A credit rating is primarily done to derive the credit worthiness of an enterprise or an individual or even a country. Credit rating means an overall evaluation of the strengths and weaknesses of a potential borrower. It also means a borrower's ability to repay his debt. The ratings take into account the financial history, the assets and liabilities.

In India, the SMEs being a productive sector, more and more small and medium enterprises are feeling the need to go in for credit ratings for an easy credit assess. For the sustainable growth of the sector, more and more SMEs have to take advantage of credit ratings.

Credit Analysis & Research Ltd. (CARE Ratings) is a full service rating company that offers a wide range of rating and grading services across sectors. CARE has an unparallel depth of expertise. CARE Ratings methodologies are in line with the best international practices. CARE Ratings has completed over 8488 rating assignments having aggregate value of about Rs.26609 bn (as at Sep 30, 2010), since its inception in April 1993. CARE is recognised by Securities and Exchange Board of India (Sebi), Government of India (GoI) and Reserve Bank of India (RBI) etc.

Dr. D R Dogra, Managing Director and Chief Executive Officer, CARE, who has varied experience spanning over three decades in commercial banking with an extensive knowledge about the functioning of the corporate and the small sector talks to SME WORLD in Mumbai recently. 

How Credit Rating is an ingredient for a better credit flow in an SME-dominated economy like ours?

SMEs have been the growth engine for many developing economies and India is no exception. The contribution of SMEs to India's GDP is expected to increase steadily over next 10-15 years. However, restricted access to funding, especially access to risk capital, has been a major impediment to the growth of this sector. A large proportion of the businesses in the SME sector are essentially 'Micro' businesses comprising proprietorship or partnership concerns and are largely family owned. Given this profile, lenders and investors are weary of taking exposure to this segment due to issues like unstructured information flow, lack of collateral and improper accounting and managerial information systems. Moreover, the high risk perception of the SMEs also stems from the fact that these businesses are more prone to failure and have difficulty in attracting and retaining quality manpower. Further, the transaction cost for catering to the SME segment is high for banks, financial institutions and other investors, which further discourages them to lend to this sector. 

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