Learn how CIBIL MSME Rank impacts credit access, its benefits, how to improve it, and how to check your ranking.
Micro, Small, and Medium Enterprises (MSMEs) contribute a significant amount to the Indian economy. They provide ample employment opportunities and contribute to the GDP. MSMEs need a timely and adequate amount of credit for growth and sustainability. To facilitate this credit, TransUnion CIBIL has introduced something known as the CIBIL MSME Rank (CMR), which is designed to assess the creditworthiness of an MSME. Understand the calculation and significance of this rank and learn how MSMEs can leverage it for better financial avenues.
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Understanding CIBIL MSME Rank (CMR)
The CIBIL MSME Rank is a credit risk assessment metric introduced by TransUnion CIBIL, which is specifically made for MSMEs. This helps with evaluating creditworthiness by analysing different factors such as credit history, repayment behaviour, and other financial parameters. The CIBIL MSME Rank ranges from CMR-1 to CMR-10, with CMR-1 indicating the lowest risk of default while CMR-10 represents the highest. This ranking system can help a lender evaluate a company’s credit profile and make an informed decision when extending credit to MSMEs.
Calculation of CIBIL MSME Rank
A strong MSME Rank can help an enterprise gain access to credit and better financing terms. This provides lenders with a risk assessment method, which can help them make an informed lending decision. Here are the key factors that can influence the calculation of CMR:
Payment History
Making timely repayments can help improve your rank, while late payments or defaulting can lower it since they indicate financial distress.
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Credit Utilisation
Using a lower percentage of your available credit can suggest financial stability, which can improve this rank, while excessive utilisation may indicate higher risk.
Outstanding Debts
A high level of unpaid debt can have a negative impact on the rank since it is an indicator of financial strain and an inability to repay.
Loan Defaults
A prior history of defaulting can significantly lower this rank since it suggests a higher risk of non-repayment for lenders.
Business Stability
A steady operational track record and consistent revenue generation can help improve this rank by indicating financial reliability.
Trade Credit Usage
Efficient usage of trade credit can help manage working capital positively and influence the rank by demonstrating efficient financial planning.
Understanding Different CIBIL MSME Ranks and Their Significance
The CIBIL MSME Rank helps classify a business into ten levels based on its creditworthiness and the risk it poses to lenders. This ranking helps financial institutions assess the repayment capability of an MSME, which streamlines loan approvals. Here is a breakdown of CIBIL MSME Ranks, along with an explanation for each rank:
| CMR Rank | Risk Level | Explanation |
| CMR 1 | Lowest Risk | A business in this category has an excellent repayment history, strong financial health, and minimal risk, which makes it highly preferable to lenders |
| CMR 2 | Very Low Risk | These MSMEs demonstrate creditworthiness with minimal risk, which allows them to secure loans easily at favourable interest rates |
| CMR 3 | Low Risk | A business in this rank has stable finances and a good repayment pattern, though it may have minor financial concerns |
| CMR 4 | Below Average Risk | MSMEs in this range may be moderately stable but may face occasional delays and operational challenges |
| CMR 5 | Moderate Risk | These businesses have average creditworthiness which require lenders to assess them carefully before offering credit |
| CMR 6 | Higher Than Moderate Risk | MSMEs in this category may struggle with financial stability while showcasing inconsistent repayments, along with a higher probability of defaulting |
| CMR 7 | High Risk | A business in this range may frequently delay payments, which makes it less attractive to lenders and subject to higher interest rates |
| CMR 8 | Very High Risk | An MSME at this level indicates poor credit history, multiple defaults, and limited access to financial assistance |
| CMR 9 | Extremely High Risk | These businesses face severe financial distress, frequently default, and have very low chances of getting approved for a loan |
| CMR 10 | Highest Risk | MSMEs under this category are in critical status and have an extremely high probability of defaulting, which makes it nearly impossible for them to access credit |
Benefits of a Good CIBIL MSME Rank
A strong CIBIL MSME Rank can significantly improve a business’s financial prospects, making it easier to secure credit. Here are some of the benefits:
Improved Loan Approval Chances
A lower CMR can increase the odds of loan approval as it signals a lower risk of default, which makes lenders willing to extend credit.
Better Loan Terms
An MSME that is close to rank 1 may receive favourable lending terms, which can include lower interest rates and longer repayment period.
Increased Trust
Lenders are much more confident in MSMEs with a good CMR, which can help facilitate stronger partnerships and easier access to different credit facilities.
Enhanced Business Opportunities
A strong rank can open doors to collaborations, government tenders, and contracts that require a reliable credit profile.
Faster Loan Approvals
A favourable CMR can streamline the loan assessment process, allowing a lender to make quicker lending decisions.
Lower Interest Rates
A business with a high CMR may qualify for reduced interest rates, which can help with long-term cost savings when borrowing.
Stronger Business Reputation
A strong CMR can help enhance the MSME’s credibility in the market, making it easier for them to attract investors and customers.
Better Negotiation Power
A good CMR allows a business to negotiate better lending terms, which include a higher credit limit, flexible repayment options, and a reduced requirement for collateral.
How to Improve Your CIBIL MSME Rank
An MSME can improve its CMR by adopting the following practices:
Timely Repayments
Ensure all loan instalments and credit payments are made on or before the due date.
Maintain Optimal Credit Utilisation
Keep credit utilisation ratios within acceptable limits, avoiding over-leveraging.
Regularly Monitor Credit Reports
Periodically review credit reports to identify and rectify discrepancies or errors.
Diversify Credit Mix
Maintain a balanced mix of credit types, such as term loans and working capital loans, to demonstrate financial stability.
Establish Long-term Credit Relationships
Build and maintain long-standing relationships with financial institutions to showcase reliability.
How to Access Your CIBIL MSME Rank
MSMEs can access their CMR by following these straightforward steps:
- Visit the official TransUnion CIBIL website
- Head over to the section related to MSME credit reports and services
- You will need to provide details related to your business, such as its name and GST number, along with other details
- You will need to pay a nominal fee to access this report
- Once you have access to these reports, you will need to carefully understand your creditworthiness.
In case you find any errors or discrepancies in the report, you can directly dispute them with CIBIL to have them rectified immediately.
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