Small Industries Development Bank of India (SIDBI), has executed Memorandum of Understanding (MoU) with ONICRA Credit Rating Agency of India Limited (ONICRA) to provide ‘Loan Syndication Services’ (LSS) for facilitating flow of timely and adequate credit
Small Industries Development Bank of India (SIDBI), has executed Memorandum of Understanding (MoU) with ONICRA Credit Rating Agency of India Limited (ONICRA) to provide ‘Loan Syndication Services’ (LSS) for facilitating flow of timely and adequate credit to the MSMEs. The MoU was signed on May 30, 2013.
According to the press release issued by SIDBI, under LSS, the bank has put in place a suitable ecosystem in partnership with banks, rating agencies and accredited consultants. The bank has entered into MoU with seven leading public sectors banks including Bank of India, IDBI, Central Bank of India, Indian Overseas bank, State Bank of Bikaner & Jaipur, Dena Bank and United Bank of India and with six RBI approved credit rating agencies including SMERA, CARE, ICRA, CRISIL, FITCH and BrickWork Ratings.
Third party credit rating and assessment helps to create “trust” between players in financial markets that underpins transactions and trading. ONICRA plays a central and critical role in analyzing, assessing and rating various entities to enable transactions, the release said.
In India, more than 90% of the MSMEs are constituted as partnership/ proprietorship concerns, where investment in pure equity form is difficult. Further, SIDBI also understands that most of MSME businesses in India are family owned with value built over generations. Due to these reasons, Indian MSMEs find it difficult to dilute large part of ownership and control in favour of an external entity. Looking to this, SIDBI, based on best global practices, has come out with various innovative financial instruments for MSMEs of different sizes and constitutions which are treated as quasi-equity by SIDBI, the release further added.
It also said that subordinated capital is a highly popular instrument among MSMEs globally, with minimal equity complexities and simpler documentation and hence quick to deliver and less costly for MSMEs. It is provided on the strength of business, backing of cash flows rather than asset cover and collateral security.