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Diversification of business model — by geographical reach, product range, and customer base — carries a lot of weight in credit risk assessments. So a well-diversified MSME will have a credit-quality edge over peers with concentrated businesses. CRISIL’s analysis of the financials of over 1,000 MSMEs for fiscal 2016 reveals that 51 per cent of the well-diversified ones have above-average credit ratings.
Such MSMEs are more attractive to lenders, having almost twice the leverage over their peers. While higher leverage means more borrowings and interest cost, MSMEs with diversification on the above-stated three parameters still have similar profit margins compared
