Is SIDBI planning to launch a CIBIL like score for MSMEs? - By Egniol

Is SIDBI planning to launch a CIBIL like score for MSMEs?

The Micro, Small, and Medium-Sized Enterprise Credit Risk Score System that the Small Industries Development Bank of India (SIDBI) is planning to roll out will make it simpler and more expedient for MSMEs to access funds and loans.

When it comes to providing financial assistance to locally owned and operated companies, time is money. As a result of this, the Small Industries Development Bank of India (SIDBI), which is the most prominent financial institution catering to the MSME sector, has decided to implement a new credit risk ranking for MSMEs.

TransUnion CIBIL, a company that provides credit information, and Online PSB Loans (OPL), a digital lending platform for micro, small, and medium-sized enterprises (MSMEs), have collaborated to develop a new product that will provide a Fit Score based on the credit risk of MSMEs. This score will be derived from the data provided by TransUnion CIBIL.

The need for a new score for MSMEs

An unnamed SIDBI official confirmed that the new rating is being developed using data from GST, ITR returns (a stand-in for balance sheet and P&L), and transactional bank account information. Thus, the new rating stands apart from the current MSME rankings.

All of this data will be cross-referenced with the company’s repayment records to find patterns and create Fit Score tiers. Companies with unreliable GST records or inconsistent income flow are more likely to default on loans and have a low Fit Score, as per his explanation.

“The MSME Fit Score will be of greater interest because it will be a standard rank for MSMEs that can be integrated in various platforms like the invoice financing app GST Sahay to enable lenders to make faster lending decisions,” he said, emphasising the importance of the score. The intention of this statement was to stress the value of the MSME Fit Score.

SIDBI’s Target Range for MSMEs

Is SIDBI planning to launch a CIBIL like score for MSMEs? - By Egniol

Currently, 400 of SIDBI’s customers are participating in a beta test of the product, and it is expected that another 600 customers will be contacted in the near future. In my opinion, it would be beneficial to conduct extensive back testing on the Fit Score to ensure that it reliably predicts future customer behaviour and account performance.

Having the new ranking adopted by banks is crucial, says Mukesh Mohan Gupta, president of the MSME association Chamber of Indian Micro, Small, and Medium Enterprises (CIMSME). He explained that the reason MSME ratings didn’t take off was because banks preferred to use their own internal rating methodology or bank loan ratings (BASEL). “This is because financial institutions often base their decisions to extend credit on their own internal rating methodology or on external bank loan ratings.”

How will this score work?

Is SIDBI planning to launch a CIBIL like score for MSMEs? - By Egniol

The CIBIL MSME Rank (CMR) is CIBIL’s version of a credit score for SMEs. Its values range from 1 to 10, with 1 representing the lowest risk borrowers and 10 representing the highest.

While this is a positive development, according to M H Bala Subrahmanya, a professor in the Department of Management Studies at the Indian Institute of Science in Bangalore, these policies will only benefit the organised business sector. Growing the massive unorganised sector into organised sector businesses is a challenge. Some creative measures are required, he said, to encourage unorganised businesses to get rated and gain access to institutional financing.

However, current MSME Minister Narayan Rane told Parliament in July of last year that the government has “no” plans to implement a rating system for MSMEs, despite an earlier announcement by his predecessor, Nitin Gadkari. At the time of publication, CIBIL and OPL had not yet provided any comment.

What role does Egniol play in all this?

Nonetheless, our team of experts at Egniol (The best startup consultants In India) is only a click away if you require additional details or help with understanding this upcoming credit score that SIDBI is launching. If you are seeking additional information and assistance with applying for SIDBI loans, there is no need to continue your search. Egniol will not only provide you with the necessary information, but will also guide you through each step of the process to ensure that you achieve the desired results.

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