Performance & Credit Rating Scheme for MSME

The MSME sector plays an important role in the Indian economy. The fast changing economic scenario has given rise to many opportunities and challenges for the small businesses. However, inspite of all the opportunities and advancements, MSME businesses are still prone to losses and many end up prematurely closing down the company. To prevent such instances and to given them sound advice in terms of technology, management and financial management, the Performance & Credit Rating scheme has been introduced by the Government. Through the scheme, MSME businesses can obtain credit rating from various Credit Rating Agencies like CRISIL, ICRA, Dun & Bradstreet, (D&B), Brickworks and ONICRA, at a lower cost. In this article, we look at the Performance & Credit Rating scheme in detail along with procedure for availing the subsidy.

Know about the benefits of credit rating.

Credit Rating Report

National Small Industries Corporation (NSIC) is the nodal agency for the Performance & Credit Rating Scheme. Rating agencies which are registered by SEBI and empanelled as External Credit Assessment Institution (ECAI) by RBI are eligible to carry out rating of MSEs under the scheme. After application, the credit rating agency would review the business including completion of a site visit and arrive at a credit rating. The credit rating would be a combination of performance and credit worthiness of the unit. The MSMEs rating methodology covers factors like operations, finance, business and management risk. The credit rating report for MSME can be divided into three parts as follows:

Overall Rating Scale

MSE 1 Highest credit worthiness in relation to other MSEs
MSE 2 High credit worthiness in relation to other MSEs
MSE 3 Good credit worthiness in relation to other MSEs
MSE 4 Above average credit worthiness in relation to other MSEs
MSE 5 Average credit worthiness in relation to other MSEs
MSE 6 Below Average credit worthiness in relation to other MSEs
MSE 7 Weak credit worthiness in relation to other MSEs
MSE 8 Poor credit worthiness in relation to other MSEs

Financial Strength Scale

Highest
High
Good
Above Average
Average
Below Average
Weak
Poor

Operating Performance Scale

Highest
High
Average
Weak
Poor

The criteria for evaluation is left to each of the Rating Agencies. However, the symbols and their definition for indicating the risk score in the rating awarded has been evolved for uniform implementation by the Rating Agencies, as mentioned above to support comparability across Rating Agencies.

Click here to know about factors that influence credit rating.

Choosing Credit Rating Agency

As the rating scale and methodology is standardised, the MSME can select any of the approved rating agencies empanelled under the rating scheme. Any MSE unit wishing to apply for rating can fill up the credit rating application form and submit it to the rating agency and upload a copy on www.msmedatabank.in.

Credit Rating

After making an application for credit rating, the documents required to be submitted by the MSE unit will be collected by the selected rating company. After collection of documents, onsite meeting with MSE Management is setup. Based on the documents and onsite meeting, a credit rating report is prepared along with rating.

Credit Rating Fee

The credit rating fee is decided by the Rating Agencies based on the sales turnover of the business. The Rating Agencies are also required to intimate to NSIC the rating fee at the time of empanelment, so that fee is known in advance to the applicant and NSIC.

Credit Rating Fee Subsidy

Based on the Rating Agency selected by the business and their rating fee, the Ministry of MSME would reimburse the following amount per each rating completed by a MSME business.

Up to Rs.50 lacs sales turnover - 75% of the fee charged by the rating agency subject to a ceiling Rs. 15,000/-
Above Rs.50 lacs to Rs.200 lacs sales turnover -75% of the fee charged by the rating agency subject to a ceiling of Rs.30,000/-
Above Rs.200 lacs sales turnover - 75% of the fee charged by the rating agency subject to a ceiling of Rs.40,000/-

The balance amount after subsidy is to be paid by the MSME business. MSME registration is necessary for availing the Performance & Credit Rating Scheme.

You can obtain MSME registration through IndiaFilings easily.

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Frequently Asked Questions

Common questions about MSME Performance & Credit Rating Scheme.

The Performance & Credit Rating Scheme is an initiative by the Government of India to help MSME businesses obtain credit ratings from approved rating agencies at a subsidized cost. The credit rating evaluates the performance, creditworthiness, and financial strength of the MSME unit, providing valuable insights for better management and access to finance.

The rating agencies eligible to carry out ratings for MSMEs under this scheme are those registered with SEBI (Securities and Exchange Board of India) and empaneled as External Credit Assessment Institutions (ECAI) by the Reserve Bank of India (RBI). Some approved agencies include CRISIL, ICRA, Dun & Bradstreet, Brickworks, and ONICRA.

The credit rating for MSMEs takes into account various factors related to the business, including operations, finance, management risk, and overall credit worthiness. Specific criteria may vary across rating agencies, but the rating scale and symbols used are standardized for uniform implementation.

The credit rating report for MSMEs is divided into three parts: Overall Rating Scale, Financial Strength Scale, and Operating Performance Scale. Each part has a rating scale ranging from the highest credit worthiness (MSE 1) to the poorest credit worthiness (MSE 8).

A credit rating provides valuable insights into the business's financial health, operational performance, and creditworthiness. It helps MSMEs access better financing options, negotiate better terms with lenders, suppliers, and customers, and improve their overall management and decision-making processes.

To apply for the credit rating under this scheme, an MSME unit can fill out the credit rating application form, submit it to the selected rating agency, and upload a copy on the MSME Databank website (www.msmedatabank.in).

After receiving the application, the rating agency collects the required documents from the MSME unit, conducts an onsite meeting with the management, and based on the information gathered, prepares a comprehensive credit rating report along with the assigned rating.

The credit rating fee is decided by the rating agencies based on the sales turnover of the MSME business. The agencies are required to inform NSIC (National Small Industries Corporation) about their fee structure during the empanelment process.

The Ministry of MSME provides a subsidy of 75% of the rating fee charged by the agency, subject to a ceiling that varies based on the MSME's sales turnover. For turnover up to Rs. 50 lakhs, the ceiling is Rs. 15,000; for turnover above Rs. 50 lakhs to Rs. 200 lakhs, the ceiling is Rs. 30,000; and for turnover above Rs. 200 lakhs, the ceiling is Rs. 40,000.

Yes, MSME registration is a prerequisite for availing the benefits of the Performance & Credit Rating Scheme. The article mentions that MSME registration can be obtained easily through platforms like IndiaFilings.