enhancing the credibility of msmes – performance & credit rating scheme presented by kaushal...
TRANSCRIPT
Enhancing the credibility of MSMEs – Performance & Credit Rating Scheme
Presentedby
Kaushal SampatChief Operating Officer, Dun & Bradstreet India
Third Tri-nations Summit for Small Business Development 19th Nov, 2008
Agenda
No Topic
1 About D&B
2 Challenges faced by MSMEs and the Role of Information
3 NSIC Rating Scheme and its benefits
4 D&B’s Rating Process and Assessment Methodology
5 Key Rating Insights
3
Fast Facts on Dun & Bradstreet
• World’s leading provider of business information;
• Established in 1841;
• Listed on NYSE;
• Presence in over 200 countries;
• Revenue of USD 1.6 bn and market capitalization of USD 4.5 bn;
• Employs approximately 4,200 people worldwide.
• D&B owns and maintains the world’s largest and most comprehensive commercial database of over 140 million business entities;
• Languages/ Dialects covered: 82;
• Currencies covered: 181;
• Updated 1.5 million times every day.
Our heritage, database and technology makes us the world’s most reliable business information provider.
About Dun & Bradstreet India
About Us Key Partnerships
India’s leading provider of Credit Information, Sales & Marketing solutions & Financial Education.
Commenced operations in 1995;
Offices in Mumbai, New Delhi, Chennai, Bangalore, Hyderabad, Ahmedabad, Kolkata;
Major clients include Banks, Financial Institutions, ECGC, Export Promotion Councils, MNCs, Corporates, Exporters, Importers and SMEs.
Set up India’s first Credit Bureau, Credit Information Bureau (India) Ltd with Trans Union, SBI, and HDFC; and public/private sector banks;
D&B has successfully partnered with NSIC for the Performance and Credit Rating Scheme
Set up India’s first SME Credit Rating Agency, SME Rating Agency of India Ltd with SIDBI, CIBIL and public/private sector banks;
Strong alliance with Export Credit Guarantee Corporation of India (ECGC) giving us access to exporters in India. .
D&B India –Rating Experience
• D&B India has delivered over 175,000 rating assessments (domestic and global) to banks, government institutions, corporates and foreign entities.
• Over 75% of the banking referrals have come from India’s largest public sector banks Source – D&B database
• D&B has carried out risk assessment on over 75,000 Indian entities since its
inception.
•Close to 18,000 ratings assigned on availability of full and latest financials (past 1
year)
Over 85% of the assessments carried out by D&B India are MSMEs
NSIC Rating Scheme
National Small Industries Corporation (NSIC) introduced the Performance and Credit Rating Scheme in 2005. Under this scheme, the government thru NSIC subsidized rating fees to the tune of 75%. D&B and other agencies were empanelled under this scheme to rate SSIs. Under the scheme over 12,000 ratings have been completed since inception of which D&B India alone has carried out about 50%. D&B India has consolidated its MSME ratings with that of SMERA, a rating agency jointly promoted by D&B India solely for rating MSMEs. The new rating is called NSIC – D&B – SMERA ratings
Role of Ratings
Benefits of Rating to SMEs
Lower approval timeFaster disbursement of funds based on 3rd part independent ratings.
Greater willingness by banks and financial institutions to lend to better credit profile SME borrowers
Interest rates linked to rating of SMEHigher rated customers can access funds at lower rates.Lower transaction costs
Information asymmetry problems reduced
Credit rating assists in simplifying lending normsIn some cases, collateral requirements may also be relaxed
Credit terms
Fund Access
Speed
Simplified Norms
Perception
Benefits of Rating to Banks
RiskManagement
Speed
Efficiency
Consistency
Increased Credit
Sanctions
Quickly handle obvious approvals/declinesLess data is required to make accurate decisions
Decrease bad debtReduce exposure to High risk accounts
Analysts only focus on difficult accountsIncrease volume of accounts
Ensure equal, objective treatment of each applicantApply consistent, objective decisions across the organization
Target credit-worthy SMEs for future promotionsIncrease approval rates
Rating Scale
High Moderate Low
Highest SE 1A SE 1B SE 1C
High SE 2A SE 2B SE 2C
Moderate SE 3A SE 3B SE 3C
Weak SE 4A SE 4B SE 4C
Poor SE 5A SE 5B SE 5C
Financial Strength
Performance Capability
RATING INDICATORS
12
Rating Fees
(Applicable service tax will be over and above the Rating fees and will be paid by the SSI unit only on the 25% of the fees)
Turnover Fees per Evaluation Units Pay 25%
Upto Rs. 50 lacs Rs. 30,000/- Rs. 7,500/-
Rs 50 lacs – Rs 200 lacs Rs. 36,000/- Rs. 9,000/-
Above Rs 200 lacs Rs. 48,000/- Rs. 12,000/-
Rating Request D&B Correspondents SSI
Questionnaire
Documentation, audited results and certified projections
Site Visit Assessment
Report
Public Domain Information
Rating Model
Industry Assessment and Cluster
data
Rating Analyst
Peer Review
Third Party Data – e.g. Litigation
Information
Request for Interview and
site visit
Conducts site visit and
interviews Management
Documents Obtained
External Data
D&B Database
SSI RatingFinal Rating
Rating Process Flow
D&B’s Rating Philosophy
StatisticalModeling
Judgmental Rules
IndustryTrends
HYBRID RATING METHODOLOGY
Financial factorsbased on statisticalmodeling
Financial factorsbased on statisticalmodeling
Qualitative factorsbased on due
diligence and sitevisit
Qualitative factorsbased on due
diligence and sitevisit
Schema of Rating Factors
Rating Factor Schema
Financial Parameters Non-Financial Parameters
Solvency Ratios
Liquidity Ratios
Activity Ratios
Profitability Ratios
Management Quality
Location Advantage
Marketing Network
Legal Issues
Industry and Macro-Economic Assessment
Trend Analysis
An exhaustive list of qualitative and quantitative factors considered for rating.
Each financial parameter is benchmarked within its industry-size peer group
Indicative Non-Financial Parameters
Employee Count
Marketing Network
ManagementShareholding
Age
Legal
Competitive forces
Industry Trade & Credit Terms
Industry growth
Each non-financial parameter is characterized by objective categories which is scored
Information Challenges & D&B’s Approach to Mitigate the Same
• Unwillingness to sharing information in the absence of Inquirer details.
• Non-existence of National level central repository of information for Proprietorship and Partnership concerns which constitutes approx. 85% to 90% of business universe in India.
• Filing requirements are not mandatory for Proprietorship and Partnership concerns.
• Though mandatory under law, some private limited companies do not file or update relevant information / return with company registry which results into non-availability of the latest information.
• In most cases, reluctance to share financial information, information pertaining to customers, suppliers, etc. though they generally share other operational or non-financial information.
Information Challenges
• Increasing pan-India correspondents to 30 from 18 that existed a year back.
• Implementation of correspondents’ evaluation system – witnessing a marked improvement in Service levels.
• Increasing awareness amongst SMEs on the benefits of figuring in D&B’s global database
• Proactively refreshing data/information pertaining to frequently enquired companies
• Migration of registry from physical to electronic format has resulted in increased efficiencies in the information gathering process.
D&B’s Initiatives
D&B: Global Advantage
EXPORTER / SSI BANK
NSIC - D&B - SMERA PC
RATING SCHEME
FINANCE
D-U-N-S NUMBER
BANKBETTER TERMS
D&B GLOBAL DATABASE
ENHANCED VISIBILITY &
SALES
Region-wise spread of Rated SSIs
D&B has rated over 5,000 SSI units under the NSIC scheme since inception
State-wise spread of Rated SSIs
SSI clusters in Maharashtra and Tamil Nadu have been very receptive to the NSIC scheme
Third Tri-nations Summit for Small Business Development 19th Nov, 2008
Distribution of Rated SSIs based on Legal Status
The NSIC Scheme appears to be most popular among SSIs that are incorporated as Private Limited Companies
Distribution of Rated SSIs based on Sector / Line of Business –Top 80%
Top 3 Sectors/ Lines of Business of rated entities: Industrial Machinery & Equipment
Fabricated Metal Products
Chemicals & Allied ProductsSectors/ Lines of Business are as per globally accepted Standard Industrial Classification Code
Distribution of Rated SSIs based on Sales Turnover
SSIs with higher sales turnover were early adopters of the NSIC Scheme
The NSIC Scheme is gradually gaining popularity among the other segments Figures as per most recent financial statements provided by SSIs
Distribution of Rated SSIs by Employee Count
Nearly 50% of the Rated SSIs have more than 50 employees
Customer Feedback
“I would like to take this opportunity to thank NSIC for initiating such a positive and encouraging scheme to every individual SSI unit across India. This scheme has clearly made me realize and analyse my strengths and areas of improvement after being in the business for more than 3 decades.”
Mr. Chinnraj, Director - Madras Hardtools Pvt. Ltd., Chennai
Customer Feedback
“Our experience of the rating process has been excellent and we are quite happy with the smoothness with which the entire procedure was completed by D&B”
Mr. Arun Goela, Dy. Managing Director & CEOSwastik Knits Pvt. Ltd., Noida