Complete guide on performance and credit rating scheme for micro and small business

Complete guide on performance and credit rating scheme for micro and small business

Date : 11 Jul, 2020

Post By Kaushik Das

The NSIC in concurrence with the Credit Rating Agencies and other groups had sought to form a scheme with relation to a Performance and Credit Rating Scheme for Micro & Small enterprises. The particular scheme was directed to confirm and establish the independent, trusted third party opinions on the capabilities and credit-worthiness of the MSEs. This also envisions to make credit available at attractive rates of interests which will ensure better productivity. This scheme also saw that the rating agencies would be reimbursed by the Ministry of SSI.

The scheme is envisioned to be carried out under the ambit of the nodal agency which will be tasked with duties by the Ministry of Micro, Small & Medium Enterprises to implement the scheme. Many credit rating agencies which are leading in the market place are thus engaged as part of this initiative to conduct the ratings of the interested Micro & Small enterprises under the scheme. 

Process of Application

The process of application begins with a form available at all the offices of the NSIC which have with it all the empanelled Rating Agencies. The forms are also made available online in platforms like the website of the NSIC, IBA and the Rating Agencies. The Small Industry Associations who are interested in utilising this scheme will also be requested to make available the application forms on their website. The SSI units who wish to apply for the ratings will then have to seek the form, and then fill it up as required, and then submit it to the NSIC or the rating agency which they chose.

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Objectives of the Scheme

The main objective behind the Performance and Credit Rating Scheme is to provide a third-party opinion on the creditworthiness and capabilities of the Micro & Small Enterprises (MSE)

  1. The schemes seek to create awareness amongst MSEs in relation to the existing stances of their organisations including their strengths and weaknesses. 

  2. The scheme provides the SSI an opportunity to understand the capabilities and reaches of organisation to achieve the organisational strengths and also to get creditworthy. 

  3. The MSE who have availed this scheme also get access to credit on easier terms than were they not part of the scheme and also, they avail cheaper rates as well. 

  4. The scheme helps the SSI units in increasing the acceptability from the Banks, Financial Institutions, Customers, Buyers, and Vendors.

Benefits

The major benefits accruing under the Performance and Credit Rating Scheme to the rated SSI units include the following:

  1. The rating becomes independent under this scheme. The SSI units also get the option to choose from third party options who are more trusted on their capabilities and the creditworthiness of the units.

  2. The rating achieved as part of this scheme would enable the SSI to have better knowledge of their strengths and weakness of the exiting processes and also if required it allows them the capacity to take corrective actions towards overall enhancing their organisational strength. 

  3. An easier availability of funds, also at cheaper rates become available to the MSEME.

  4. The banks make faster credit decisions on proposals received from the Micro and Small Enterprises. 

  5. The good rating would allow the MSE unit to be better accepted by the customers and the buyers. 

  6. This scheme also facilitates buyers in capability and capacity assessment of MSE units before finalizing purchase contracts.

Selection of the Rating Agency

The Micro & Small enterprises who move towards this scheme have the freedom to choose any of the empanelled agencies who have been empanelled by the NSIC. The same is required to be mentioned by them to obtain the rating. 

Rating Fee

There is a fee required to be paid. The individual Rating Agencies have different structures for the rating services they provide. The scheme also devises the fee separately. The rating fee to be charged varies in accordance to the evaluation criteria adopted by the various agencies and also how acceptable they are by the users. The rating fee charged by the Rating Agencies are required to be intimated to the NSIC when they are being empanelled, which thus makes it known to both parties. The fees can however be reviewed periodically by the Rating Agencies, keeping in mind the competition and the number/size of the clients that the agencies are serving. A ceiling however has been provided by the Government so that the rate can be subsidized. The MSEs pay rating fee along with their respective applications. The amount can be paid by order/demand draft which is drawn in favor of the Rating Agency which has been selected by the party availing the scheme. When a request for a rating is treated as closed by the Rating Agency when the data is not made completely available to them, then the fifty percent of the fee which has been charged can be refundable. However, if the MSE backs out from the rating process after the Rating Agency has carried out its inspection, no amount is refundable.

Sharing of Fees

The Rating fee has been set on the basis of the turnover of the Micro & Small Enterprise, which has been further put into three categories. The same are as follows:

  1. Up to Rs.50 lacs 75% of the fee charged by the rating agency subject to a ceiling of Rs.25, 000/- 

  2. Above Rs.50 lacs to Rs. 200 lacs 75% of the fee charged by the rating agency subject to a ceiling of Rs.30, 000/- 

  3. Above Rs.200 lacs 75% of the fee charged by the rating agency subject to a ceiling of Rs.40, 000/- 

Any balance amount is thus borne by the Micro & Small Enterprises. The portion of the fee to be subsidized by the Ministry is released through NSIC after submission of the Rating Report to NSIC by the Rating Agency.

Rating Scales

The evaluation criteria have been set by the Rating Agency, yet the symbols and their definitions for indicating the risk score as well as the awarded rating has over time come from their uniform implementation by all the Rating Agencies. These symbols depict both the performance evaluation as well as the credit worthiness of the unit. The Rating is to be prefixed by the word NSIC and its valid for a year from the date of issue of the rating report.

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