EEPC India Urges Govt To Roll Out Separate Credit Rating System For MSMEs

New Delhi, Jun 3 (KNN) Engineering Export Promotion Council (EEPC) India has urged the government to introduce a separate credit rating framework for micro, small and medium enterprises (MSMEs), arguing that the existing system places smaller businesses at a disadvantage while seeking finance.

In a representation submitted to the Ministry of MSME, EEPC India Chairman Pankaj Chadha highlighted the difficulties faced by MSMEs in obtaining investment-grade ratings from external rating agencies, which often limits their access to affordable credit.

Current Rating System Hinders Credit Access

According to Chadha, MSMEs with sub-investment-grade ratings face challenges in securing bank loans and are often required to provide significantly higher collateral compared to companies with stronger ratings.

He noted that the issue remains one of the major obstacles affecting the growth and expansion of MSMEs.

EEPC India said discussions with rating agencies revealed that MSMEs are generally assessed against the largest companies in their respective industries, as there is currently no dedicated rating methodology for smaller enterprises.

Benchmarking Against Large Corporates Creates Challenges

For instance, MSMEs operating in the steel sector are benchmarked against major industry players such as JSW Steel and Tata Steel, resulting in comparisons that may not adequately reflect the scale and operational realities of smaller businesses.

The exporters' body argued that this approach often pushes MSMEs into lower or non-investment-grade categories, adversely affecting their ability to access credit on competitive terms.

EEPC Recommends Dedicated MSME Rating Model

To address the issue, EEPC India has recommended that the Reserve Bank of India develop a separate rating system exclusively for MSMEs.

The proposed framework would benchmark MSMEs against peers of similar size and operational characteristics rather than large corporates.

The organisation further suggested that dedicated rating parameters be designed to reflect the unique nature of MSME operations and business structures.

Industry Body Expects Improved Financing And Competitiveness

According to EEPC India, such a system would provide fairer recognition of MSME performance, improve access to finance at reasonable rates and strengthen the sector's competitiveness in both domestic and international markets.

The MSME sector contributes nearly one-third of India's manufacturing output and accounts for about 45 per cent of the country's merchandise exports, making it a critical pillar of economic growth and employment generation.

EEPC India believes that a dedicated rating framework could further support the sector's expansion and enhance its role in global trade.

(KNN Bureau)