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FE Exclusive: SIDBI to launch a CIBIL-like score for MSMEs

Credit and Finance for MSME: The new MSME rating called Fit Score is being developed on the back of GST data, ITR returns and current bank account details.

FE Exclusive: SIDBI to launch a CIBIL-like score for MSMEs
SIDBI is working on the MSME Fit Score along with credit information company TransUnion CIBIL and digital lending platform for MSMEs Online PSB Loans (OPL).

Credit and Finance for MSME: Small Industries Development Bank of India (SIDBI), the principal financial institution for MSME sector, will launch a new credit risk ranking for MSMEs to enable banks take faster decisions to lend to small businesses.

The new product, developed along with credit information company TransUnion CIBIL and digital lending platform for MSMEs Online PSB Loans (OPL), will give a Fit Score based on the credit risk associated with the MSMEs.

On the difference from the existing MSME rankings, a SIDBI official who spoke on the condition of anonymity, confirmed that the new rating is being developed on the back of GST data, ITR returns (which is a proxy for balance sheet and P&L) and current bank account details. 

“These details will be set against the company’s repayment data to develop correlations and create different buckets of the Fit Score. For example, companies with unstable GST records or with an unsteady income flow are more likely to default on loans and will have a poor Fit Score,” he said.

“The MSME Fit Score will be of larger 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 make faster lending decisions,” he added. 

Currently, the product is being backtested with 400 SIDBI’s customers and the plan is to reach out to 600 more. “I would like the Fit Score to be backtested deeply so there is a high correlation in the Fit Score results and the customer’s account trajectory.”

Also Read: SIDBI to launch invoice-based financing app GST Sahay for MSMEs, opens it to banks and NBFCs

Mukesh Mohan Gupta, President of MSME association Chamber of Indian Micro, Small & Medium Enterprises (CIMSME) said that the success of the new ranking will depend on its uptake from banks. “There are existing MSME ratings too but they didn’t take off because banks continue to depend on their own internal rating methodology to make lending decisions or on bank loan ratings (BASEL),” he said.

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CIBIL too has its credit score for MSMEs called CIBIL MSME Rank (CMR) with values ranging from 1 to 10 where companies rated CMR-1 to CMR-3 are considered lowest risk borrowers and CMR-7 to CMR-10 are ones with the highest risk.

M H Bala Subrahmanya, Professor in the Department of Management Studies at Indian Institute of Science, Bangalore said that while this step is in the right direction, these measures are aimed at boosting only the organized sector. “The challenge is how to enable the transformation of the huge unorganized sector into organized sector enterprises through growth. Some innovative measures are called for to induce unorganized enterprises to get rated and access institutional finance,” he said.

The former MSME Minister Nitin Gadkari had earlier announced the plan to create a rating system for MSMEs, however, last year in July the current MSME Minister Narayan Rane had informed Parliament that there is “no” plan by the government to implement a rating system for MSMEs. Quotes from CIBIL and OPL were awaited at the time of filing the story.

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