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CIBIL MSME Rank (CMR)

The CIBIL Micro, Small and Medium Enterprise Ranking system is essentially used as a tool that helps financial institutions assess the credit risk associated with Micro, Small and Medium Enterprises (MSME) so that they can make informed lending decisions. It helps lending institutions understand the probability of a loan given to an MSME turning into a non-performing asset (NPA) over the course of the next 12 months. It also helps them understand the credit behaviour of MSME ventures as well as the chances of them defaulting by assigning a particular rank to them. It is applicable to those MSMEs that have borrowed anywhere between ₹10 lakh to ₹10 crore. The CIBIL MSME ranking system (CMR) provides the aforementioned ranks (which stay within the range of 1 to 10, where 1 being the best possible rank) to MSMEs on the basis of the credit behavior exhibited by them in the past.

How is CIBIL MSME rank calculated?

To calculate this score, algorithms are being used which have been based on the MSME’s credit history data. The TransUnion CIBIL is provided this data as shared by banks and other institutions, which it then uses to predict the chances of an MSME loan turning bad within the next 1 year. 

With a high enough CIBIL MSME rank, companies can opt for the best business loans available to them. Apply for a Bajaj Finserv Business Loan available on Finserv MARKETS. On Finserv MARKETS, loans of up to Rs. 30 Lakhs can be approved within 3 minutes. This loan can help you meet your business’ working capital requirements with the utmost of ease by letting you buy or repair machinery and even purchase raw materials required for your business.

Similar to how a Credit Score helps banks, financial institutions and other lending organisations easily assess a borrower’s creditworthiness, the CIBIL MSME rank aids these institutions in gauging an MSME’s financial health before handing over an MSME loan.

What Key Parameters are Used in CMR to Measure Credit Risk?

It must be noted that the MSME is analysed and then subsequently graded on the basis of a handful of parameters. They are as follows:

  1. Profile of Liquidity: The liquidity profile of a MSME borrower is judged by taking a look at the patterns of the utilisation of funds over the course of the past 2 years.

  2. Firmographics-based Observations: Firmographics are essentially descriptive attributes pertaining to an enterprise such as the maturity of the entity, type of ownership, the industry, and the location.

  3. Repayment Behaviour: The same is ascertained by making a month-on-month analysis of the payments that were made along with the classification of assets. These metrics are taken into consideration while determining the track record of the borrower.

After the aforementioned details pertaining to a firm are factored in, CIBIL assigns a rank on the basis of the model it has created for the ranking system in question. The model categorises the entity into broadly three categories, namely:

  1. CMR 1 to 3: A good track record and/or no amount overdue.

  2. CMR 4 to 7: Delinquent but never an NPA

  3. CMR 8 to 10: Good chance that the asset will turn into an NPA over the course of the next 2 years.

We will now take a look at each and every CMR ranking point that is assigned to such MSMEs and what they tell the lending institutions about borrowing patterns. You can find a table detailing the same below.

CIBIL MSME Rank

Meaning

What does it mean for CIBIL?

CMR 1

Lowest Possible Default Risk

Borrowers in this rank are expected to have the highest possible likelihood of servicing and fully repaying their credit obligations on time.

CMR 2

Very Low Risk of Defaulting

Borrowers in this rank are expected to have a very high likelihood of repaying their credit obligations on time

CMR 3

Low Default Risk

Borrowers that have this rank are expected to have a high likelihood  and probability of serving their credit obligations on time.

CMR 4

Significantly lower than the average risk of defaulting

Borrowers that have the CMR-4 rank are expected to have a much better ability to service credit obligations than the average borrower. Such borrowers carry lower-than-average credit risk.

CMR 5

Marginally lower than the average likelihood of someone defaulting

Borrowers that have this rank are only expected to be marginally better than the person that stands a fair chance of defaulting. These borrowers only have marginally lower-than-average credit risk.

CMR 6

Firly average Likelihood of defaulting

Borrowers in this rank are expected to have an average defaulting risk.

CMR 7

A higher than average likelihood of defaulting

Borrowers that have this particular rank are also expected to have a difficult time servicing their debt obligations than the average borrower.

CMR 8

A high likelihood of defaulting

Borrowers that have defaulted or been delinquent in the past, thus coming with a very high defaulting risk.

CMR 9

A very high likelihood of defaulting. Some financial institutions may also think that a default is imminent

Borrowers that have defaulted or exhibited delinquent behavior can, in all likelihood, default in the future as well.

CMR 10

Highest likelihood of defaulting or is already a defaulter

Defaulters of the past have the highest likelihood of continuing with the in-default status.

Features of CIBIL MSME Rank

Like the CIBIL score for individuals, the CIBIL MSME rank is also calculated with a lot of care. Read on to learn its different features, which make it invaluable for banks and other lending organisations.

  1. This credit risk rating is able to predict the possibility of an MSME turning into a non-profitable asset (NPA) within the time period of a year.

  2. The CIBIL MSME rank only comes into play for MSMEs that have aggregated commercial borrowings which range from between Rs. 10 Lakhs to Rs. 10 crore.

  3. To ensure the algorithm’s accuracy, the CIBIL MSME rank is trained with data of over 7 years which includes through-the-cycle (TTC) credit history, using machine learning algorithms.

  4. For any particular MSME, its CIBIL MSME rank is calculated on the basis of its credit history for the last 24 months.

Benefits of the CIBIL MSME Rank (CMR) System

  • The CMR system is an important part of the lending policies of most formal lending institutions. By implementing the ‘Green Channel’ and ‘Straight Through’ processing systems, institutions can pre-screen and identify the prospective borrowers with the lowest risk profile and reduce the overall turnaround time in terms of credit disbursals

  • The CIBIL MSME Rank system allows for a more efficient underwriting process by providing lenders with an objective interpretation of a borrower’s risk profile.This system is also used to set business loan interest rates on the basis of the risk profile. MSMEs that rank higher on CMR’s scale are usually granted business loans at lower interest rates.

  • The CMR system additionally enables risk-based digital lending. It also helps with the automation of loan renewal/enhancement decisions for lending institutions.

  • Finally, the CMR system also gives early warning signals with regards to the risk profile of the borrowers. This ensures lenders have enough time to monitor and review their lending portfolio.

MSMEs can now opt for top MSME loans, such as the Bajaj Finserv Business Loan, available on Finserv MARKETS. With Finserv MARKETS, your business  loan can be approved in 3 minutes and the money can be credited to your account in as little as 24 hours. If that’s not enough, getting a business loan is  even easier as there is no need for a collateral.

Bajaj Finserv Business Loans can be used to meet working capital requirements of your business and repaid over a flexible tenure ranging from 12 to 60 months. When you have a business loan with minimal documentation, instant approval and flexibility from a trusted provider, you needn’t look anywhere else.

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FAQs

  • ✔️How can I get CIBIL MSME rank?

    The CIBIL MSME Rank (CMR) helps banks, financial institutions and other legal lenders to assess the financial history of an MSME and evaluate its creditworthiness. To calculate this score, algorithms are being used which have been based on the MSME’s credit history data. A high CIBIL MSME rank is beneficial for MSMEs. Similar to how individuals with high CIBIL scores can easily avail loans owing to their high creditworthiness, a high CIBIL MSME rank ensures that MSMEs are never stuck for a lack of funds.

  • ✔️What is CMR in CIBIL?

    CMR is a credit risk rank for MSMEs that predicts the probability of an MSME becoming NPA in the next 12 months. CMR is applicable to MSMEs with aggregate commercial borrowings between INR 10 Lakhs and INR 10 Crores.

  • ✔️What is CIBIL rank?

    CIBIL Rank summarizes your Company Credit Report (CCR), which is a record of your company's credit history, based on data submitted to CIBIL by lending institutions. It is measured on a scale of 10 to 1, where 1 is the best rank. Your CIBIL Rank & CCR is an indication of your business loan eligibility.

  • ✔️What is the good score in CIBIL?

    These MSMEs are ranked from 1 to 10, where the CIBIL MSME Rank 1 represents the maximum creditworthiness and depicts the customer least likely to default on their loan.

  • ✔️How is CMR calculated?

    The major parameters that are used to calculate the CIBIL Rank are past repayment behavior and credit utilization. Credit Ratings are usually solicited by the ratee and then issued by the credit rating agency once it has evaluated documents provided by the company and interviewed the company's management.

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