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Union Finance Minister launches SME Rating Agency of India Ltd

Published : Coimbatore, September 5, 2005

SME Rating Agency of India Ltd (SMERA), the dedicated rating agency for SME sector in Indiawas formally launched at the hands of Union Finance Minister, Shri P. Chidambaram, at a

ceremony at Coimbatore. SMERA has been set up by Small Industries Development Bank ofIndia (SIDBI) in association with Dun & Bradstreet (D&B), Credit Information Bureau (India)Limited and leading public and private sector banks.

SMEs are critical to the nations economy they contribute approximately 40% of the countrysdomestic production, almost 50% of Indias total exports and 45% of Indias industrialemployment. Despite their economic significance, SMEs face a number of bottlenecks thatprevent them from achieving their full potential. A major obstacle in SME development is itsinability to access timely and adequate finance. There are several reasons for low SME creditpenetration, key among them being insufficient credit information on SMEs, low market credibilityof SMEs (despite their intrinsic strengths) and constraints in analysis. This leads to sub-optimaldelivery of credit and services to the sector. Rating Agencies can play an important role in

addressing some of these concerns. In this context, SMERA is wholly committed to facilitating theoverall growth and development of Indian SMEs. The agencys primary objective is to provideSME ratings that are comprehensive, transparent and reliable. SMERA aims to be the countryspremier agency that is focussed primarily on providing ratings to SMEs so as to reflect theirintrinsic strength, with a view to facilitate faster and easier access to credit. The SME policyrecently announced by Government of India also lays emphasis on using this as a tool forincreasing credit to the sector.

At the launch of SMERA, the Finance Minister highlighted the three major benefits that wouldaccrue to the rated SME units, viz., adequate and timely credit, low collaterals and lower rate ofinterest. Mr. Chidambaram stated that his confidence in SMERAs long-term success stemmedfrom the fact that major public and private sector banks would be stakeholders in the Rating

Agency. The Finance Minister also delineated a 4-pronged strategy adopted by the Governmentof India, to promote the SME sector:

a. Doubling the flow of credit to the SSI and tiny sector in 5 years

b. Enactment of an SME bill. Currently a draft of the bill is under consideration

c. Launch of SMERA, a rating agency dedicated to the SME sector

d. Enhancement of Credit Linked Capital Subsidy (CLCS) limit from Rs.40 lakhs term loanto Rs.100 lakhs and simultaneously enhancing the percentage of subsidy from 12% to15%, the notification of which is expected shortly

In his address, Mr. Chidambaram requested the bankers to adopt a more considerate approachtowards SMEs that have experienced difficulties in repayments due to circumstances beyondtheir control, and only adopt a strict approach towards wilful defaulters.

SMERA is driven by institutions that are leaders in their respective spheres of activity:

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SIDBI is the principal financial institution for the promotion, financing and development ofindustry in the SME sector in the country. Over the last 15 years of its existence, it hasdeveloped a suite of products and services for the SME sector. SMERA will be able todraw upon SIDBIs longstanding experience in dealing with Indian SMEs and its strongrelationships with public & private sector banks.

Dun & Bradstreet (D&B) is the worlds leading provider of business information and RiskManagement Solutions with a database covering over 95 million business entities. Overthe past 164 years, D&B has built up an impressive track record in SME Risk Evaluation& Rating and has over 70 million SMEs in its global database.

Credit Information Bureau (India) Ltd [CIBIL] is a composite credit bureau catering to boththe commercial and consumer segments. It therefore serves as a repository of valuablepayment information, which plays a major role in reducing information asymmetries andcredit risk.

SMERA is also supported by several leading public and private sector banks that areactive in the SME space. The recognition and acceptance of SMERAs ratings within thebanking sector will help SMEs save time, effort and money while approaching different

banks for credit. It will also simplify and quicken the process of lending to SMEs, whilesimultaneously reducing lending costs to the sector as a whole.

What is a SMERA Rating?

SMERA Rating is an independent third-party comprehensive assessment of the overallcondition of the SME, conducted by SME Rating Agency of India Limited.

It takes into account the financial condition and several qualitative factors that havebearing on credit worthiness of the SME.

SMERA Rating consists of 2 parts, a Composite Appraisal/Condition indicator and a Size

indicator.

SMERA Rating categorises SMEs based on size, so as to enable fair evaluation of eachSME amongst its peers.

An SME unit having a SMERA Rating would be able to enhance its market standingamongst trading partners and prospective customers.

About SIDBI

Small Industries Development Bank of India (SIDBI) is the principal financial institution for thepromotion, financing and development of industry in the SME sector in India. SIDBI is committed

to developing a strong, vibrant and responsive SME sector. Alongside finance, SIDBI providesappropriate support in the form of promotional and developmental services. SIDBI has been builtup as a financially sound, vibrant, forward looking and technically oriented institution and itintends to sustain this orientation in future. SIDBI intends to provide quality services to its clients,devoid of any systemic and procedural difficulties. For more information, please visitwww.sidbi.com

About D&B

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D&B (NYSE:DNB), the leading provider of global business information, tools, and insight, hasenabled customers to Decide with Confidence for over 160 years. D&B's proprietaryDUNSRightTM quality process provides customers with quality information whenever andwherever they need it. This quality information is the foundation of D&B's solutions that customersrely on to make critical business decisions. Customers use D&B Risk Management Solutions tomitigate risk, increase cash flow and drive increased profitability, D&B Sales & MarketingSolutions to increase revenue from new and existing customers, and D&B Supply ManagementSolutions to identify purchasing savings, manage risk and ensure compliance within the supplybase. D&B's E-Business Solutions help customers convert prospects to clients faster. For moreinformation, please visit www.dnb.com.