SME Finance Policy Guide

G-20 SME FINANCE POLICY GUIDE
35
ers; concept of nonperforming; horizon for forecasting
model;
• Identification of potential variables: characterization of the
credit proponent; characterization of the operation;
selection of significant variables for the model; analysis
of the restrictions to be considered in relation to
the variables;
• Planning sample and data collection: selection and dimension
of the sample; collection of data; assembly of
the database;
• Determination of scoring formula through statistical techniques:
for example, discriminant analysis or logistic regression;
and
• Determination of the cut-off point from which the customer is
classified as delinquent or good payer: the point from which
the financial institution may approve the credit.
Some countries, such as India, have introduced SME
rating agencies and/or specialist PCBs as additional
institutions designed to generate and provide more
information to prospective lenders. This is a relatively
recent initiative that merits consideration by other
countries. There are some critical issues that need to be
revisited, such as the level of independence of the ratings
provider (like those observed in the case of credit
rating agencies). It is also possible that these agencies
require a critical size of market to break even and
become profitable. If this is the case, DFIs and governments
could consider regional solutions, involving
regional hubs that are large enough to dilute fixed costs,
but that also contain expertise at the country level.
The World Bank’s International Standards on Credit
Reporting (see Annex III) provide an internationally
accepted framework for credit reporting systems’
policy and oversight. They are intended to serve as a
guide for policymakers, regulators, banking supervisors,
credit reporting data providers, credit reporting
service providers, the users of the services, and individuals
whose data is stored in these systems. The standards
are based on the development of principles,
guidelines, and roles for each participant in the system
Example: SME Rating Agency of India
(SMERA)
India’s SMERA is the country’s first rating agency focusing
on the MSME sector, providing comprehensive ratings
for the use of financial institutions in the assessment
of credit. The government of India initiated the creation
of SMERA in 2005, in coordination with other stakeholders,
including 11 public and private financial institutions
exposed to SMEs, in order to improve credit flow
to the MSME sector. Diversified equity ownership by 11
banks enabled the lenders to accept SMERA’s ratings
and extend both financial and non-financial benefits to
well-rated SMEs. SMERA ratings categorize MSMEs
according to size, so that each MSME is evaluated
among its peers. The pricing policy aims to keep fees
affordable for SMEs. The rating fee does not exceed
USD 1,155, for which the government provides a 75 percent
rating fee subsidy. SMERA has completed over
6,500 ratings. The ratings have improved access to
bank financing for at least 20 percent of rated clients,
and collateral requirements have decreased in 10 percent
of rated cases. A rating renewal in 20 percent of
cases indicates usage of ratings for monetary benefit as
well as a self-improvement tool. By the end of 2011,
SMERA operations are expected to generate profits of
15 percent, and to have reached over 80,000 SMEs.
ensuring a comprehensive framework for the development
of an efficient, safe, and reliable national credit
reporting system.
Challenges and priorities for LDCs
In general, credit bureau coverage in developing
regions is much lower than the average of the OECD.
Credit bureau coverage in Sub-Saharan Africa and in
South Asia is particularly weak. However, the existence
of credit registries and bureaus seems to matter more
in developing countries, suggesting a more important
role for the government in promoting informationsharing
in these countries. 39
While the challenges faced in LDCs are often similar to
those of other markets, the barriers to sharing credit
39 Djankov, S., C. McLiesh, and A. Shleifer. 2007. “Private Credit in 129 Countries.” Journal of Financial Economics, May 2007, available at:
http://ideas.repec.org/p/nbr/nberwo/11078.html .