Pilot project later this year that would focus on some regions/ industry sectors

Priya Nair

Rating benefits

This rating

would be useful not just to banks, but also to venture capital funds looking to invest their money in viable start-up projects

Mumbai, May 3

Small and Medium Enterprises Rating Agency (SMERA) is planning to offer rating services for start-up companies.

The current rating services cater mainly to existing companies with a track record of three to four years.

This rating would be useful not just to banks, but also to venture capital funds looking to invest their money in viable start-up projects, Mr Rajesh Dubey, CEO, SMERA, said.

SMERA would launch a pilot project later this year, which would focus either on some regions or on some industry sectors.

Apart from plain vanilla rating for SMEs, SMERA also offers rating for companies expanding their operations and diversifying into other fields. Rating for start-up companies is taking the service one step ahead, Mr Dubey said.

"We are still working on the pilot project. The demand has come both from banks and the entrepreneurs themselves. Most of these are first generation entrepreneurs like technocrats who have passed out of business schools or IT schools and are looking to start their own business, as against working with a large MNC," he said.

The biggest concern for such entrepreneurs is how to arrange finance, as any lender would want to see the previous track record. The rating would help them get loans more easily, Mr Dubey said.

However, according to banking officials, in case of a new company, it is advisable to rely on their internal Know Your Customer norms, as there is no previous track record.

A senior official with a public sector bank said, "Banks prefer lending to rated SMEs as it reduces their risk. It also gives an indication to analysts about the strength of the banks' portfolios. But in case of a new company, I am not sure how the external rating will work."

SMERA, jointly promoted by SIDBI, Dun and Bradstreet, CIBIL and commercial banks, has signed up with 14 banks to offer rating services to the SME sector.

Mr Dubey said, "Most of these units are usually not willing to share information because of fear. We overcome this by looking at parameters such as relationship with the customers, or suppliers, default ratio, order book and so on. The smaller the SME unit, lesser is the reliance on financials for ratings."

(This article was published in the Business Line print edition dated May 4, 2006)
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