The Economic Times,
MUMBAI: The one problem that SMEs across the country face is getting financial support. While banks and other financial institutions do have support programmes like loans, a general opinion is that banks tend to support only those SMEs that have good ratings.
According to media reports, banks offer interest rates concession between 0.25-1.25 percent to SMEs that enjoy high ratings. However, media reports also suggest that out of approximately 14 lakh SMEs in the country, only a meager 9 percent of bank loans go to them.
This seems to be a fact even in a locality like Andheri East, which has scored of budding entrepreneurs and SMEs, which seem to be in dire need of financial support which would further result in indirect benefits like good logistics.
Speaking at the India SME leadership Summit held last week, Ramnath Pradeep, chairman of SME Banking and Investment Council of SME Chamber of India, impressed upon SMEs to undertake ratings and get good ratings to avail concessional and better loans.
Currently, the number of SMEs availing loans is miniscule. Raju Awasthi, an electronic manufacturing unit owner in Jogeshwari is of the opinion that it is the unorganised nature of the sector which is the reason behind the small number of loans approved. “Banks are doubtful and apprehensive of their credibility,” he says.
Awasthi sees ratings as the solution around it. “Not only will it remove the tag of being ‘unorganised’, it will improve the overall performance and awareness of the SMEs too.”
Counting the benefits, he adds, “Once an SME gets a rating, the banks are comfortable in dealing with them. It also helps in the capital provisioning requirement for SMEs. They make SMEs more efficient by providing benchmarks and improving transparency.
When ratings are done by an independent agency, based on high standards of analytics, it can provide confidence to lenders and thereby widen the range of financial resources available to them.”
SMEs in Andheri East, according to Mr Awasthi, face a lot of issues. “Apart from securing finance, they faces issues like skilled labour shortage, technology knowledge gap, lack of HR services, logistics etc.
I firmly think that rating can surely recognise their efficiency and help them in strengthening their credibility, not only with bankers but also with other service counterparties like technology providers, suppliers, and customers.”
Nilesh Ozarkar, director- business development, Tasty Foodie Hospitality Services, says, “By demonstrating the credit worthiness of an enterprise, ratings facilitate SMEs in their development journey, as it facilitates the financer to take an informed decision regarding the investment.”
Taking about the process of rating, Ozarkar says, “The rating is a enterprise risk analysis, which is the composition of various financial and non-financial parameters like sector risk giving the risk exposure for specific sector or industry, current performance and growth prospects.
Business risk highlighting risks arising from too high dependency on a single line of business or product etc., management risk which plays a vital role, their competency from various perspectives (academic to enterprising) being evaluated from overall sustainability and growth, reflecting their passion for business and level of confidence and financial risk which highlights the financial performance with the current state and the likely one moving ahead on the journey.”
Apart from financial help…
Dinesh Agarwal, founder and CEO, IndiaMART.com, which is a B2B platform for SMEs says, “SMEs utilise feedback from these ratings to enhance their overall operations and productivity “. Awasthi believes it increases efficiency as in the pursuit of getting better ratings, SMEs push themselves to do better.
Agarwal adds that in a B2B space, it is difficult to know the scale of operations, quality certifications et al, IndiaMART.com introduced the concept of third party business verification called TrustSEAL.
“It is issued post verification of company’s credentials, affiliations and quality certifications. It helps buyers to make an informed decision about suppliers and further acts as a sales accelerator. If good ratings lead to better chances of receiving funds from banks, business verification leads to higher chances of bagging orders.”
While SMEs and bankers claim that ratings help SMEs with financial as well as internal support, there is an equal amount of criticism against the rating agencies as well.
Bankim Mistry, president of Bombay Small Scale Industries Association, says, “SME rating is as good as a blunt knife. Most of the ratings are done to avail subsidy.
The MSME sector does not have any direct benefit. Funds for MSMEs are systematically siphoned out to corporates.” He adds that good rating may be beneficial, but banks otherwise also recognizes good SMEs and grant better facilities.
Even with the good ratings, as per media reports, about 50 percent-60 percent of SMEs do not seek renewals. Awasthi says, “I know many SMEs in Andheri East itself which went for ratings, got mediocre or bad rating and haven’t gone back. One cannot really point out any reason for this.
May be they are not ambitious enough. Going back for renewal is not really regulatory even as ratings are not mandatory. However, it is a fact that SMEs with credit ratings, good or bad, have an edge over those without.”
Charu Dutt Sharma, vice president of SME – Operations at SMERA points out that SMEs do not have much incentive to get themselves rated. “There is one scheme by the MSME ministry that NSIC provides 75 percent of the fee for getting rating.
But that is only for one time. Most SMEs face the problem of accessibility and affordability. Secondly, SME rating is a new phenomenon. Hence there is a lack of awareness.”
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