CIBIL Rank: CIBIL Rank & Company Credit Report: Transforming access to credit for MSME business owners



Over the past few months, the overall credit deployed in the Indian Micro, Small and Medium Enterprises (MSME) sector has witnessed a
gradual recovery to pandemic levels

, with over
Rs 17.63 lakh crore deployed in April 2022
against Rs 16.17 lakh crore deployed in March 2022. A host of factors such as the various government policy interventions – including the

The Line of Credit Guarantee Scheme (ECLGS) until March 2023 and the extension of its guarantee from Rs 50,000 crore to full coverage of Rs 5 lakh crore – along with digitalization have contributed to this growth.

And yet, despite these signs of gradual recovery in credit to MSMEs, India’s MSME sector – which contributes around 30% of India’s GDP and generates almost 11.10 crores of jobs – faces various challenges when it comes to it’s about getting funding. Indian micro and small businesses, in particular, face even greater difficulties in accessing credit due to a lack of financial literacy, poor credit history and inadequate financial management systems.

TransUnion CIBIL leads various initiatives within the sector to increase credit awareness among MSMEs and provide them with information on their credit profile through
CIBIL classification and company credit report. It is a record of a business’ credit history and a measure of their loan eligibility and can help them access credit faster and at more affordable rates.

“India’s MSME sector is the backbone of India’s economy and has the potential to help realize the Indian government’s vision of making India a $5 trillion economy by 2025,” said said Sujata Ahlawat, Senior Vice President and Head of the Direct to Consumer (DTC) Interactive Division at TransUnion CIBIL.

“However, the fact remains that when it comes to obtaining finance, a key factor for growth, only a third of Indian MSMEs are served by the formal credit ecosystem. This is why, at Transunion CIBIL, we are committed to improving credit penetration in the Indian MSME sector by enabling MSMEs to acquire credit education. Ahlawat added.

CIBIL classification and company credit report (CCR)

CIBIL Rank and CCR provide lenders with information on the credit behavior of MSMEs to help lenders assess the business more objectively. These factors can in turn lead to lower interest rates and faster loan approvals for MSMEs with good credit history and CIBIL ranking. Often, lenders offer preferential interest rates to MSMEs with a CIBIL rating between 4 and 1. With these reduced interest rates, MSMEs can reap long-term benefits and increase their cash reserves. The closer an MSME gets to 1, the better their chances of getting a loan.

Credit history is one of the determining factors for financial institutions when lending money to MSMEs. Company Credit Report (CCR) is a record of a company’s credit history and is created from data submitted to CIBIL by credit institutions across India. CIBIL Rank summarizes a company’s credit history based on commercial credit report data. CIBIL Rank assigns a ranking to MSMEs based on their credit history, on a scale of 10 to 1, where 1 is the best ranking.

CIBIL Rank helps facilitate faster decisions by lenders as it helps lenders make more informed decisions by helping them to assess companies more efficiently and consistently and, therefore, speeding up the approval process loans for MSMEs.

In fact, the majority of companies that have obtained loans in recent years have had a CIBIL ranking between 4 and 1. This then raises another question: “how can one maintain a CIBIL ranking between 4 and 1?”


3 effective ways for MSMEs to build their CIBIL ranking


Here are three effective ways MSME business owners can achieve and maintain a high standard
CIBIL classification (between 4 and 1) for their businesses and improve their solvency

  • Ensure timely payments; avoid failing: It is critical for MSME owners to ensure that they make timely payments to all creditors within the agreed time frame, as lenders must report the corporate borrower’s repayment patterns to TransUnion CIBIL. MSME business owners should avoid payment defaults as it negatively affects their CIBIL ranking, while timely payments will help establish a better CIBIL ranking.
  • Apply for credit carefully: MSMEs should always remember to only apply for the amount their business needs and the amount they can safely repay. This will help them avoid getting stuck in a debt trap. Additionally, MSMEs are advised to review the formal lending landscape when applying for credit. Often, in their attempt to access loans faster and easier, MSME owners resort to alternative loan solutions with higher interest rates and collateral as collateral. Lenders in the formal credit space are more likely to make better loan deals based on the company’s credit history and ability to repay.
  • Regular verification of CIBIL Rank and CCR: It is essential for MSMEs to regularly check their CIBIL classification and their CCR as this reflects their financial health and repayment capacity. Constant monitoring of this report will help them track their creditworthiness and identify inaccuracies, if any, such as fraudulent transactions and misuse of business information.


Factors that influence the CIBIL ranking


There are a range of parameters that influence a company’s CIBIL ranking and CCR, such as loan repayment behavior – timely payments, defaults, overdue amount; liquidity profile – fund utilization rate, missed payments; and new lines of credit opened and the number of lines of credit used in the past.

CIBIL Ranking: Ensuring MSME Loan Readiness

For MSMEs to ensure their loan readiness, it is essential that they understand the importance of maintaining a strong CIBIL ranking, as the ranking system acts as a reputational guarantee, giving credit institutions and banks the necessary confidence to provide quick and affordable credit to MSMEs.

In conclusion, as we continue to see gradual signs of a recovery in overall credit extended to MSMEs, it will be imperative for MSMEs to have a solid financial foundation as well as build and maintain a strong credit history and solid structure.
CIBIL classificationso that they are better placed to access more profitable credit more quickly.

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