1. Enhancing the credibility of MSMEs – Performance & Credit Rating Scheme Presented by Kaushal Sampat Chief Operating Officer, Dun & Bradstreet India
Third Tri-nations Summit for Small Business Development
19th Nov, 2008

2. Agenda No Topic 1 About D&B 2
Challenges faced by MSMEs and the Role of Information 3
NSIC Rating Scheme and its benefits 4
D&B’s Rating Process and Assessment Methodology 5
Key Rating Insights

3. Fast Facts on Dun & Bradstreet
World’s leading provider of business information;
Established in 1841;
Listed on NYSE;
Presence in over 200 countries;
Revenue of USD 1.6 bn and market capitalization of USD 4.5 bn;
Employs approximately 4,200 people worldwide.
D&B owns and maintains the world’s largest and most comprehensive commercial database of over 140 million business entities;
Languages/ Dialects covered: 82;
Currencies covered: 181;
Updated 1.5 million times every day.
Our heritage, database and technology makes us the world’s most reliable business information provider.

4. About Dun & Bradstreet India
About Us
Key Partnerships
India’s leading provider of Credit Information, Sales & Marketing solutions & Financial Education.
Commenced operations in 1995;
Offices in Mumbai, New Delhi, Chennai, Bangalore, Hyderabad, Ahmedabad, Kolkata;
Major clients include Banks, Financial Institutions, ECGC, Export Promotion Councils, MNCs, Corporates, Exporters, Importers and SMEs.
Set up India’s first Credit Bureau, Credit Information Bureau (India) Ltd with Trans Union, SBI, and HDFC; and public/private sector banks;
D&B has successfully partnered with NSIC for the Performance and Credit Rating Scheme
Set up India’s first SME Credit Rating Agency, SME Rating Agency of India Ltd with SIDBI, CIBIL and public/private sector banks;
Strong alliance with Export Credit Guarantee Corporation of India (ECGC) giving us access to exporters in India. .
Indias leading provider of credit information, sales and marketing and financial education
How many public private banks – speak with Harshala
SMERA – which banks? In the SMERA slide

5. D&B India –Rating Experience
D&B India has delivered over 175,000
rating assessments (domestic and
global) to banks, government
institutions, corporates and foreign
entities.
Over 75% of the banking referrals have
come from India’s largest public sector
banks
Source – D&B database
D&B has carried out risk assessment on over 75,000 Indian entities since its inception.
Close to 18,000 ratings assigned on availability of full and latest financials (past 1 year)
Over 85% of the assessments carried out by D&B India are MSMEs

6. Challenges faced by MSME
Lack of Visibility
Low Credit Penetration
Unable to tap equity markets
Lack of Transparency
Lack of Information about potential customers

7. Role of NSIC Performance and Credit Rating Scheme in Improving MSME Prospects

8. NSIC Rating Scheme
Role of Ratings
National Small Industries Corporation (NSIC) introduced the Performance and Credit Rating Scheme in 2005.
Under this scheme, the government thru NSIC subsidized rating fees to the tune of 75%.
D&B and other agencies were empanelled under this scheme to rate SSIs.
Under the scheme over 12,000 ratings have been completed since inception of which D&B India alone has carried out about 50%.
D&B India has consolidated its MSME ratings with that of SMERA, a rating agency jointly promoted by D&B India solely for rating MSMEs.
The new rating is called NSIC – D&B – SMERA ratings
Ratings
Increase Information Flow
Greater Transparency
Lesser Information Asymmetry
Greater Credit Penetration
Greater Growth

9. Benefits of Rating to SMEs
Lower approval time
Faster disbursement of funds based on 3rd part independent ratings.
Greater willingness by banks and financial institutions to lend to better credit profile SME borrowers
Interest rates linked to rating of SME
Higher rated customers can access funds at lower rates.
Lower transaction costs
Information asymmetry problems reduced
Credit rating assists in simplifying lending norms
In some cases, collateral requirements may also be relaxed
Credit terms
Fund Access
Speed
Simplified Norms
Perception

10. Benefits of Rating to Banks
Risk
Management
Speed
Efficiency
Consistency
Increased Credit
Sanctions
Quickly handle obvious approvals/declines
Less data is required to make accurate decisions
Decrease bad debt
Reduce exposure to High risk accounts
Analysts only focus on difficult accounts
Increase volume of accounts
Ensure equal, objective treatment of each applicant
Apply consistent, objective decisions across the organization
Target credit-worthy SMEs for future promotions
Increase approval rates

11. Rating Scale RATING INDICATORS Financial Strength High Moderate Low
Highest
SE 1A
SE 1B
SE 1C
High
SE 2A
SE 2B
SE 2C
Performance
Moderate
Capability
SE 3A
SE 3B
SE 3C
Weak
SE 4A
SE 4B
SE 4C
Poor
SE 5A
SE 5B
SE 5C

12. Rating Fees
Turnover
Fees per Evaluation
Units Pay 25%
Upto Rs. 50 lacs
Rs. 30,000/-
Rs. 7,500/-
Rs 50 lacs – Rs 200 lacs
Rs. 36,000/-
Rs. 9,000/-
Above Rs 200 lacs
Rs. 48,000/-
Rs. 12,000/-
(Applicable service tax will be over and above the Rating fees and will be paid by the SSI unit only on the 25% of the fees)

13. Rating Process Flow Rating Request Rating Model D&B Database
Request for Interview and site visit
Rating Request
D&B
Correspondents
SSI
Questionnaire
Conducts site visit and interviews Management
Public Domain Information
Industry Assessment and Cluster data
Documentation, audited results and certified projections
Site Visit Assessment Report
Rating
Model
D&B
Database
Third Party Data – e.g. Litigation Information
Documents Obtained
Rating Analyst
External Data
Peer Review
Final Rating
SSI Rating

14. D&B’s Rating Philosophy
Statistical
Modeling
Judgmental
Rules
Industry
Trends
HYBRID RATING METHODOLOGY
Financial factors
based on
statistical
modeling
Qualitative factors
based on due
diligence and site
visit

15. Schema of Rating Factors
Rating Factor Schema
Financial Parameters
Non-Financial Parameters
Management Quality
Solvency Ratios
Liquidity Ratios
Profitability Ratios
Activity Ratios
Trend Analysis
Location Advantage
Marketing Network
 An exhaustive list of qualitative and quantitative factors considered for rating.
 Each financial parameter is benchmarked within its industry-size peer group
Legal Issues
Industry and Macro-Economic Assessment

16. Financial Benchmarking
Raw Financial Ratios
Relative Factor Score
D&B Industry
Benchmark
Database

17. Indicative Non-Financial Parameters
Shareholding
Management
Age
Marketing Network
Legal
Employee Count
Industry growth
Competitive forces
Industry Trade & Credit Terms
Each non-financial parameter is characterized by objective categories which is scored

18. Information Challenges & D&B’s Approach to Mitigate the Same
D&B’s Initiatives
Unwillingness to sharing information in the absence of Inquirer details.
Non-existence of National level central repository of information for Proprietorship and Partnership concerns which constitutes approx. 85% to 90% of business universe in India.
Filing requirements are not mandatory for Proprietorship and Partnership concerns.
Though mandatory under law, some private limited companies do not file or update relevant information / return with company registry which results into non-availability of the latest information.
In most cases, reluctance to share financial information, information pertaining to customers, suppliers, etc. though they generally share other operational or non-financial information.
Increasing pan-India correspondents to 30 from 18 that existed a year back.
Implementation of correspondents’ evaluation system – witnessing a marked improvement in Service levels.
Increasing awareness amongst SMEs on the benefits of figuring in D&B’s global database
Proactively refreshing data/information pertaining to frequently enquired companies
Migration of registry from physical to electronic format has resulted in increased efficiencies in the information gathering process.

19. NSIC - D&B - SMERA PC RATING SCHEME ENHANCED VISIBILITY & SALES
D&B: Global Advantage
EXPORTER / SSI
BANK
FINANCE
BETTER TERMS
NSIC - D&B - SMERA PC RATING SCHEME
BANK
D-U-N-S NUMBER
D&B GLOBAL DATABASE
ENHANCED VISIBILITY & SALES

20. Some Global companies that depend on D&B for evaluating suppliers

21. D&B Insights on Rating Assessments Carried Out

22. Region-wise spread of Rated SSIs
D&B has rated over 5,000 SSI units under the NSIC scheme since inception

23. State-wise spread of Rated SSIs
SSI clusters in Maharashtra and Tamil Nadu have been very receptive to the NSIC scheme
Third Tri-nations Summit for Small Business Development
19th Nov, 2008

24. Distribution of Rated SSIs based on Legal Status
The NSIC Scheme appears to be most popular among SSIs that are incorporated as Private Limited Companies

25. Distribution of Rated SSIs based on Sector / Line of Business –Top 80%
Top 3 Sectors/ Lines of Business of rated entities:
Industrial Machinery & Equipment
Fabricated Metal Products
Chemicals & Allied Products
Sectors/ Lines of Business are as per globally accepted Standard Industrial Classification Code

26. Distribution of Rated SSIs based on Sales Turnover
SSIs with higher sales turnover were early adopters of the NSIC Scheme
The NSIC Scheme is gradually gaining popularity among the other segments
Figures as per most recent financial statements provided by SSIs

27. Distribution of Rated SSIs by Employee Count
Nearly 50% of the Rated SSIs have more than 50 employees

28. Top 10 Export Destinations for Rated SSIs
Nearly 48% of the Rated SSIs are exporters

29. Customer Feedback

30. Customer Feedback
“I would like to take this opportunity to thank NSIC for initiating such a positive and encouraging scheme to every individual SSI unit across India. This scheme has clearly made me realize and analyse my strengths and areas of improvement after being in the business for more than 3 decades.”
Mr. Chinnraj, Director - Madras Hardtools Pvt. Ltd., Chennai

31. Customer Feedback
“Our experience of the rating process has been excellent and we are quite happy with the smoothness with which the entire procedure was completed by D&B”
Mr. Arun Goela, Dy. Managing Director & CEO Swastik Knits Pvt. Ltd., Noida

32. Thank You