TransUnion CIBIL and Ministry of Statistics & Programme Implementation (MoSPI) Launched MSME Credit Health Index

In order to provide a reliable measure and benchmark of the growth and strength of the MSME sector in India, TransUnion CIBIL in partnership with Ministry of Statistics & Programme Implementation (MoSPI) has launched MSME Credit Health Index. The MSME Credit Health Index will provide government, policy makers, lenders and MSME market participants, a unique and reliable numeric indicator for measuring and benchmarking the health of the MSME sector. This measurement model, based on comprehensive data and intensive analytics is set to facilitate better MSME credit risk management, formulation of strategies and policies to support the revival and resurgence of the MSME sector and the economy.

Enabling the MSME ecosystem to transact with confidence

The MSME Credit Health Index is built using credit data submitted by lending institutions to TransUnion CIBIL. The index measures the credit health of India’s MSME industry on two parameters: Growth and Strength. Growth is measured by plotting increase in exposure value (outstanding balances) over time and strength is measured by decrease/ increase in credit risk in terms of non-performing assets (NPA). Both the growth and strength indices follow the principle of higher the better – i.e. an increasing Growth Index indicates improvement in credit growth; and an increasing Strength Index implies better asset quality and therefore denotes an improvement in the structural strength of the sector.

Speaking at the launch of this index, Dr. Kshatrapati Shivaji, Secretary, Ministry of Statistics & Programme Implementation (MoSPI) said, “The MSME sector comprises of over six crore enterprises, contributes nearly 29% of India’s Gross Domestic Product (GDP) and provides employment to over 11 crore workers. Being a vital engine for growth, it is important to continuously monitor and measure the strength, growth and progress of the MSMEs, so that policies can be aligned and timely interventions taken. MoSPI is happy to partner with TransUnion CIBIL to introduce the MSME Credit Health Index as a new and alternate data source for use in policy making for the MSME sector.”

The first version of the MSME Credit Health Index is based on data from March 2018 to June 2020. Explaining the insights as indicated in the MSME Credit Health Index, the MD and CEO of TransUnion CIBIL- Mr. Rajesh Kumar said, “TransUnion CIBIL is committed in providing insights and solutions to support the economic revival of the country and with the launch of the MSME Credit Health Index we further reassert our commitment by introducing a reliable, objective and sharp indicator of the strength, growth and stability of the MSME sector. The Index is available at national level and granularly across MSME segments, lender categories and geographies. The objective of the Index is to support MSMEs, lenders and policy makers with an efficient tool to monitor and benchmark the movement in the micro-ecosystems of the MSME sector. The ongoing monitoring of the index will provide insights for aligning strategies and policies towards efficient implementation of funds and resources for sustained development of the MSME sector and thereby the socio-economic growth.”

Overall analysis of the Growth Index reflects muted growth in June 2020 owing to limited credit activity consequent to the containment measures implemented by the Government to curb the spread of COVID-19 pandemic.

The MSME sector has seen an increased level of NPAs in the last two years consequent to a slower rate of economic growth. Cash flows of MSMEs have been impacted over a period of time thereby limiting their ability to service debts. This has resulted in the Strength Index reflecting a decreasing trend. The improvements seen in March are due to improved recovery and collection efforts by lenders before the close of financial year.

Digital lending innovation directly proportional to growth

MSME Size-based Index Map

Analysis of MSME Credit Health Index at a sub-segment level shows that the momentum of growth, when compared to the benchmark for each sub-segment of MSME, is highest for the Micro segment (exposure less than INR 1 Cr). “There is empirical evidence now which proves that digitalization of lending processes is directly proportional to growth as seen in the Micro segment, which witnessed large scale digital lending innovation in the last two years and significant growth consequently. Lenders across the industry have adopted an analytic driven underwriting approach supported by alternate data which has propelled its growth,” emphasizes Rajesh.

A look at the Strength Index by MSME size reveals that the Index values across all segments have reached the same level in June 2020, while following a different trajectory in the last two years. In the pre COVID-19 quarter of December 2019, the strength was the lowest for the Medium segment. However, a much increased focus on recoveries before the end of financial year resulted in the strength of Medium segment improving significantly for the March 2020 quarter.

Lender Category-wise Index Map

At a lender category level, NBFCs and Private Banks have shown a higher growth momentum. Private Banks have contributed to over 50% of incremental credit to the MSME sector over the last two years. NBFCs were the fastest growing category in 2018. The liquidity crisis towards the end of 2018 limited the ability of NBFCs to extend credit. As a consequence, NBFC credit growth slowed down in 2019. Public Sector Banks have seen a muted credit growth in the last two years.

The Strength Index by lender category reflects a relatively faster decline for Private Banks driven by few players experiencing higher stress in their portfolio compared to others. However, it is also pertinent to note that the NPA rates of Private Banks, despite showing an accelerated increase, continue to be at much lower level compared to PSU banks and NBFCs.

State-wise Index Map

Analyzing the index at a state level indicates that among states with substantial MSME portfolio (more than 4% share in total MSME exposure) – Tamil Nadu, Uttar Pradesh and Rajasthan have shown higher growth momentum. The state of Tamil Nadu also reflects relatively better strength.

“At TransUnion CIBIL we are committed to supporting the economic revival of our country and have undertaken several initiatives such as the launch of MSME Saksham platform in association with SIDBI quarterly MSME Pulse Insight reports, as well as the industry-level analysis on Emergency Credit Line Guarantee Scheme (ECLGS) package to support the credit sector to swiftly and securely grant loans under this scheme. With the launch of the MSME Credit Health Index we further reassert our commitment by introducing a reliable and efficient measurement model of the health, strength and growth of the MSME sector,” concluded Rajesh.