Micro, small and medium enterprises (MSMEs) are an important part of the Indian economy that helps the economy grow and create jobs. MSMEs employ 40% of the total workforce and are responsible for contributing 45% of the total output of the country. MSMEs in India face a lot of challenges like access to finance, regulatory compliance, lack of technological advancement, market access, issues with the cash flow, lack of skilled workforce and much more. To combat these challenges, the union government of India in 2005 launched the National Small Industries Corporation (NSIC). It was established with the aim of supporting the growth and development of micro, small, and medium enterprises in India. It offers financial support through credit facilitation and subsidized credit ratings. One of the most important services offered by NSIC is its Performance & Credit Rating Scheme. The scheme helps businesses to evaluate the performance of MSMEs and understand their strengths and weaknesses. The rating is recognized by financial institutions, investors, and government agencies, which shows the chances of businesses in accessing credit and availing government support schemes; the rating shows the areas of improvements that enable businesses to optimize their processes and reduce risks.
What is the NSIC Performance and Credit Rating Scheme?
The NSIC Performance & Credit Rating Scheme is a program that was designed by the government of India to help MSMEs assess their financial health and operational efficiency. NSIC agency gives ratings through its various branches located in the country. The scheme gives an unbiased rating of the creditworthiness of the business based on the evaluation of the business’s financial records, management, operational processes, and market position. Banks, financial institutions, and investors recognize this rating and help them to credit loans to MSMEs at favourable rates. A good credit rating can help businesses secure financial assistance on better terms.
Key Objectives of the Scheme
- Financial Health Assessment: The scheme evaluates the financial standing of the business and identifies its strengths and weaknesses. After the assessment, businesses are able to comprehend the financial position.
- Access to Credit: With a strong rating, MSMEs can more easily access loans from banks and financial institutions. A positive rating also increases the chances of securing financing at more favourable terms.
- Better Reputation: A good rating enhances the reputation of a business, which makes it more clients, customers, suppliers, and business partners.
- Operational Efficiency: Using the rating, companies can find the areas for improvement and increase the productivity of the business.
- Risk Management: The evaluation process highlights the areas of potential risks. The assessment helps the companies to take proactive measures to manage their businesses effectively.
- Market Recognition: Having an NSIC rating offers companies a competitive advantage over other businesses and makes them a popular choice in the market.
Benefits of the NSIC Performance & Credit Rating Scheme
The NSIC Performance & Credit Rating Scheme offers numerous benefits some of which are listed below:
- NSIC Performance & Credit Rating Scheme increases the chances of getting loans from banks and financial institutions. A good rating increases the credit score of the enterprises and assures the lenders of the credibility of businesses in repaying debt.
- MSMEs with good ratings enjoy more advantageous loan conditions like lower interest rates, longer periods to repay loans, and lesser collateral requirements.
- A good rating makes businesses eligible for various government schemes and incentives.
- The evaluation method assesses MSMEs’ financial and operational performance. By using the input from the rating, business persons can improve the management and productivity of their businesses.
- The rating procedure also identifies potential risks like operational inefficiencies or financial vulnerabilities that companies can face. This enables MSMEs to improve risk management procedures, lower risk exposure, and proactively address these gaps.
- The rating procedure compares an MSME’s performance to other enterprises in the same sector. Through benchmarking, the company can see how it compares to its rivals and pinpoint areas for improvement to maintain its competitiveness in the market.
- A solid credit rating improves the reputation of MSMEs in the market. It shows suppliers, clients, and investors that the company is dependable and can be trusted. Good connections create better chances of growth for the business. New opportunities, such as joint ventures, partnerships, and collaborations, are made possible by a strong credit rating. It enables MSMEs to expand into new markets and draw in bigger customers, both of which are essential for sustained company success.
- Businesses with high credit ratings are more likely to receive favourable credit conditions from suppliers. A good payment and repayment history leads to better dealing power with the suppliers, which increases and strengthens the purchasing power of companies.
How does the NSIC Performance & Credit Rating Scheme work?
The process of obtaining an NSIC rating is straightforward but involves several key steps:
1. Check Eligibility Criteria
Before applying for the rating, businesses have to make sure that they are eligible to take the benefits, i.e.,
- The enterprise must be registered as an MSME under the MSMED Act, 2006.
- The business must have been in continuous operation for at least three years.
- There must not be any significant loan defaults or legal disputes in the business.
2. Application Process
If the business is eligible for the scheme, then the next step is to apply form for the scheme. The Online Rating Methodology is a service tool offered by the NSIC Performance Credit & Rating Scheme. MSMEs can apply for credit rating by submitting the necessary documents. In the form, the following details need to be filled in:
- The legal structure, nature of the business, and operational history of the company.
- Essential documents such as balance sheets, profit and loss statements, and tax returns for the past three to five years.
- Information about the management team, their experience, and the internal operations of the business.
3. Selecting a Rating Agency
NSIC partners with various accredited rating agencies and has branch offices across the nation that specialize in evaluating MSMEs. Businesses have the liberty to choose any agency from an approved list of agencies provided by NSIC. These agencies are experienced in conducting a thorough evaluation of the financial and operational status of the business.
4. Evaluation by Rating Agency
Once all the documents are submitted, the selected agency will conduct a comprehensive assessment of your business across several critical areas:
- The agency will review the company’s financial records to evaluate its profitability, liquidity, and solvency.
- The agency will examine the operational processes of the business, including its production efficiency, supply chain management, and internal controls, to understand how exactly the business runs.
- The rating agency assesses the experience and credibility of the business’s management team, as strong leadership is an important factor for the long-term success of any business.
- The agency reviews the business’s credit history to check if there are any previous defaults or delayed payments.
- The agency also considers the market position of the enterprise and its competitors and examines factors like industry trends, customer base, and growth potential for the business.
5. Rating Fee
The rating fees shall be decided by the rating agencies, and they shall be intimated to NSIC at the time of the panelment. MSMEs have to pay the rating fees along with the application, and the payment of fees shall be made by pay order or demand draft in favour of the Rating Agency.
When applying for a rating, enterprises need to pay the full amount to the rating agency. After the rating agency has completed the evaluation and submitted the report to NSIC, the Ministry of MSME will reimburse the subsidized portion of the fee through NSIC.
The fee structure to be paid to the agency is:
| Turnover of the Business | Reimbursed amount by the Ministry of Small-Scale Industries |
| Upto 50 lakhs | 75% of the fee charged by the rating agency with the maximum amount of Rs. 25,000/- |
| Above 50 lakhs to Rs. 200 lakhs | 75% of the fee charged by the rating agency with the maximum amount of Rs. 30,000/- |
| Above 200 lakhs | 75% of the fee charged by the rating agency with the maximum amount of Rs. 40,000/- |
6. Rating Assignment
After the evaluation, the rating agency assigns a credit rating to the business. The rating is represented using a letter-grade system like A, B, and C. A rating represents the best financial health and creditworthiness. The agency gives a report that outlines the reasoning behind the assigned grade in addition to the rating itself. Businesses can clearly see their strengths and opportunities for progress according to this report’s explanation of the major elements that affected the ranking.
7. The Time Frame for Completion
The enterprises are required to submit the documents within 15 days from the date of submission of the application. If the unit does not respond within 15 days from the date of the second communication by the agency, the case shall be considered ‘closed’, and no further communication will be made by the agency.
8. Notification and Review
Businesses are notified of the rating once it is issued. In the case when businesses are dissatisfied with the rating or feel that certain factors were not considered, they can request a review. The review option allows businesses to clarify any specific aspect and submit any additional information to improve their rating.
Conclusion
The NSIC Performance & Credit Rating Scheme was launched with the aim to provide MSMEs with an accurate, objective assessment of their financial health and creditworthiness. The evaluation helps businesses access loans at better rates and in favourable conditions. By obtaining and understanding the rating, entrepreneurs can get a better understanding of their operations and activities that harm the finances of the business.
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FAQs
1. What does the NSIC Performance & Credit Rating Scheme assess?
It evaluates the financial health, operational efficiency, management quality, and creditworthiness of MSMEs.
2. Who is eligible to apply for the NSIC Performance & Credit Rating Scheme?
Any MSME registered under the MSMED Act with at least three years of continuous operation can apply.
3. How is the NSIC credit rating determined?
The rating is based on the company’s financial records, operational practices, management credibility, and credit history.
4. How long does the NSIC credit rating remain valid?
The rating is valid for one year, and after completion, it requires reassessment.
5. Can MSMEs with poor credit apply for the rating?
Yes, businesses with poor credit can also apply for an NSIC rating.
