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by Rajen Kumar

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Running a magazine concentrating on issues of small and medium enterprises and managing with limited resources is a like living life on the edge. In this rush of meeting deadlines,...

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Apr 2012

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Money

Ratings Help SMEs Have Easier Access to Funding

SME WORLD Bureau
May 2011

Covering a coveted milestone of its 20,000th Small & Medium Enterprises (SME) rating, CRISIL has set an ambitious goal of covering two lac SMEs in the next three to four years. Presenting the rating certificate to the 20,000th entrepreneur in a press meet in New Delhi recently, CRISIL said that ratings have enhanced SMEs' access to funds and helped reduce borrowing costs.

Binoj Cherian, Managing Director and CEO, STJ Electronics Pvt. Ltd. was felicitated as the 20,000th enterprise in the SME space to get the rating. "Rating came to our rescue when imported products replaced ours and when banks refused to help us. Dejected, we were almost on the brink of call it a day. We survived the turbulent times when all other players in our industry vanished. CRISIL rating not only helped us get going in the business but have also benefited significantly in terms of improved terms from customers, suppliers, and investors, quicker loan processing, better access to funds, and favorable interest rates,” said a jubilant Cherian.

According to a press statement, credit support to CRISIL-rated SMEs grew by 30 per cent, as against the sector average of 20 per cent during the last 2 years. The analysis also reveals that rated SMEs have saved upwards of Rs 175 crores in interest costs alone, with interest rate reductions ranging between 0.5% and 1.25% annually. More than 40% of the rated enterprises chose to renew their ratings year after year, a testimony to the benefits arising from the rating. CRISIL's studies on the rated entities provide insights into crucial issues facing the sector, such as rising interest rates, bank finance and delayed payments from Large Enterprises (LEs) customers.

The study reveals that SMEs are indeed vulnerable to high interest rates. According to Ram Raj Pai, Director (Ratings), “a mere 1 per cent increase in interest rates would lead to a decline of 14 per cent, on an average, in the SMEs' profits. While the banks have been lending to the SME sector, there is still scope for additional funding, which could be as large as Rs 500 bn annually. SMEs with large corporate customers typically faced a delay of at least 30-45 days in receiving payments from large customers. SMEs could enhance profitability by over 15% if they received payments from large customers in time.”

Structural Shift

According to Roopa Kudva, Managing Director & CEO, CRISIL is the market leader in SME ratings, with a market share of over 50 per cent. CRISIL SME Ratings are customized, affordable, and widely accepted. A CRISIL SME rating is available for Rs.7,500 (USD175), owing to the specific subsidy support offered by Ministry of Micro Small and Medium Enterprises, Government of India (MSME) through National Small Industries Corporation (NSIC) for the first year. The rating enjoys wide acceptability, with over 30 banks treating it as part of their internal credit evaluation processes and offering interest rate incentives. Besides the benefits arising from competitive funding support from banks, SME ratings are bringing a structural shift in Indian credit markets by exposing SMEs to best practices and standards.

According to NSIC Chairman cum Managing Director, Dr. H.P. Kumar, "The concept ofexternal ratings has helped micro, small and medium enterprises (MSMEs) achieve an independent identity, access funds, attract foreign interest and develop growth strategies. This is a unique scheme devised by NSIC for MSMES in the International Financial Sector. The role played by rating agencies including CRISIL in this space is praiseworthy especially in the last two years when the number of CRISIL rated MSMEs have grown exponentially."

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