December 16, 2009
The Hindu
Credit rating has not yet helped many micro, small and medium enterprises (MSMEs) in obtaining credit from commercial banks, according to Mr Rajeev Karwal, Founder-CEO, Milagrow Business & Knowledge Solutions. He blamed the quality of the work done by credit rating agencies for this situation.
“Rating agencies are doing an inflated job. Banks know this and do not extend loans. The Government, which pays 75 per cent of the rating agencies' fees, is just wasting money on a scheme which actually isn't working,” said Mr Karwal.
Reacting to this criticism, Mr Ramraj Pai, Director-SME Rating, Crisil, said, “We have rated around 10,000 MSMEs in the last four years. We have tied up with 30 banks for providing credit to companies based on our rating. Out of this, 15 banks also give further interest rate deductions for higher rated SMEs.”
Elaborating further, Mr Pai said that the number of MSMEs approaching them was doubling every year. He said, “Besides helping them in getting credit, it also increases their credibility with buyers. Almost 35-40 per cent companies come back for renewal rating after the first year. The Government subsidy is only for the first year. The fact that they come back and spend their own money, shows that companies are seeing benefit in these schemes.”
Cost of rating
Mr Rajeev Karwal seemed unconvinced with this counter.
He maintained that the number of SMEs applying for the rating scheme is increasing because the Government is subsidising the cost of the rating.
He wondered why credit disbursement to SMEs was at an all-time low of 8 per cent last year? He said, “You have to see how effective the scheme is on the ground. A lot of SMEs have not got credit, or have got it very late, even after being rated.”
Milagrow, founded by Mr Karwal in 2007 with the aim of partnering MSMEs in their growth by providing strategies and various essential services, provides consultancy services, besides helping them in the policy front in their interactions with Government bodies.
Mr Karwal said within the priority sector lending of 40 per cent for banks, the lending for MSMEs should be increased to 20 per cent. “In the US, around 57 per cent is earmarked for SMEs,” he said.
He further added that many banks are sceptical of giving loans to the sector, because the credit guarantee scheme of the Government does not pay them back on time, in case the company defaults.
“A rule should be fixed that within 45 days of the loan going bad, the Credit Guarantee Fund Trust for MSEs should repay the commercial banks. With this security, more banks would lend to the sector,” said Mr Karwal.
SME conference
In order to discuss the various issues in the sector, which contributes about 45 per cent of the domestic manufacturing output and 40 per cent of the exports, Milagrow is hosting the ‘World SME Conference' on 16 and 17 December.
“The idea is to make bureaucrats, political leaders and associations come together. We will release various studies like the one on the Government procurement policies followed abroad, comparison of State Government policies across the country, besides dealing with issues like lean manufacturing, delivering low-cost IT solutions and identifying alternate sources of funding for small businesses,” said Mr Karwal. He added that since Independence, the sector has annually grown 2-3 per cent more than the GDP growth rate. In 2008-09, it grew by 8 per cent, while in the current fiscal it expected to touch 10 per cent.
