MSMEs need to have ‘rating’ for better credit-worthiness : Experts

Reported by Sandeep Pattnaik

Bhubaneswar, Jan 4:

Banks should allocate a higher percentage of their funds for the MSMEs while meeting their priority sector lending targets but for that to happen these units need to be rated by authorised rating agencies, experts said on the sidelines of seminar on ‘Credit flow to MSMEs & Credit rating’ jointly convened by National Small Industries Corporation (NSIC)-Odisha chapter and State Level Bankers Committee (SLBC) during Odisha International MSME trade fair here on Saturday.

Insistence on collateral-based lending by banks often discourage micro, small and medium enterprises (MSMEs) to take loan from banks and this is something that should be done away with, feel industry experts.

On the other hand, absence of reliable credit information, lack of sufficient market credibility, poor history report of loan portfolios [high NPAs] on the part of MSMEs have led the banks and FIs to insist on securitised lending to MSMEs, an official of the UCO bank said.

“Banks usually follow ‘Credit Scoring Model’ to assess the credit worthiness of borrowers (MSMEs) based on factors like repayment, use of credit, current income level of entrepreneurs, outstanding debt if any in the borrowers name, credit history of the borrower and reliability of the owner/entrepreneur,” he added.     

“Credit rating is vital for MSMEs to build brand image and credibility for easy access to finance,” said Arunraj Rajmohan, Associate director, SME Ratings, CRISIL.

“In Odisha around 600 MSMEs have got rating from CRISIL out of about 27,000 registered MSMEs and many more are in the process of getting registered,” he said adding, “CRISIL is going to open a branch office here in Odisha within next one month to expedite the process.”

The MSME units are provided subsidy on fees to be paid by them to get them rated, he said. The cost may range from Rs 9,000 to around Rs 16,000 depending on the turnover of these units, he said. 

MSMEs face challenges like inadequate access to finance with high interest rates, information asymmetry, vulnerability to market fluctuations, limited access to technology and market as well as lack of awareness of best practices followed by the industry etc, experts pointed out during the seminar.

Sourcing of raw materials (RMs) and market linkage for the products are two additional grey areas posing challenge to MSMEs besides constraints on  availability of finance, revealed experts.

National Small Industries Corporation, a nodal agency, facilitates MSMEs’ participation in government tenders, bulk order placement for their products by inviting tenders from large corporates, giving discounts on bulk purchases of RMs, tie- up with banks for funding, organising domestic and international trade fairs to showcase their products etc.

“B2B (business-to-business) and B2C (business-to-consumer) space offers enough room for MSMEs to market their products through interaction of buyers and sellers on-line,” said Dr Pralay Dey, GM-SG, NSIC.  

While almost 46% of time gets consumed in finding appropriate market and buyers for the products manufactured, marketing through internet can help solve many problems that MSMEs face, he added.

Using internet in B2B and B2C marketing of products can increase profit for MSMEs, reduce cost and time, and help them gain product knowledge and know technology and markets better, said Shri Dey. It can provide a common market place for traders, he further added.   

It is worth mentioning here that, on-line shopping market witnessed around 128% growth in 2011-12 compared to 40% growth in 2010-11. There are around 2 billion internet users in on-line product trading market at present, sources said.