Small and Medium Enterprises (SMEs) play a key role in a country's economy. They are like its blood vessels. Though the policy-makers have realized the importance of SMEs, they have hitherto done little to address the SMEs' real concerns. Lack of timely and adequate finance has been counted by such enterprises as the biggest bottleneck. The reasons for low SME credit penetration include insufficient credit information, low market credibility, etc. This necessitates an awareness campaign on credit availability and also a comprehensive, transparent and reliable rating of SMEs.

The Small and Medium Enterprise (SME) rating is a new concept in India and many prominent rating agencies have very recently started providing customized rating services to the SMEs. Credit rating provides many advantages to companies over their competitors. Some of them are: a) Credibility with banks, b) Confidence-building with business partners, c) Self-improvement, d) Improved visibility in the marketplace and so on. A SME, once rated favorably, can access larger credit on a favorable interest rate from commercial banks. Rating also helps the SME in understanding the lacunas in the current business practices and it can work on improving the same.

Of late, the Indian government is taking steps for SME development through initiatives like the setting up of SME Rating Agency (SMERA) by the Small Industries Development Bank of India (SIDBI), provision of 75% discount on rating fee by the National Small Industries Corporation (NSIC) to registered SMEs and favorable credit terms to positively-rated SMEs. With the arrival of Basel II norms, it is mandatory for the banks to get their SME customers rated by an external rating agency.

Treasury Management Magazine, Credit Rating, Small and Medium Enterprises, SMEs, Small Industries Development Bank of India, SIDBI, Credit Ratings Agencies, Credit Rating Information Services of India Limited, CRISIL, Onicra Credit Rating Agency of India Limited, Risk Management, Financial Risk Assessment.