of literacy and lack of information regarding the technology,
SMEs need to be aware of appropriate technology and people need to be educated accordingly. In
today’s era of globalisation SMEs need to attain level 3 to compete. Enterprise Resource planning
helps SMEs to enjoy unimaginable benefits. Nevertheless the problems of ERP in SMEs are also
present. There are still ups and downs in it
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Skills Development of the MSME Sector
One of the thrust areas for increasing the competitiveness of MSMEs includes skills development.
Skills development not only helps in improving productivity but also fosters entrepreneurship.
Hence, it is imperative for the concerned governmental agencies, trade associations and MSMEs to
come together and discuss on how to make training programmers relevant and attractive for
MSMEs. The lack of human resources has been a long-standing problem faced by MSMEs in the
country. Despite India’s large pool of human resources, the MSMEs continue to lack skilled
manpower required for manufacturing, marketing, servicing, etc. Majority of the graduates passing
out each face difficulties in getting employed in MSMEs due to the lack of job / role specific skills.
Also, it has never been easy for MSMEs to hire the right workers at affordable prices. Another area
of concern is low focus of MSMEs on skills development. Even though MSMEs are investing in
infrastructure, technology and manufacturing practices, development of skilled manpower still
remains a major concern. There is evidence that suggests that MSMEs that have invested in skill
development have witnessed better business performance. Skill development programs with a blend
of industrial engineering, quality management, general management and soft skills can enable the
MSMEs to reach the next level of growth.
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Importance
To inculcate entrepreneurial qualities among the youth.
To retrace the high growth path, the MSME sector assumes a pivotal role in driving the
growth engine. The MSME sector in India continues to demonstrate remarkable resilience in
the face of global and domestic economic circumstances.
The sector has sustained an annual growth rate of over 10% for the past few years.
The sector has shown admirable innovativeness and adaptability to survive economic
shocks, even of the gravest nature.
Calibre for employment generation, low capital and technology requirement, promotion of
industrial development in rural areas, use of traditional or inherited skill, use of local
resources, mobilization of resources and exportability of products.
Generates around 100 million jobs through over 46 million units situated throughout the
geographical expanse of the country. With 38% contribution to the nation’s GDP and 40%
and 45% share of the overall exports and manufacturing output, respectively, it is easy to
comprehend the salience of the role they play in social and economic restructuring of India
Skill development of entrepreneurs in MSME sector Initiatives for MSME skill development
1. National Policy on Skill Development 2009
In the last five years India has made progress towards developing the assets to drive skill
training at scale. National Skill Development Corporation 2009 ensured the training
programmes and courses for the same.
2. National Skill Qualification Framework 2013
It is anchored at NSDA and efforts have been initiated to align skilling and education
outcome.
3. Sector Skill council
This ensures that the skill development efforts begin made by all stalk holders in the system
are accordance with the actual needs of industry.
4. Skill India' mission through the Pradhan Mantri Kaushal Vikas Yojana will help increase the
availability of a skilled workforce in the MSME sector.
Includes the following ten major directions to achieve the objective set
Aspiration
Capacity
Quality
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Synergy
Mobilization and engagement
Global Partnership
Outreach and advocacy
ICT Enablement
Development of trainers
Inclusivity
5. The National Policy on Skill Development and Entrepreneurship, 2015
The objective of the National Policy on Skill Development and Entrepreneurship, 2015 will
be to meet the challenge of skilling at scale with speed and standard (quality). It will aim to
provide an umbrella framework to all skilling activities being carried out within the country,
to align them to common standards and link the skilling with demand centres. In addition to
laying down the objectives and expected outcomes, the effort will also be to identify the
various institutional frameworks which can act as the vehicle to reach the expected
outcomes. The national policy will also provide clarity and coherence on how skill
development efforts across the country can be aligned within the existing institutional
arrangements. This policy will link skills development to improved employability and
productivity.
6. Start-up India Action plan :
Ease of doing business, taxation, access to capital for MSMEs and skilling.
7. Employee Pension Scheme
CRISIL believes the government's proposal to pay the Employee Pension Scheme contribution of 8.33 per cent for all new employees enrolling in the Employees' Provident Fund Organisation for the first three years of their employment is a big incentive for MSMEs.
8. Enterprise and skill development:
Entrepreneurship /skill development programmes launched by the Ministry is one of the key elements for promotion of MSEs (Micro and Small Enterprises) particularly for the first generation entrepreneurs.
The Entrepreneurship Development Programmes (EDPs) are conducted through MSME-DIs (Development Institutes), which focus on improving entrepreneurial skills and developing industry specific skills in areas such as electronics, electrical, food processing, etc. to develop and enhance the skill of the entrepreneurs.
9. MSE - Cluster Development Programme (CDP)
The implementation of MSE-CDP is for the holistic development of selected MSEs clusters through value chain and supply chain management.
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The Ministry has adopted a cluster development approach as the key strategy for enhancing the productivity and competitiveness as well as capacity building of Micro and Small Enterprises (MSEs) and their collectives in the country. Clustering of units also enables providers of various services, including banks and credit agencies to provide their services more economically, thus reducing costs and improving the availability of services for these clusters.
10. National Competitiveness Programme (NMCP) Schemes
The Ministry announced the formulation of National Competitiveness Programme (NMCP) in 2005 with the objective to support the Small and Medium Enterprises (SMEs) in their endeavour to become competitive and attune themselves to the competitive pressure caused by liberalization.
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Role of Credit Rating Agencies
Approaching a credit rating agency is a good option for small and medium enterprises (SMEs) given
the problems they face in seeking finance. Rating agencies assess a firm's financial viability and
capability to honour business obligations, provide an insight into its sales, operational and financial
composition, thereby assessing the risk element and highlights the overall health of the enterprise.
They also benchmark its performance within the industry.
Rating agencies usually have eight grades, ranging from SME 1-8, with 1 denoting the highest rating
and 8 the lowest. For providing this service, the agencies charge a fee which is based on the firm's
turnover and ranges from Rs.44,000 to Rs.1.21 lakh. These ratings are valid for a year and can be
renewed by paying an appropriate fee. It is money well spent. For, a good rating means a higher
chance of bagging a loan.
Besides, there is a lot of information asymmetry in the market. A good credit rating provides the
initial confidence for the project and also acts as a final confirmation.
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Benefits of rating
Concessional funding
A good rating can help you gain faster and cheaper credit for the venture. The agencies that provide
rating for SMEs are Crisil Ratings, SME Rating Agency of India (SMERA), ICRA, Credit Analysis &
Research (CARE), Onicra , and Fitch. These agencies have tie-ups with several banks to offer
preferential interest rates based on ratings. For instance, Crisil Ratings has such a working
arrangement with 35 banks and financial institutions, while SMERA has entered into such pacts with
29 institutions.
According to Crisil Ratings, the interest rate reduction for its clients ranges from 0.5-1.25% and
around 35% of the enterprises have reported a reduction in the loan processing time. SMERA
feedback suggests that enterprises enjoy interest rate concessions to the extent of 0.25% to 1%. Also
in many cases, savings from the reduced borrowing cost exceeds the rating fee.
If a firm gets a good rating, he can even approach other banks to get a better rate bargain than the
one provided by his existing banker.
Better business opportunities
The independent risk evaluation of SMEs by an unbiased third party lends credibility to them and
opens doors for them while dealing with MNCs and Corporates. They can also submit credit rating
for tenders and make themselves more credible to get bigger orders. It also provides easier access to
other sources of finance such as private equity. Better ratings have helped the SMEs retain
customers and suppliers, and negotiate better terms with them.
The government also favours rated SMEs, restricting certain contracts for such firms. It also operates
a performance and credit rating scheme through various credit rating agencies via the National Small
Industries Corporation. The scheme provides a one-time subsidy to SMEs to get rated.
Tools for self-improvement
Another advantage of rating is that the highlighting of strengths and weaknesses acts as a trigger for
self-correction. A regular renewal of ratings not only helps improve a firm's performance but also
builds confidence within the lender fraternity and trading channel. It is like a report card for SMEs.
The analysis helps them to continuously evolve based on the changing regulation, business
requirements and economic scenario.
SMEs are usually deterred by the rigour of rating discipline and fear of low rating, but the latter may
not necessarily be the result of weak financials and can be attributed to various reasons. "The issues
can be easily pointed out in the rating report. The SMEs that want to run a sustainable business take
the feedback positively and try to improvise. It is an opportunity to implement best business
Practices.
Increased visibility
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Rating increases visibility and credibility on the SME. Since rating is an independent third party
opinion on creditworthiness, it helps in providing confidence to the lenders and various
stakeholders. With higher credibility the SMEs are able to acquire funds from various avenues which
otherwise would not be keen on lending.
Agencies working for Credit rating
National Small Industries Corporation Limited (NSIC)
A PSU established by the Government of India in 1955. It falls under Ministry of Micro, Small &
Medium Enterprises of India. It checks performance and credit rating scheme for Small scale
industries.
There is a need to create awareness amongst Small-Scale Units about the strengths and weaknesses
of their existing operations and to provide them an opportunity to enhance their organizational
strengths. As a step in this direction, a need was felt for introducing a Rating Scheme for the Small
Scale Industries. It is expected that the Rating Scheme would encourage SSI sector in improving its
contribution to the economy by way of increasing their productivity, since a good rating would
enhance their acceptability in the market and also make access to credit quicker and cheaper and
thus help in economizing the cost of credit.
Performance & Credit Rating Scheme for Small Scale Industries has been formulated in consultation with various stakeholders i.e. Small Industries Associations, & Indian Banks’ Association and various Rating Agencies viz. CRISIL, ICRA, Dun & Bradstreet (D&B) and ONICRA. It has the approval of the Government.
SME rating agency of India
SMERA Ratings Limited (formerly SME Rating Agency of India Ltd.) is a joint initiative of Small
Industries Development Bank of India (SIDBI), Dun & Bradstreet Information Services India Private
Limited (D&B) and leading public and private sector banks in India. SMERA commenced its
operations in 2005 as an exclusive credit rating agency for Micro, Small and Medium Enterprises
(MSME) sector in the country. Within a span of eight years, SMERA has assigned ratings to over
28,000 MSMEs across India.
SMERA is registered with the Securities and Exchange Board of India (SEBI) as a Credit Rating Agency
(6th in India). SMERA is also empanelled as an approved rating agency by the National Small
Industries Corporation Ltd. (NSIC) under the ‘Performance & Credit Rating Scheme for Small
Industries’ approved by the Ministry of Small Scale Industries, Government of India.
CARE SME Rating
CARE introduced SME ratings in 2006, which is intended entirely for Small and Medium Scale
Enterprises. CRISIL has two separate scales on which it assigns ratings to SMEs: the NSICCRISIL
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Performance and Credit Rating (NSIC-CRISIL) scale for small scale industries (SSIs), and the CRISIL
SME Rating scale. CRISIL’s ratings on small and medium enterprises (SMEs) reflect the rated entities’
overall creditworthiness, adjudged in relation to other SMEs. These ratings are entity-specific, and
not specific to debt issuances. CARE is a leading rating agency in India recognized by the major
regulators of the financial market viz SEBI and RBI. CARE’s unbiased opinion is trusted by various
investor communities.
ICRA SME rating
ICRA has developed a separate SME Rating Scale that covers all MSMEs, including those that are
eligible for the NSIC-ICRA Performance and Credit Rating Scheme. While Rating SMEs (including
Micro Enterprises), ICRA evaluates factors such as the candidate SME’s management, ownership,
organisation structure, key human resources, business environment, relationships with trade
partners, financial strength, operating efficiency and capabilities, and other non-financial parameters
that may have a bearing on its creditworthiness. Among other things, an ICRA SME Rating seeks to
bridge the “information gap” that a lender may face while evaluating a credit proposal made by an
SME. The ICRA SME Rating Scale is linear, which makes it easily comparable with the internal rating
scales of most banks.
SME Rating Scale
SME 1 The Highest Credit Quality
SME 2 The High Credit Quality
SME 3 The Adequate Credit Quality
SME 4 The Moderate Credit Quality
SME 5 The Inadequate Credit Quality
SME 6 The Risk – Prone Credit Quality
SME 7 The Poor Credit Quality
SME 8 The Lowest Credit Quality
Process of Credit Rating in MSME
The Rating process starts from getting the request from the company which need to be rated. The
rating agency has got the definite idea of transparent, reliable, time bound and customer friendly.
The Rating process begins with the receipt of rating mandate along with the application form and
ends with the dispatch of the Rating report and Rating certificate. The Rating process in brief is
enumerated below:
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After getting the request from the company, the company has to file the necessary
application along with list of documents required for the rating agency to conduct the
research about the organization along with the necessary fee. After submitting the
documents, the rating agency team will have direct site visit to the company and they will
have detailed discussion with the management about their vision, problems, benefits etc to
have an over sight about the company. They will also talk to their supplier, customers,
bankers about the performance of the company in terms of timely delivery of finished goods
and inventory management.
After their discussion, the rating agency will start doing the rating process with the preset
conditions laid down for SME with their rating scale.
Once the rating team has finished the rating module, it will be transferred to the rating
committee which will consist of eminent team with industry expertise and they will analyze
the rating formula and the company’s documents. Once they have verified all the
documents, then the rating committee will decide what scale can be allotted to the
company. Once that is decided, then the rating agency will complete the rating and send the
rating report to the company.
The company will have rights to accept all the conditions laid down in the rating report or
they can provide additional information to prove their company to be upgraded. Once the
submitted documents are satisfying the committee, then they will upgrade or maintain the
same standard to the company and submit the same to the company.
Once the rating mechanism is over and rating has been done, then the management of SME
can take the same to the banker for getting the facility for their business improvement.
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Conclusion
The importance of MSME has been recognized in recent years for its significant contribution in
gratifying various socio-economic objectives such as higher growth of employment, output,
promotion of exports and fostering entrepreneurship. They play a crucial role in the industrial
development of any country. This sector even assumes greater importance now as the country
moves towards a faster and inclusive growth agenda. MSMEs have also shown an ability for
innovation, creativity, and flexibility which qualifies them to respond promptly to changing market
conditions and to adapt the dynamic needs of the consumers.
Therefore, this sector needs special attention of the state government, policy makers and
implementation. This is all the more necessary and a very powerful engine realizing the twin
objectives of “accelerated industrial growth” and “creation of additional productive employment
potential” in rural and backward areas. There are only 1.5 million MSME units are in registered
segment and employment, finance and other activities of only these units are recorded with the
government. There is an urgent need to have a policy to record all units to understand the actual
position of employment as on date and employment generation opportunities exist in this sector in
future. This will enable policy makers to decide the course of action, such as creation of cluster,
providing suitable infrastructure, market, product development, finance etc.
Adequate and timely availability of Finance is one of the most important key inputs for any business.
Although, Banks in India have been providing financial facilities to MSMEs through their branch
offices, regional offices in across the length and breadth of the country, however, there are still
many gaps and challenges and we can say there are still miles to go in order to improve the access to
timely credit to entrepreneurs in the MSME sector.
One of the key challenges faced by MSME sector in India is the lack of skilled labor. Despite the huge
pool of human resources in India, MSMEs struggle to find the required skilled labor at affordable
wages. Even though MSMEs are investing in infrastructure, technology and manufacturing practices,
development of skilled manpower still remains a major concern. There is evidence that suggests that
MSMEs that have invested in skill development have witnessed better business performance. Skill
development programs with a blend of industrial engineering, quality management, general
management and soft skills can enable the MSMEs to reach the next level of growth.
36
About Federation of Industry, Trade and Services (FITS)
Federation of industry, trade & services (FITS) is a proactive and dynamic national chamber working
at the ground level with established national and international linkages.
FITS tends to act as a catalyst in the promotion of all sectors of our economy viz; manufacturing,
trade and services. It favours research-based and time-tested policy initiatives for positive impact on
the economic growth and development of the nation. During the last two decades, the Government
has been focusing on achieving inclusive and sustainable growth by undertaking vast infrastructure
development projects cutting across sectors, creating an enabling environment for inviting greater
private sector participation through regulatory reforms, improving the delivery of public services and
stressing for e-governance and skill development. These measures have started showing results and
in the process the international community too has shown a keen interest in being a part of this
growth-momentum.
With over 1.2 billion population, we are the fourth largest economy of the world with most number
of young, english speaking and technically sound workforce. We have grown to be a global
agriculture power-house after being dependent on the out-side world for green imports for so many
years. Life expectancy and literacy rates in our country have almost doubled and quadrupled in last
few-years.
FITS being a body of the Industry, Trade and Services stands for the Govt.'s call for 'Skilling India for
Global Competitiveness' and thus contribute to socio-economic development and capacity building
in different domains. Through its 1200+ direct and indirect associates spread –over in public and
private sectors, MSMEs, and large corporates, FITS is destined to play its crucial role in the nation
building.
As a policy, FITS engages with Ministries/Deptts. of Govt. of India and state Govts. on issues which
directly or indirectly impacts the industry and trade. It strives for skill development thus enhancing
efficiency, a greater feeling of focusing competitiveness and multiplying business opportunities for
growth. We associate with different Govt. agencies, autonomous bodies, National & International
NGOs, Knowledge partners, RWAs and civil society institutions for effecting improvements in
Corporate social Responsibility, healthcare sector, Waste management, homeland security, social
and domain reforms, education and sanitation etc. to name a few with special thrust for the most
vulnerable sections of the society be it women security and police reforms..
FITS is of the considered opinion that the pro-active support and role of the Central and State Govts.
is crucial for creating a resurgent India . The current political and economic scenario expects all
political formations of the country to join-hand to support the young generation's aspirations for
economic growth.
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About Resurgent India Limited
DEBT I EQUITY I ADVISORY Resurgent India is a full service investment bank providing customized solutions in the areas of debt, equity and merchant banking. We offer independent advice on capital raising, mergers and acquisition, business and financial restructuring, valuation, business planning and achieving operational excellence to our clients. Our strength lies in our outstanding team, sector expertise, superior execution capabilities and a strong professional network. We have served clients across key industry sectors including Infrastructure & Energy, Consumer Products & Services, Real Estate, Metals & Industrial Products, Healthcare & Pharmaceuticals, Telecom, Media and Technology. In the short period since our inception, we have grown to a 100 people team with a pan-India presence through our offices in New Delhi, Kolkata, Mumbai, and Bangalore. Resurgent is part of the Golden Group, which includes GINESYS (an emerging software solutions company specializing in the retail industry) and Saraf& Chandra (a full service accounting firm, specializing in taxation, auditing, management consultancy and outsourcing). www.resurgentindia.com © Resurgent India Limited, 2016. All rights reserved. Disclosures This document was prepared by Resurgent India Ltd. The copyright and usage of the document is owned by Resurgent India Ltd. Information and opinions contained herein have been compiled or arrived by Resurgent India Ltd from sources believed to be reliable, but Resurgent India Ltd has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Resurgent India ltd accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. The document is being furnished information purposes. This document is not to be relied upon or used in substitution for the exercise of independent judgment and may not be reproduced or published in any media, website or otherwise, in part or as a whole, without the prior consent in writing of Resurgent. Persons who receive this document should make themselves aware of and adhere to any such restrictions.
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