CRISIL Revises Rating Scale for Micro & Small Enterprises

CRISIL Revises Rating Scale for Micro & Small Enterprises

The Ministry of Micro, Small and Medium Enterprises has revised guidelines on the Performance and Credit Rating Scheme (PCRS) implemented through the National Small Industries Corporation (NSIC). CRISIL believes that the new guidelines will increase the usage and acceptance of credit ratings across micro and small enterprises (MSEs).

Manish Jaiswal, Business Head, CRISIL SME Ratings said,  “If India is to see truly inclusive growth, MSEs will have to play a significant role because of the employment opportunities they generate. This, in turn, will increase consumption demand. A credible credit rating improves the ability of MSEs to access formal finance, which is vital to their plans to invest in growth.”

The Official statement said that the CRISIL has thus far rated firms on two scales – NSIC-CRISIL (which had two dimensions — a five-point scale to measure operational capability, and a three-point scale to measure financial strength) and CRISIL SME Ratings (which is an eight-point, uni-dimensional scale).

CRISIL has assigned over 91,000 MSME ratings till date and the product has been a huge success. The new scale is expected to accelerate the adoption of credit ratings in the MSE universe.

The guidelines now recommend evaluation of MSEs on three parameters:

1. Operating performance: A five-point scale to assess business risks such as technology, processes, customer and management.

2. Financial strength: An eight-point scale to assess financial profitability, leverage and liquidity risk.

3. Overall creditworthiness: An eight-point scale that combines both the above parameters to assess overall credit quality

Pawan Agrawal, Chief Analytical Officer, CRISIL Ratings, says, “CRISIL pioneered ratings for MSEs in India. The new scale reflects our robust understanding of risks specific to MSEs, gained by rating a large number of firms. In addition to an opinion on creditworthiness, the new scale provides a more granular view of operating performance and financial strength.”