What is Government Performance and Credit Rating Scheme for MSME

For procuring credit worthiness and capabilities of any industry in this current sector, MSME Ministry of India came up with a new version of the credit rating and performance scheme. Lok Sabha worked hard with the Minister for Micro, Small and Medium Enterprises to implement these changes. The ministry, with the help of National Small Industry Corporation Limited, is now working hard to implement these performance and credit schemes for providing trusted third party opinion on their creditworthiness and capabilities. The main aim around here is to create awareness about the weaknesses and strengths of the current operations.

Zero Defect Zero Effect:

According to the MSME Minister Kalraj Mishra, a new scheme under Zero Defect Zero Effect certification has been approved as the financial support system to the MSMEs. According to this new scheme, MSMEs will get assessed on 50 different parameters on ZED Maturity Model. This change will literally help in strengthening or even facilitating the Indian government initiative of “Make in India” module.

For taking good care of the quality and its production level, Indian government has actually encouraged MSMEs through the Credit Rating Scheme and by organizing some of the best awareness programs. The main aim is to offer financial support for the product certification according to the international and national standards.

Under the present financial support to the MSMEs under the ZED certification service, MSMEs now have the liberty to actually address on the Zero Defect Zero Effect maturity model. As per this model, MSMEs will now get rated in five different levels.

Changes made within few months:

In a report as presented to MSME, few months back, the smaller and micro businesses were all pretty set to procure incremental business, which is worth around 2 trillion rupees out of the 3 trillion mark designed for this sector within the budget scheme.

A hefty sum of Rs.3,02,885 crore was allotted to this sector of micro, smaller and medium enterprises, which lead to a beneficial aspect of Rs.2,00,000 crore to this sector.
These benefits are likely to round up at around 10.5% of the entire expenditure of the budget, as estimated for the financial year of 2016-17.
Along with that around Rs.60-trillion was actually contributed by the MSME department, which actually covered 37.5% of the entire country’s GDP. It even employed majority number of people, which changed the outlook of businesses in India for sure.
This allocation is primarily divided between the investment categories and the consumption ones. A total amount of around Rs.95,638 crore is noted to go right under consumption and around Rs.2,07,247 crore stated under the investment category.

Learning about the MSME Schemes and the current standing will surely help you a lot to know what your business might get, if it falls under the MSME head. Moving forward with the changing norms under government performance is the key to consider.

Also Read: Difference between the definition of Old & New MSME in India

Credit rating scheme – a general understanding:

The smaller scale sector is occupying one major position in India’s developing economy. So, there is always a need to create that awareness among these smaller scale units about the weaknesses and strengths of their current operations and offering a chance to enhance organizational strengths. So, there has been a need to introduce Rating Scheme for the Small Scale Industries. This rating scheme will actually encourage the SSI sector to improve the contribution to economy by increasing productivity. A good rating will further help in enhancing the acceptability in market and make access to quicker and cheaper credit. So, overall, it helps in economizing the credit cost as well.

After going through some changes and requirements, a MSME Credit Rating Scheme has been established after consulting with multiple stakeholders. These are mainly the Indian Banks’ Associations, Small Industries Associations and multiple rating agencies like ICRA, CRISIL, ONICRA and D&B, with government’s approval in the back.

The scheme benefits and highlights to consider:

The primary goal of this scheme is mainly to create trusted and established third party opinion on the credit-worthiness and even capabilities of MSMEs. So, now the credits are easily available under attractive interest rates. It will ensure higher productivity channel. Thanks to this scheme, a significant percentage of the Rating Agency charges will be reimbursed by the SSI Ministry. Before you proceed further with the Government Schemes for MSME, it is vital to check out the benefits and some of the highlights associated with the said scheme.

The fee that the MSMEs have to pay to the rating agencies is completely depending on the turnover of the Smaller Scale Units. These units have been divided under three basic slabs. These slabs are targeted with the Share of SSI Ministry and the Turnover, towards fee charged by Rating Agency.

The turnover of the MSME fee reimbursements through NSIC will be as marked below:

Around 50 lakh rupees – INR25, 000 of 75% of the fee, whichever seems less
Above 50 to 200 lakh rupees – INR30, 000 or 75% of the targeted fee, which seems to be the lesser one
Over 200 lakh rupees – INR 40,000 or 75% of fee, whichever deems less

All the recognized MSMEs are eligible to get hold of this latest government schemes of course.

Rating approach for the SSI units:

NSIC can be termed as one nodal agency, designed for implementing the performance scheme and credit ratings for the smaller scale industries through various offices or branches, located throughout the country.

The rating of the unit will be a perfect combination of credit worthiness and performance of the unit.
The SSI rating mean will cover a perfect combination of performance and credit factors. Some of those points include financial risk management, business and management risks, and parameters measuring the operational function of the SSI.
The rating agencies are further empaneled by the NSIC Head Office for implementing the said scheme for facilitating the current rating procedure.
NSIC will also have to maintain that unit based database, as awarded ratings by various rating agencies.

The smaller scale unit has all the liberty to actually select any of the available and mentioned rating agencies, which are currently empaneled under NSIC rating scheme. The rating agency, as chosen, will be mentioned in the request for procuring that rating.

The rating process:

There are five basic steps used for covering the rating process these days. First of all, there will be a request for rating from the current SSI or MSME units. Then the units have to present information, collected by the rating agencies. There will be an onsite meeting with the management team of the SSI as its third step. After that, the information, as procured from the SSI units, will be analyzed and scrutinized. Later, the rating agency will assign the best rating as the last and final stage.

Understanding more about the fee structure:

These rating agencies are known to have various fee structures for rating of multiple clients, as placed under SSI or MSME units. The agencies have every right to devise the current fee structure for the SSI units under separate schemes.

The evaluation criteria for awarding the final rate is completely different from multiple rating agencies and the acceptability is subject to vary among users.
The rating fee is actually charged by the rating agencies and that varies from one house to another.
It is always up to the rating agencies to decide their fees, as intimated to NSIC during the empanelment time. So, that targeted fee will be a well-known one in advance to not just the applicant unit, but to NSIC as well.
Later, these rating fees might be reviewed by these agencies from one time to another because of the ever-growing competition and the size or number of the clients. Following the CIR from the Indian government before finalizing on the rating is mandatory for the agencies of course.
Even though the rating fee among the agencies will vary from one another, but just for the sake of subsidizing the rate, there has been a limitation from the Indian government. Every rating agency needs to follow that before finalizing on their deals.
The smaller scale units might have to contribute towards rating fee with the application. The payment can be made through draft or pay order, whichever one the rating agency prefers.
In order to treat the rating closely by the agency because of non-receipt of information, around 50% of the fees as received from SSI unit will get refunded by rating agency.
On the other hand if the SSI unit backs out from the rate as presented by the rating agency, there won’t be any refund taking place.

The rating scales as considered:

Even though the evaluation criteria depend on the rating agencies, the definition and symbols indicating risk score has already evolved for the uniform implementation by the present rating agencies. While assigning a rating to the SSI units, the symbols with their definition will be placed right under an Annexure. These symbols will actually depict both performance evaluation and even the unit’s creditworthiness. The rating will always be prefixed by NSIC.

Application forms and their process flow:

Visit any NSIC office for the application forms and even you can get one from the empaneled rating agencies. You can visit the websites of IBA, NSIC and rating agencies to get hold of these application forms as well. Some of the interested and smaller industrial associations will be requested to make available the current application form from website. If any of the SSI unit wishes to apply for rating, that unit has to fill up the prescribed form and then submit the same to NSIC or any of the rating agency as part of it.

It is mandatory for the SSI unit to submit application for rating in its duplicate form.
The units can submit it to any of the branches or offices of NSIC or to the rating agency directly, as selected by the smaller scale units.
Upon receiving the application receipt, the NSIC will forward a second copy with the documents and information submitted by unit to the agency with the comments, if there are any.
As an alternative manner, if this application is actually submitted to rating agency, one application copy will then be sent to NSIC by the rating agency for comments and reference.

The MSME or SSI units, which are looking forward for rating, might have to submit documents as per the given list under Annexure I B. It should come with the application as well. It is always up to the rating agencies to peruse documents received. In case of any short fall, the agencies will communicate the same to the said MSME or SSI unit for rectification or completion within a span of 15 days.