CRAB’s ratings on small and medium enterprises (SMEs) reflect the rated entities’ overall creditworthiness, adjudged in relation to other SMEs. These ratings are entity-specific, and not specific to debt issuances. The SME sector has its own unique features: unlike the large corporates, the SME sector has no organized information on industries, market shares, competition dynamics, and promoter or management track record. The creditworthiness of entities in the sector, therefore, needs to be assessed using tools and methods that are different from those traditionally used for large corporates. CRAB’s SME Ratings group has evolved a robust framework for the credit assessment of SMEs, reflecting the learnings gained from CRAB’s ratings and research experience of about a decade.While Rating SMEs (including Micro Enterprises), CRAB evaluates factors such as the candidate SME’s management, ownership, organisation structure, key human resources, business environment, relationships with trade partners, financial strength, operating efficiency and capabilities, and other non-financial parameters that may have a bearing on its creditworthiness. Among other things, a CRAB-SME Rating seeks to bridge the “information gap” that a lender may face while evaluating a credit proposal made by an SME. The CRAB SME Rating Scale is linear, which makes it easily comparable with the internal rating scales of most banks.CRAB’s credit rating methodology for evaluating SMEs is comprehensive and covers risk in five broad categories: (a) Industry (b) Business & Operation (c) Management and (d) Financial along with (e) Project specific assessment. The risk may vary based on the industry and or cluster it belongs, where CRAB will
adjust the parameters accordingly.
