CIBIL Rank - Paving The Way For Faster Access To MSME Loans

Blog Post10/19/2018
Credit Advice

How the CIBIL Rank is changing the MSME business owner's access to credit.

The micro, small and medium enterprises (MSMEs) have played a significant role in the India growth story as reflected in the share of the total credit growth the MSME industry has seen lately. The MSME Pulse Report jointly published by TransUnion CIBIL and SIDBI in September 2018 shows that the MSME sector’s credit exposure (as of June 2018) now constitutes 35% of the overall exposure to businesses. 

 In this growing economy, driving MSMEs’ access to formal sources of finance at affordable rates is an imperative, but lending institutions are still apprehensive about the commercial viability of a loan, and the resulting information asymmetry impacts the turnaround time in obtaining finance. Thus, MSMEs in need of immediate finance are forced to explore other sources for access to credit.   

 In an endeavor to correct this information asymmetry and anomaly, TransUnion CIBIL had launched the CIBIL MSME Rank (CMR) for the MSME sector in March 2017. The CMR is a part of the Company Credit Report (CCR) — a summary of a company’s credit profile. While the CCR is available for all commercial entities which have borrowed from the formal lending industry, the CMR is only available for those entities whose overall exposure is in the range of INR 10 lakhs - INR 10 crores. The CMR is now used by lending institutions for loan underwriting and decisioning, credit discretion and disbursal, thus contributing to a noticeable reduction in TAT for credit sanctions to MSMEs. The MSME Pulse Report shows that the TAT for lending to MSMES has reduced from an average of 32 days in 2016 to an average of 26 days in 2018.

 So how is the CMR helping MSMEs gain access to credit? The unique ranking system ranks MSMEs on a scale of 1 to 10, based on their credit history, with CMR-1 being the best possible rank for the least risky MSMEs and CMR-10 being the riskiest rank for MSMEs. The CMR is based on 24 months of account history data (shared by different lenders), which provides unbiased insights pertaining to the credit behavior of MSMEs, so that other lenders can evaluate a business entity more objectively, efficiently and consistently.

 The ranking is broadly influenced by the following parameters:

  1. Repayment Behaviour
    1. Timeliness of past payments
    2. Amount overdue
    3. Delinquency status
  2. Liquidity Profile
    1. Rate of utilization of funds
    2. Missed payments
  3. Firmographics
    1. Vintage of credit relationships (with any lender)

 

 Business owners can now check their company’s CCR and CMR to get started:

  1. Visit the website: https://www.cibil.com/online/Company-credit-report.do
  2. Fill in the details as required in the form such as name and address of the company, contact details of the company and applicant, PAN number and other details and additional information.
  3. Make a payment of Rs 3,000 via debit/credit card, net banking or cash card.
  4. After making the payment, CIBIL assigns a unique Registration ID and Transaction ID which will be mailed to the registered email ID. The ID can be used to access the next steps.
  5. Upload KYC documents.

 

Not only is the CMR solving the information asymmetry conundrum, but is also helping lenders make unprejudiced credit decisions while ensuring eligible MSMEs have a cheaper and faster access to funds. State-owned lender, Bank of Baroda, recently announced a pioneering move in facilitating credit at lower interest rates for MSMEs who have a good CMR. This innovative risk-based pricing of loans will not only drive access to cheaper finance, but will also control the quality of portfolios for banks and credit institutions. TransUnion CIBIL’s report shows that out of all eligible MSMEs in India, ~85% have a rank of CMR 1 to CMR 6, making them eligible to leverage this kind of an offer.

 An MSME business’ growth strategy and expansion plans depend on the company’s access to credit. This, in turn, is influenced by their credit ranking, thus rendering CMR as the rank that lenders and MSMEs can bank on.

Disclaimer: The information posted on this blog (Information) is prepared by TransUnion CIBIL Limited (TU CIBIL). This Information is for generic informational purposes only and is meant for consumer education and awareness about credit scores, credit history and credit reporting. The Information posted on the blog does not constitute credit advice and the user will need to consider the same and take independent informed decisions . No part of this Information may be quoted out of context, distorted ,distributed, published and/ or reproduced in any form and manner whatsoever. Consumers are advised that the Credit Information Reports (CIRs) prepared by TU CIBIL are based on collation of information, substantially, provided by credit institutions who are members with TU CIBIL. TU CIBIL is not responsible and /or liable for errors and/or omissions caused by inaccurate or inadequate information submitted to it by credit institutions. TU CIBIL does not guarantee the adequacy or completeness of the Information and/or its suitability for any specific purpose nor is TU CIBIL responsible for any access or reliance on the Information. TU CIBIL expressly disclaims all such liability. Further, this Information is based on the data available with TU CIBIL at the time of publication and therefore may not be up-to-date.