Government Plans 'Creditworthiness Index' To Boost MSME Lending

(MENAFN- KNN India) New Delhi, Nov 20 (KNN)
In a significant move to improve credit access for micro, small, and medium enterprises (MSMEs), the government has initiated discussions with key stakeholders, including banks and regulators, to develop a 'Creditworthiness Index.'

The proposed index aims to standardise how companies are evaluated for creditworthiness across industries, providing a lifeline for businesses with weak financials, limited documentation, or minimal transaction history, according to sources familiar with the matter.

The initiative aligns with broader government efforts to bolster trade financing, including the establishment of a National Trade Finance Committee and a framework to expand export credit.

“An industry-wide index with common parameters could significantly streamline credit appraisal and disbursement processes,” said a senior industry executive on condition of anonymity.

Preliminary discussions involve the commerce and industry ministry, finance ministry, Reserve Bank of India, and Exim Bank. The index is expected to leverage the new credit assessment model for MSMEs announced in the July budget.

Public sector banks (PSBs) are currently formalising this model, which relies on MSMEs' digital footprints to assess credit eligibility.“Once this model is operational, it can serve as the foundation for a scoring index, helping financial institutions make informed lending decisions,” said an official.

Lenders and industry representatives have expressed optimism but acknowledged potential challenges. A unified system acceptable across banks remains a hurdle due to varying risk perceptions.

"Many MSMEs lack access to expensive credit rating services, so a standardised, affordable system is crucial," an industry representative noted.

The government has increased the MSME lending target by 35 per cent to Rs 5.7 lakh crore this financial year, reflecting its commitment to fostering sector growth.

Finance Minister Nirmala Sitharaman recently highlighted significant credit growth: state-owned banks reported a 9.2 per cent increase over the last two years, while private banks and NBFCs achieved 25 per cent and 39 per cent growth, respectively.

Additionally, the cabinet is expected to approve a Rs 100-crore credit guarantee scheme for MSMEs, also announced in this year's budget, reinforcing the government's support for small businesses.

This initiative, if successful, could revolutionize credit accessibility for MSMEs, driving growth and innovation in India's economy.

(KNN Bureau)

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