Enhanced CIBIL MSME Rank Launched by TransUnion CIBIL to Cover Smaller Businesses

Enhanced solution to enable effective lending to 55 lakh very small businesses

Mumbai, 22 April, 2020: In order to support banks and credit institutions to better understand and manage the change in the risk composition of micro, small and medium enterprise (MSME) portfolios, TransUnion CIBIL today launched the enhanced CIBIL MSME Rank (CMR). The solution now scores entities that have an aggregate credit exposure of less than ₹10 lakhs- this in addition to the MSMEs that are in the aggregate credit exposure segment of ₹10 lakhs to ₹50 crores from the earlier version of the CMR.

CMR is a credit risk solution that uses machine learning algorithms to predict the probability of an MSME becoming non-performing asset (NPA) in the next 12 months. CMR assigns a ranking on a scale of one to ten to the MSME based on its credit history data. CMR-1 is assigned to the least risky MSME and CMR-10 to the most risky MSME. The higher the CMR, the greater the risk of NPA associated with the MSME.

Enabling greater economic opportunities for 55 lakh very small businesses

Currently in India, total lending to MSMEs with an aggregate credit exposure up to ₹50 crores, is estimated at ₹17.94 lakh crores and represents ~28% of commercial credit outstanding. The total on-balance sheet commercial credit exposure stands at ₹64.04 lakh crores in India. The very small micro vertical (less than ₹10 Lakhs aggregate exposure) of the MSME segment, grew by 4.7% over a one year period starting Dec’18 to Dec’19, and comprises 55 lakh very small business entities having ₹ 93 thousand crores in loan balances.

In these unprecedented times, driving easy access to credit for MSMEs, while controlling the quality of commercial portfolios, is one of the topmost priorities for banks and credit institutions. Speaking about the solution, the Managing Director and CEO of TransUnion CIBIL, Mr. Rajesh Kumar, said, “The ongoing COVID-19 pandemic poses new challenges to businesses, especially for micro enterprises, who are often more vulnerable to sudden changes in the economic environment. We are committed to working closely with banks and credit institutions to support them on adjusting their MSME lending policy decisions and also align with the regulator and the government by providing insights for increasing reach and driving access to finance for the MSME segment.”

“Enhanced CMR will help banks and credit institutions to objectively and effectively risk rank and facilitate a quick assessment of the credit worthiness of an MSME. We know lending done well has the potential to continue to drive economic opportunities for MSMEs, even during these unprecedented times, and we want to help drive financial inclusion while enabling lenders to manage risks effectively,” added Rajesh.

Fostering trust by providing a comprehensive picture of MSMEs

The NPA rate for MSMEs has increased continuously over last few years to reach 12.6% as of Dec 2019. The number of MSMEs falling in the highest risk bracket of CMR-7 to CMR-10 have outstanding credit balances of ₹232 thousand crores, which is at a higher risk of going into NPA. Of these, the micro vertical (aggregate credit exposure of less than ₹10 lakhs) in the highest risk bracket of CMR-7 to CMR-10 comprises credit outstanding of ₹13.6 thousand crores. TransUnion CIBIL will continue to support the credit growth in the sector by equipping banks and credit institutions with enhanced CMR on 90 lakh MSMEs which now includes 55 lakh very small business entities with an aggregate credit exposure of less than ₹10 lakhs.

Speaking on the benefits that enhanced CMR brings for MSMEs, Mr. Mohammad Mustafa, Chairman and Managing Director, SIDBI said, “Enhanced CIBIL MSME Rank comes at a very crucial time and could help fuel the economy by providing access to financial opportunities for very small businesses. Banks and credit institutions need solutions that help them better understand the customers they serve and strike a balance between controlling risks and supporting businesses and the economy through these unprecedented times”.

Monitoring and controlling risks while re-fueling the economy

CIBIL MSME Rank is designed to help with both loan acquisition and wider portfolio monitoring and management by providing timely insights into the MSME portfolio nuances to help control risks.

Banks and credit institutions in India are enthusiastic on the prospects of enhanced CMR to remove information asymmetry and support credit growth. Speaking on the benefits of enhanced CMR, Mr. Sanjiv Chadha, Managing Director and Chief Executive Officer, Bank of Baroda said, “We at Bank of Baroda, have astutely used CIBIL MSME Rank for driving risk-based pricing of loans, thus ensuring cheaper access to finance for deserving MSMEs. The enhanced CMR will add significant value towards monitoring very small businesses. It will help in reducing turnaround time for acquisition of smaller MSME customers, rule based bulk renewals, along with setting and monitoring of rank based limit for portfolios.”.

Echoing the added value of enhanced CMR, Mr. Pralay Mondal, Executive Director and Head of Retail Banking, Axis Bank said, "We wish to productively contribute to the rebuilding of our economy following the impact of COVID-19 by providing financial assistance to small businesses that are most vulnerable to these unprecedented crises. With enhanced CMR we are better positioned to identify and assess the potential of small businesses and drive faster access to credit for deserving MSMEs while closely monitoring and controlling risks across the complete MSME spectrum.”

“As India’s leading credit information and insights Company, TransUnion CIBIL reassures its customers, consumers and the industry that we are committed to providing a comprehensive picture of each person and MSMEs so they can be reliably and safely represented in the marketplace. We are confident that the enhanced CIBIL MSME Rank will effectively help banks and credit institutions to make objective credit decisions, improve turnaround time and help MSMEs get access to faster and cheaper credit”, concluded Mr. Rajesh Kumar.

Enhanced CIBIL MSME Rank at a glance

  • CMR is a credit risk rank for MSMEs that predicts the probability of an MSME becoming NPA in the next 12 months
  • TransUnion CIBIL has considered all the requirements of a Basel compliant model while developing CMR
  • CMR is applicable to MSMEs with aggregate commercial borrowings of up to ₹50 crores.
  • CMR is trained on over 7 years of through-the-cycle (TTC) credit history data
  • CMR is calculated based on 24 months of the MSME’s credit history on the bureau
  • CMR range: CMR-1 to CMR-10; CMR-1 denoting the lowest credit risk and probability of default and CMR-10 denoting highest risk and probability of default.
  • Currently around 90 lakhs MSMEs are eligible to be ranked on CMR of which 55 Lakhs are very small business entities with aggregate credit exposure of below ₹10 Lakhs