MSME Rating

MSME Rating


Benefits of Rating

  • Independent third party evaluation about credit worthiness: It provides a stamp of quality from independent renowned agencies.
  • Better access to funding: It enhances acceptability with banks, lenders and financial institutions and helps to obtain credit at a cheaper rate at a faster pace. It reduces collateral requirement and simplifies lending terms.
  • Confidence among value chain partners: A rating helps to establish credibility among buyers, suppliers’ and collaborators. It helps to negotiate better terms and conditions with other stakeholders.
  • Benchmarking: The rating helps the MSME to identify its position vis-a- vis its competitors in terms of financial and non financial parameters. It helps in benchmarking and provides scope for further improvement.
  • Brand Building: Rating by an independent agency improves the visibility of MSME in the eyes of various stakeholders like buyers, suppliers, collaborators/JV partners etc.


Typical Rating Process

Typically the entire process starting from information receipt to assignment of rating takes two to four weeks. A typical rating process comprises of following:

  1. Request for Rating by MSME
  2. Submission of Financial and Managerial Information
  3. Finalizing the Assignment and Detailed Questionnaire
  4. Site Visit and Discussion with Management
  5. In-Depth Analysis, Industry Research and Draft Report
  6. Proposed Rating before Rating Committee
  7. MSME Advised on Rating
  8. Appeal before Rating Committee
  9. Publishing of Final Rating


Documents Needed to Obtain a Rating *

  • SSI registration certificate/Entrepreneur’s memorandum
  • Memorandum & Article of Association
  • Audited accounts of last three years
  • Project report containing project profile, cost of project, financing structure (For new projects only)
  • Details of insurance for plant, machinery etc.
  • Details of product line, technical & distribution/marketing collaboration (if any), end user segment, order in hand etc.
  • Details about plant set up, equipment/machinery, scheduling etc
  • Tax concession, subsidy available (if any)
  • Nature of advance & security provided, in relation to the loan/credit facility available from banks
  • Quality certification, any award won, export details
  • Bankers report indicating details of transaction between MSME & bank (confidential)


* Note: The list is indicative and varies across agencies.


Approach a Rating Agency

The rating agency can be reached online. One can download the form, fill it, attach necessary documents and send it to the agency along with requisite fees. Alternatively, a MSME can contact the office of an agency, as most of the agencies have a wide reach with offices in major cities. The rating agencies reach out to the MSMEs through their website, sales offices and correspondent networks even in tier-2 and tier-3 cities.


Usage & Validity of a Rating

Assigned ratings are typically valid for a period of one year from the date of issue, subject to there being no significant changes/events occurring during that period which could materially affect the business and financial parameters of the organization/project. It is generally recommended that units renew their ratings on yearly basis.

The assigned ratings can be used for the following purposes:

  • Submitting to the bank, lender, and financial institution for establishing credit worthiness
  • In negotiating collateral requirement, terms of loan and interest rate
  • Establishing credibility in the eyes of buyers, suppliers, technical collaborators, JV partners
  • To identify the strengths/weakness of company and areas of improvement
  • To identify the best practices prevailing in the industry
  • Establishing contacts with foreign business partners


Misconceptions about MSME Ratings


Myth 1: Lenders and banks often rate MSMEs low due to their small size and non-standardized procedures.

Reality: As per CRISIL data, there has been a healthy number of companies with considerable business strength underpinned by the leadership of first generation entrepreneurs who had built strong brands and demonstrated the ability to withstand competition, including from large global players. They have got high ratings and are able to obtain finance at concessional rates.


Myth 2: MSMEs do not typically provide credible financial and non financial business information.

Reality: MSMEs perceive tangible benefits from obtaining ratings and are hence willing to provide the required information. In addition, there is a sizable number of MSMEs who have transactions with large domestic and foreign players and have a history of maintaining high quality financial and business information. These SMEs often obtain high ratings.


Myth 3: For MSMEs, a rating is just a tool for availing favorable terms from lenders.

Reality: The rating is a report card for MSME businesses indicating their strengths and their weaknesses. It helps the MSME identify its position vis-à-vis its competitors and its areas for improvement. Moreover, a rating does not automatically translate into a benefit. It is only a tool and its effectiveness depends, say, on how it is effectively utilized in its negotiations with business partners. It holds the potential to facilitate rich dividends.


Myth 4: Ratings obtained by an SME can replace the internal rating of the lending institutions

Reality: Ratings provided by agencies will not replace the internal ratings of lending institutions. Lending institutions arrive at a representative interest rate based on its internal ratings. Many MSME borrowers are un-aware of their internal ratings and if aware, they are ignorant of the basis of arriving at such ratings. An external rating from rating agencies would make the MSME borrower aware of his rating and the basis of arriving at rating from an external perspective, thus providing him with a competitive advantage. This awareness could also enable the MSMEs to improve its internal rating and endeavor to enjoy better terms from the lender fraternity.