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Budget 2023: MSMEs urge for unique rating systems and SOPs to improve liquidity

finance | Dec 14, 2022 8:30 PM IST

Budget 2023: MSMEs urge for unique rating systems and SOPs to improve liquidity

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Increasingly, more and more MSMEs have had to borrow money to keep their heads above water. Experts say this increased dependence on credit is likely to continue through the coming year as well.

The Micro, Small and Medium Enterprises (MSMEs) say weak credit score is one of the biggest stumbling blocks when it comes to them accessing funding from banks and other institutions and they've asked the Finance Minister for help in this area. Specifically, they want a new rating system that will not score MSMEs, especially unlisted MSMEs, like every other creditor.

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Prashant Patel, President, The Federation of Indian Micro and Small & Medium Enterprise (FISME) says, “We suggest changing norms for unlisted companies who actually want to do the rating credit rating and because of this credit rating, you can check with the private bankers, they always have their own checklist they do not rely on the credit rating checklists or they don't want ask companies to go for the credit rating.” He adds, “So, this is a major issue, because all national banks, nationalised banks, have asked for these credit ratings.”
Even two years since the pandemic-triggered restrictions were lifted, MSMEs are struggling to recover. They've been hit by multiple shocks. The government has told parliament that as of July this year, 10,000 MSMEs have shut shop completely between 2019 and 2022 — against just 400 that went out of business in the preceding three years.
Increasingly, more and more MSMEs have had to borrow money to keep their heads above water. Experts say this increased dependence on credit is likely to continue through the coming year as well.
Meanwhile, Madan Sabnavis, Chief Economist of Bank of Baroda says, “I don't see the SMEs actually leading the way as far as the Indian economy is concerned, it will be more of a kind of supportive nature which is required. And therefore, the kind of credit or kind of funding which is required will be more for existence for survival."
A report by CRISIL says that 43 percent of MSMEs by value are expected to remain below pre-pandemic levels in terms of earnings before interest, tax and margin this fiscal. This is largely due to their inability to pass on rising input costs and unfavourable exchange rates to customers. In particular pain are players in sectors like Chemicals, Dairy Processing, and Bulk-Drugs.
 Ashutosh Dewal, Director, Ashu Organics says, "There is excessive price pressure when we are selling the products and most players are piled up with inventory and they want to get rid of their stocks. There is no demand and there is huge inventory and there is huge price pressure."
Some of these sectors also hope the government will offer help in the form of lower interest rates and restoring access to a wider market.
Ulhas Dewal, Managing Director of Ashu Organics says, "The government has stopped export incentives and if they can start it for the time being it will be a very great help to the industry. And the interest rate that they have jacked up if they bring down the survival of the industry that started up then it will be very much helpful."
MSMEs have also asked the finance minister for export-oriented trade incentives, a revival or extension of schemes aimed at easing liquidity, and measures to boost demand — from a greater share in public procurement, to a procurement approach that puts quality over price.
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