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In preparation for the upcoming SME exchange platforms on the NSE and the BSE, an increasing number of small and medium enterprises (SMEs) is feeling the need to be rated by agencies to instil investor confidence in their business.
“It is definitely important to opt for a rating because it helps an enterprise in many ways. Not only does it help get more investors but also helps strengthen the business and grow,” said Ms Uma Reddy, Chief Executive, Hitech Magnetics. “We will definitely opt for a rating if we plan to get listed,” she added.
There are nearly 30 million SMEs in India and this number is increasing by the day, says Mr Sachin Nigam, Director, SME Ratings, Crisil. Tough competition and financial strains have made SMEs realise that they need a uniform assessment system to pit their strength against competitors.
Crisil has already rated more than 24,500 SMEs, and has handed out 7,500 outstanding ratings in the SME space.
Unique rating scales
SME rating agencies have established unique rating scales and indicators which pit an enterprise's financials versus its performance.
Some of the rating agencies in this space are Smera, Crisil and Onicra.
While Crisil assigns ratings between SME 1 and SME 8 (highest to lowest on credit-worthiness), Smera assigns ratings of MSME 1 to MSME 8 (highest to lowest appraisal indicator).
Retail investors
Till now, the ratings have mostly been for borrowing purposes from banks and other financial institutions. However, SMEs are now hopeful that the ratings will help them get money from retail investors as well.
“Investors will intuitively draw more comfort from SMEs that are rated. It would be difficult to establish that there would be an increase in the number of SMEs opting to be rated only because of the SME exchange. It would be a combination of factors,” said Mr Nigam. “But, it is a possibility.”
SME promoters feel that getting a rating also depends on the stage of their business and what they plan to do further. “I am in the process of getting my business rated and I am confident that investors will use this as one of the tools to gauge the credibility of my business,” said a promoter of an SME which deals in auto-ancillaries.
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