'SMEs should get credit rating for easy loans'

Urging small and medium enterprises (SMEs) to get credit rating, Shilpa Puri, manager of the economic research group, SME Rating Agency of India Ltd (Smera), said that it would help in a greater flow of finance to the sector.

Smera is the country's first rating agency that focuses on the Indian SME segment. It has rated 250 units so far and 400 are in the pipeline.

Puri said that the flow of credit to the SME sector was not commensurate with its contribution to the country's GDP. It is estimated that there are 118.59 lakh small scale industrial units in the country employing about three lakh people.

The productivity levels of the sector have also been high with each employee generating on an average Rs 1 lakh worth of output per year.

"The financial needs of SMEs are timely, adequate and reasonably priced credit with less collateral requirement. However, what hampers credit flow to the sector are factors like risk averseness of banks and information asymmetry. SMEs, therefore, need to get rated by an independent agency to negotiate better terms with banks," Puri said at the awareness programme on 'Credit rating of SSI sector', organised by the Federation of Andhra Pradesh Chambers of Commerce and Industry (Fapcci), Smera and the National Small Industries Corporation Ltd (NSIC).

SMEs are given credit rating based on financial and non-financial factors like solvency, liquidity and turnover ratio, management quality, location advantage and marketing network.

The average duration to receive such rating is 4.5 weeks and based on the NSIC-Smera scheme, the average cost for a rating is about Rs 5,500.

According to B Yerram Raju, director of the Indian Institute of Economics, credit rating gains prominence because SMEs operate mostly on debt.

Atluri Subba Rao, senior vice-president of Fapcci said that the units with better rating would get cheaper and easy finance by way of reduction in the interest rate.