EEPC India proposes separate MSME rating system for better funding and global competitiveness

New Delhi: The apex engineering exports promotion body, EEPC India, has proposed to the government the development of a separate rating system for MSMEs, taking into account their size and the nature of their operations.

The separate rating procedure would give due recognition to Indian MSMEs, enable them to access funds at reasonable rates, and help them compete in the global market.

In a letter to the Ministry of MSME, Pankaj Chadha, Chairman, EEPC India, has highlighted the issues faced by MSMEs in securing investment-grade or higher ratings from external rating agencies (ERAs), which hinder their access to funds.


"As a consequence of having a sub-investment grade rating, MSMEs find it pretty tough to get loans from banks, as they need to pay much higher collateral than those with an investment grade rating. This is among the most prominent hurdles faced by them in business," he said.

Discussions with various rating agencies have revealed that MSMEs across industries are benchmarked against the leading players in their respective industries, as there is no separate process for determining ratings for MSMEs. In the case of the steel sector, for instance, an MSME is benchmarked against steel giants like JSW or Tata Steel, thus making this a very unfair comparison for them. This lack of a proper rating procedure has consistently placed MSMEs in lower or non-investment-grade tiers.

"Now, to ensure a fair competition, it is recommended that the RBI should develop a completely separate system for rating MSMEs only, and these MSME units must be benchmarked against their peers who belong to the same bandwidth. In this regard, RBI may also need to set separate parameters dedicated to MSME by taking into account their size and the peculiar nature of operation arising due to their Unique Status and identity," Chadha noted.

The MSME sector forms the backbone of the Indian economy, contributing nearly one-third of manufacturing output and accounting for about 45% of merchandise exports. A separate rating system for the sector would further help MSMEs expand their operations and become more competitive in the global market.