MSME Loan – Credit Rating & Ranking

India has around 6.3 crores MSME units of which 99% are Micro enterprises. As per Indian MSME Lending Landscape 2022 only 15% of their Credit needs is through formal sources.

Lack of awareness among the MSMEs is one of the important factors in the low penetration not to mention a very long and formalistic process in Banks.

Credit awareness is on the rise in India especially when it comes to CIBIL credit scores for individuals. However, not many in business are aware of the CIBIL MSME Rank (CMR). CMR facilitates borrowing from Rs. 10 Lakhs to Rs. 10 crores.

RBI Expert Committee on MSME under the Chairmanship of Shri UK Sinha recommended incorporation of CMR in to credit rating mechanism as it is a strong indicator of Liquidity risk and repayment track record. The rank is from CMR 1 to CMR 10 where 1 is the least risky and 10 the most where CMR 1 to CMR 4 is optimal.

While the businesses may not know how the rating works there are a few indicators which are important to keep their ranking at the optimal level:

1. On time repayment - Past repayment trends are a critical factor in determining the ranking

2. Liquidity profile – Pattern of utilisation of funds over the past 2 years

In addition, CIBIL in partnership with Online PSB Loans Limited and mentored by Small Industries Development Bank of India (SIDBI) have come out with a Ranking model to assess the risk which is called as FIT Rank.

FIT Rank considers Financial, Income and Trade Information from multiple sources such as:

1. Banking Information – Bank statements

2. Financial & Income Information – Income tax returns

3. Trade Data – GST Returns

FIT Rankings are also on a scale of FIT 1 to FIT 10 where 1 is the least risky and 10 the most where FIT 1 to FIT 3 is optimal.

It is extremely important to ensure that the loan repayments, filing of tax returns (GST and Income tax) on time and utilisation of funds for the purpose sought for would help the businesses in good chance to maintain the optimal ranking & rating levels.