To access the credit risk of micro, small, and medium enterprises (MSMEs), TransUnion CIBIL has recently launched a ranking for these firms. TransUnion CIBIL, India’s leading credit information company, has one of the largest databases on commercial entities, with over 2400 members; comprising banks, financial institutions, non – banking financial companies, and housing finance companies. This credit risk ranking will help the banks and other lending institutions to evaluate their credit decisions better. The ranking will also enable the financial institutions to understand the historical credit behavior of their borrowers of SME loans/MSME loans/business loans, while predicting their behavior in the near future. The product will also aid in profiling the borrowers better and strategizing their goal performance. This ranking also helped in aggregating exposure between INR 10 Lakhs to INR 10 crores. Credit ranking, using machine algorithm will have the ability to predict the probability of a micro, small or medium enterprise becoming a non – profit asset (NPA) by next year.

At present, there is an outstanding of INR 54,799 crore which is at a risk of becoming bad MSME loans. The MSME ranking will be given on a scale of 1 to ten based on the credit history of the last seven years. The higher the ranking, the higher will be the credit risk for them. “We find that Rs 54,799 crore of exposures to MSME is sitting in what we define as the highest risk category and may slip into MSME,” Cibil chief operating officer Harshala Chandorkar said to ET.

Speaking at the launch, Mr.Satish Pillai, MD, and CEO of TransUnion CIBIL said: “The sector is facing an ongoing challenge of rising NPAs (non-performing assets). We believe resolving information asymmetry will be a contributor to making objective credit decisions while ensuring wider and faster access to funds for MSMEs.” It should be noted that credit to the sector moved up to 11 percent last year. At present, the total credit portfolio for micro, small and medium enterprises is estimated to be INR 12 trillion which is a huge amount.

Currently, the CMR will be available only to the member banks, and slowly it may be open to the borrowers as well. It will be similar to the credit score, being open to the retailers. According to Chandorkar, the company is also looking forward to launching a similar credit ranking scale for mid- corporates and large corporates as well.

Per CIBIL Transunion website, CIBIL MSME RANK is applicable across the loan lifecycle.

  • CIBIL MSME RANK for Acquisition
    Prescreening of borrowers and offering pre-approved loans basis CMR will improve operational efficiencies.
  • CIBIL MSME RANK for Risk Appraisal
    CIBIL MSME RANK supplements the underwriting process by providing an objective and consistent interpretation of the credit risk associated with the borrower.
  • CIBIL MSME RANK for Portfolio Monitoring and Management
    Monitor the risk transition of the borrowers and manage the portfolio health. CMR helps in implementing risk mitigation, business expansion and portfolio retention strategies effectively.
  • CIBIL MSME RANK for Targeted Automated Decisions
    Set the right limits for your borrowers

How CIBIL MSME ranks will help the banks and financial institutions in approving right MSME loans? Banks and other lenders can-

  • Gain predictive power to make better decisions
  • Access credit ranking of potential borrowers
  • Lend with confidence
  • Manage credit risk better
  • Simplify and fasten the lending process
  • Build and implement business and the risk strategies tailored to the riskiness of the borrowers

Undoubtedly a great move by the TransUnion CIBIL, the ranking system will eliminate fraud and defaults in MSME loans to a great extent.

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