Small and medium enterprises (SMEs) are going through a challenging phase with changes in technology, demonetization and trade policy disputes. SMEs contribute to the economic growth, employment generation and also to exports. Both government and financial institutions need to create ecosystem for SMES to cope up with existing challenges in fund raising, marketing, cost and operations management, technology up gradation and sustain the business. Rating by the external agencies is another cost and also the challenge faced in case of a downgrade by a rating company.
Lack of knowledge and resources make SME susceptible to rating upgrade or downgrade. It is obvious that the risks and the business insights are known to the company internally compared to an external agency pointing out and that too for a fee in terms of a consultancy or rating fee. For Compliance and regulatory requirement, external rating is a must. However, this SME risk assessment tool presents a simple way to have self-assessment of SME before approaching the rating agency. This has two-way benefit in terms of developing internal confidence in performance of the company and risks associated with it and SME can challenge and argue if the external rating agency gives a contrary report.
The tool is developed taking into account five categories of risks namely management, business environment, financial, macroeconomic environment, and regulatory environment. Within each of these risks the sub-factors are identified and quantified. Scoring model will have dynamic weights to all the attributes and comes out with a 8 point scale as per the Basel Norms. This tool helps SME internally for using and tracking the score over a period of time. For a researcher, through a survey or field visit can capture the information and analyze to get insights into the performance of SMEs and associated risks.
