All You Need To Know About CIBIL Ranks For MSME

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Micro, small and medium enterprises, MSMEs, have become instrumental in contributing to the growth of India’s GDP. MSMEs are becoming popular across all industry verticals and they are also adding employment opportunities. However, being small-scale businesses, MSMEs often resort to an SME loan to fund their establishment and/or operations. Though a business loan is available, lenders are careful in underwriting SME loans because of the higher risk of default involved. This is where the CIBIL MSME rank comes to the aid of lenders.

What is CIBIL MSME Rank?

Called CMR in short, CIBIL MSME Rank is a number that measures the creditworthiness of an MSME business. CMR is to MSME lending what credit score is to normal loans. The CMR ranges between 1 and 10 and plays an important role in assessing the business loan eligibility of MSMEs.

Features of CIBIL MSME Rank

Here are some of the salient aspects of the CMR that you should know about –

  • The rank is based on an MSME’s credit history, credit profile and business details
  • Every MSME is ranked from 1 to 10. The higher the rank the more vulnerable the MSME is to default in repayment. So, in the case of CMR, the lower the rank, the better placed the MSME is in paying off its debts.
  • The rank measures the possibility of default over a one-year horizon.
  • The rank encompasses MSMEs with a credit exposure ranging from Rs.10 lakhs to Rs.50 crores.
  • The rank can be used across the different cycles of the loan, starting from the acquisition of the loan to its monitoring

Benefits of CIBIL MSME Rank

The CIBIL MSME Rank is extremely useful for lenders. It helps them weed out risky businesses and offer loans to those who can repay the debt. This prevents loans from turning into Non-Performing Assets (NPAs), a bane for the lending business. Moreover, TransUnion CIBIL maintains a database across 2400 members of the financial industry. This allows the score to be updated regularly. With more than 7.5 million SMEs eligible for a CMR, the rank has become an important parameter in business loan eligibility.

Other benefits of the CMR are as follows –

  • Reduced TAT (turn-around-time) in loan issuance and disbursal
  • A standard eligibility criterion to judge MSMEs
  • There is a system of early warning of defaults, which helps lenders monitor their loans effectively and take the necessary steps to prevent the loan from turning bad.
  • Ease of offering pre-approved loans based on the borrower’s CMR
  • The rank aids in the lender’s underwriting process and supplements. It, thus, allows lenders to offer loans on the right terms and conditions. Moreover, the business loan interest rates are also affected by the borrower’s CMR.
  • In the case of digital lending, CMR helps lenders use a rule-based lending process. The renewal and enhancement limits are automatically set using the CMR and it also aids in setting up the business loan

What MSMEs Should Know

If you are an MSME looking for an SME loan, remember that your CMR would be a deciding parameter in loan issuance. So, maintain a clean credit profile to have the lowest possible rank so that you can avail loans easily. Try and use the business loan EMI calculator to calculate the affordable loan amount and EMI so that you can prevent defaults.

Conclusion

So, understand what CMR is, how it works, and why it is needed. Maintain a good credit profile to have a suitable rank so that your future loan applications get approved quickly.