Credit and finance for MSMEs: Credit bureau TransUnion CIBIL on Tuesday launched a ranking model for MSMEs FIT Rank in collaboration with digital credit marketplace Online PSB Loans. The system will leverage business information including GST, bank statements, income tax returns and apply machine learning to predict the probability of an MSME becoming a non-performing asset (NPA) in the next 12 months. Based on the financial, income, and trade data of an MSME, the system would rank it on a scale of 1 to 10.
While FIT Rank 1 would indicate the business to be least risky, FIT Rank 10 would mean the entity is most at-risk of becoming an NPA. Each FIT rank corresponds to a “Probability of Default” (PD) which means the lower the FIT Rank, the lower the perceived risk of default associated with the MSME.
Also read: MSME bad loans for banks may rise to 11% in FY24 from 9.3% in FY22: Crisil
“This is the first time TransUnion CIBIL in collaboration with Online PSB Loans has developed a credit default predictor model based on financial, income and trade data which has been made possible due to the improved digitization in the credit industry,” said a statement by TransUnion CIBIL.
In the last financial year, 27 lakh MSMEs had availed credit, out of which 11.6 lakh MSMEs were new-to-credit or first-time borrowers. However, out of the remaining 15.4 lakh existing borrowers, more than 9 lakh MSMEs (58 per cent) belonged to the medium-risk segment (CMR-4 to CMR-6) through the CIBIL MSME Rank (CMR) model.
Also read: NPAs in MSME sector increased by 12.5% in Q4 FY22 from year-ago period: Report
“The FIT Rank enables more than five times risk differentiation in this medium-risk segment by ranking MSMEs based on their GST, Banking and ITR data. With banks and credit institutions being able to assess credit risk using this comprehensive ranking model, they can confidently lend and provide financial assistance to many more MSMEs,” the statement added.
Speaking at the launch of FIT Rank, TransUnion CIBIL MD & CEO Rajesh Kumar said, “In order to strengthen pathways to achieving the goal of making India a $5 trillion economy, it is vital to drive access to financial opportunities for many more deserving MSMEs across the country’s geography. The lack of a comprehensive and one-stop source of information on MSMEs is one of the key roadblocks to credit growth in the sector.”
Insights from TransUnion CIBIL showed that over 90 lakh MSMEs had CMR in the range of 1-6, indicating a substantial number of deserving MSMEs which fall in the stable credit risk segment and can be extended credit opportunities for growing their businesses. “We believe that FIT Rank will be able to help India’s credit industry in significantly scaling portfolio growth while also supporting the government’s Atmanirbhar Bharat initiative by increasing access to finance for MSMEs,” said Jinand Shah, Managing Director, Online PSB Loans.
Subscribe to Financial Express SME newsletter now: Your weekly dose of news, views, and updates from the world of micro, small, and medium enterprises