The Minister of Micro, Small and Medium Enterprises (MSMEs), Nitin Gadkari, has said that the government will develop a system of financial ratings for MSMEs.
Addressing a webinar on June 28, he said that the ratings system will depend on a variety of criteria like annual turnover, income tax records, GST (goods and services tax) and export credentials of the borrowers.
The MSME industry associations and sector experts have welcomed the government's initiative, saying that it will not only help the lenders in making correct and safe decisions, but will also reward the MSMEs.
Speaking to Moneycontrol, Ramamurthy, Member, All India Council of Association of MSMEs (AICA), which represents a coalition of 170 MSMEs across the country, said, "It is a welcome step by the government as it would benefit and reward the MSMEs, which are compliant in filing their returns. We have been requesting the government for such a system."
"I would like to request the government to prepare a fresh set of guidelines for the rating system in consultation with all the stakeholders like MSME associations, banks and experts from finance," he added.
Ranjeet Mehta, a public policy expert echoed similar sentiments. "This is a good initiative by the government as it would give credibility to the MSMEs in the market. It would also make MSMEs attractive in the export market and would facilitate them to get funds from outside also," he pointed out.
"This would not only benefit the MSMEs, which are healthy and comply with the rules but would also set an example for the others to follow," Mehta explained.
According to him, by assigning ratings to the MSMEs, the lending procedure would become streamlined and quick. It would also help the banks in taking correct lending decisions.
Vinod Kumar, President India SME Forum, concurred.
"It is a great step by the government in the right direction as it will eliminate fraudsters who take loans by sharing fudged documents. It would also eliminate the risk of human bias because such decisions are taken by bank officials, which brings in an element of prejudice," he said.
He believes that the system will succeed only if lenders follow a common assessment structure.
"The system of providing ratings to MSMEs will become successful only when a single set procedure of assessment is followed by all the lenders, which should be framed by the central bank to ensure uniformity. This is because all the banks also do an independent assessment before sanctioning a loan and deny granting loans if the borrowers do not fit into their assessment system," Kumar explained.
A functionary of an industry chamber said: "The government has been aggressively working to bring in a ratings system. COVID-19 has only acted as a catalyst to expedite this. In the past two months, about seven meetings have been held to deliberate on the matter."
According to a key source, the government is in talks with the central bank and the Small Industries Development Bank of India (SIDBI) to finalise the ratings criteria for MSMEs."New ratings guidelines for MSMEs will be drafted. This is being done so that the MSMEs are not rated in the manner of large corporations and companies, because it would naturally put them at a disadvantage, given that their scale of operations is much smaller in size, " the source said.