Entrepreneurship

Development

Faculty: Aakanksha Arora

 Why did these people turn entrepreneurs?

HENRY WALT
THOMAS A. ESTEE
HENRY FORD DISNEY
EDISON LAUDER
HEINZ

•Wanted a better quality of life

•Had a vision of the future
•Experimented & Constantly Improved their offer
•Sought help from others
•Ignored negative views
•Not deterred by setbacks
What are the rewards of being an
entrepreneur?

 High degree of independence – freedom from

constraints
 Get to use a variety of skills and talents

 Freedom to make decisions

 Accountable to only yourself

 Opportunity to tackle challenges

 Feeling of achievement and pride

 Potential for greater financial rewards

Entrepreneurship – A Definition
“Propensity of mind to take calculated risk with
confidence to achieve objective”
Process or activity of setting up a new venture (enterprise)
i.e. “a dynamic process of creating incremental wealth”

It requires a willingness to take calculated risks – both

personal and financial, and then to do everything possible
to reduce the chances of failure
Also includes the ability to build an entrepreneurial or
venture team to complement your own skills & talents
ENTREPRENEURSHIP Vs
ENTREPRENEURS
Entrepreneurship
 Process through which entrepreneurs create and grow
businesses.
Opportunity idea translation creativity

Entrepreneurs
People who create and grow enterprises
In the context of the creation of for-profit enterprises,
entrepreneur is often synonymous with founder
The term entrepreneur applies to someone who creates value by
offering a product or service in order to obtain certain profit
ORIGINS
• The word ‘entrepreneur’ is derived from the
French word enterprendre. It means “to
undertake.”

• The term “entrepreneur” was applied to

business initially by the French economist,
Cantillon, in the 18th century, to designate a
dealer who purchases the means of production
for combining them into marketable products.
MEANING
 An individual who bears the risk of operating a business
in the face of uncertainity about the future conditions.

An entrepreneur is a person who has possession of an

enterprise, or venture, and assumes significant
accountability for the inherent risks and the outcome.
She/He is an ambitious leader who combines land, labor,
and capital to often create and market new goods or
services.
 Entrepreneur

4 factors of production

Land

Labor organization

capital

New venture
WORKING DEFINITION

An entrepreneur is a person who combines various factors

of production, processes raw material, converts the raw
material into a finished product and creates utility and
sells the produce in the market to earn profit.
They can spot opportunities in change
CHANGES

Intermediaries

Demographic Technological
Economic Suppliers Natural

Publics
Company

Political Social
Legal Cultural

Competitors
Business opportunity is caused by interactions of societal
needs, entrepreneurial capabilities and resources
availability.

Entrepreneur is the one who innovates, raises capital,

assembles the input, chooses managers, sets the
organization into motion & manages processes using his
ability & skills

Entrepreneurs bring change which leads to higher

productivity and increased yields.
Entrepreneur = Manager

planning
interpreting
controlling
analyzing
JOSEPH A. SCHUMPETER

The entrepreneur in an advanced economy is an

individual who introduces something new in the economy:
a method of production not yet tested by experience in
the branch of manufacture concerned,
a product which consumers are not yet familiar,
a new source of raw material ,or
new markets, etc.
PETER DRUCKER
The Entrepreneur searches for change, responds to it, and
exploits it by redirecting resources to opportunities.
Therefore an Entrepreneur has
Vision
Organizing skill
Risk taking abilities
Innovation
Systematic Innovation is the specific tool of entrepreneurs, the
means by which they exploit change as an opportunity for a
different business or service.
E.E. HAGGEN

An entrepreneur is an economic man who tries to

maximise his profits by innovations.

Innovations involve problem- solving and

the entrepreneur gets satisfaction from using his
capabilities in attacking these problems.
HOW DO PEOPLE BECOME
ENTREPRENEURS?

By Necessity and Opportunity, By Default and Design

Triggered by ‘Social Disruption or Interruption”
Entrepreneurs are created in good and bad economic
times
Achievements and Financial Rewards for an Entrepreneur
Many begin but few make it..
WHY ENTREPRENEURSHIP

Economic Gain
To create self-employment and generation of
employment opportunity
Proper utilization of human potentiality
Economic development of backward regions
Eradication of regional imbalances
Characteristics of Successful
Entrepreneurs
 Characteristics of Successful Entrepreneurs

Risk taker
Determination Vision,
& creativity
Persistence and
innovation

Motivation to Entrepreneur Relevant

succeed skills and
expertise

No daunted by Spot and take

failure advantage of
opportunities
Passion
Skills of Successful Entrepreneurs

Research
 The ability to obtain all the necessary information to insure
that the best possible decisions are made.
Organization
 The ability to organize all the resources of the business in
order to make it run in the most efficient manner.
Coordination
 The ability to manage many different types of jobs and
responsibilities at the same time.
Evaluation
 The ability to examine important facts about the business
and to determine the least risky way to proceed
Factors that motivate
Entrepreneurs
Kinds of entrepreneurs
According to the type of business
1 Business entrepreneur
2 Trading entrepreneur
3 Service entrepreneur

According to the use of function/technology

1.Technical entrepreneurs:
a)High-Tech entrepreneur
b)Low-Tech entrepreneur
2.Non Technical entrepreneur
3.Professional entrepreneur
Kinds of entrepreneurs
According to the area
1 Urban entrepreneur
2 Rural entrepreneur

According to gender
1 Men entrepreneur
2 Woman entrepreneur
According to the scale of operation
1 Small scale entrepreneur
2 Large scale entrepreneur
TYPES OF ENTREPRENUERS
Others
1. Innovative entrepreneur
2. Imitating entrepreneur
3. Drone entrepreneur
4. Fabian Entrepreneurs
5. Active Partners
6. Simply Partners
7. Life timers.
Classification given by Clarence Danhof
Classification given by Clarence Danhof
Others
Micropreneurs
Not every person who starts a business has the
mission of making a lot of money and growing it to a
world-class business.
Some just want a simple balanced life-style while
doing the kind of work they enjoy doing. such
business owners are“Micropreneurs”
Intrapreneurship
You don’t have to leave your company to fulfill your
entrepreneurial dream
If you have the great entrepreneurial qualities and
spirit to convince your company to endorse you as
their intrapreneur, you need not leave them.
‘A person within a large corporation who takes
direct responsibility for turning an idea into a
profitable finished product through assertive risk
taking and innovation.’
Advantages of Intrapreneurship
To the Corporation
 To remain competitive,
companies have to accelerate
their innovation process.
 In companies where
researches, production people
and marketers are large,
innovation may be at risk.
 Intrapreneurship is a good way
of integrating these activities,
reducing innovation costs and
broadening the scope of
innovation.
To the Employee
 Intrapreneuring is an excellent
opportunity for creative
employees with entrepreneurial
spirit, management qualities,
and a sense of belonging to
their company.
 If companies don’t want to
loose these high-potentials,
they have to provide them with
necessary resources and room
for maneuver.
Technopreneur
 ‘Technopreneur’ was coined just a couple of years
back, to refer to Technology Entrepreneur. This
term appears to be most actively used in Singapore,
and to some extent also in Malaysia and Thailand.
 Technopreneurs are the ones who identify the
problems and capitalise on the opportunity.
 A Technopreneur has two major characteristics:
1. He does things NOT out of profits but because he
wants to innovate.
2. He is comfortable working with, or using,
technology.
Challenges in the Economy for
Entrepreneurship
Political
Economic :- Capital, Labour, Raw material
Environmental barriers: Resources
Social & Personal/psychological
Social: Status, Ambiguity, Conform to logic,
practicality, Respect for tradition.
Personal: emotion, failure, impatience,
family pressures.
Drawbacks of Entrepreneurship
Complete Responsibility
Must be prepared to make decision that are
unfavorable (swallow the bitter pill).
Must make decision in areas that the entrepreneur is
not familiar at all.
Fear of making decision that can have a devastating
effect on the business and its people.
Tremendous pressure to perform as the entrepreneur is
too deeply engaged in the business
Drawbacks of Entrepreneurship

Risk of losing your entire Investment

Small business have a high failure rate.
Though is successful initially it faces financial difficulty
within the next five years.
Entrepreneurs must be prepared to face the
consequence of failure.
Entrepreneurs must have acute sense of observation
and be able to detect the early signs of failure.
If a business fails the entrepreneur must have a
contingency plan to overcome a bankruptcy or personal
failure.
Drawbacks of Entrepreneurship

Lower Quality of Life until

the business gets established
In order for the business to be successful the
entrepreneur must engage himself to produce the kind
of result he expects.
He cannot rest on his laurels (take it easy) until and
certain the business has stabilized and established.
Drawbacks of Entrepreneurship

Uncertainty of Income
Opening and a running a business provides no
guarantee that an entrepreneur will earn enough
money and survive.
Engaging in the wrong business and not being able to
gain an advantage in the short run and eventually in the
long run can be disastrous.
Great effort and proper and effective management need
to used in beginning to ensure the organization success.
Drawbacks of Entrepreneurship

Long Hours and Hard Work

Entrepreneurs tend to be generally workaholic, and
under tremendous pressure to produce the result they
expect.
Entrepreneurs seldom find time to be away from the
business, they tend to pour all their effort and resources
to achieve their personal entrepreneurial objective.
Some even go to extent of making big sacrifice and
deprive themselves of a personal life, wife and children
and social and family associates.
Drawbacks of Entrepreneurship
High level of stress
Starting the business can be very rewarding experience,
but it can be stressful.
An entrepreneur has left the comfort and security of
secured job to venture into his/her own business.
Failure can bring about tremendous personal failure, and
in turn creates intense levels of anxiety and stress.
Financial burden may increase and the entrepreneur may
face difficulty in sustaining the business – he/she may
decide to call it for day and wind up the business for good.
Drawbacks of Entrepreneurship
Discouragement
To undertake a business requires a lot of dedication,
discipline and tenacity.
During running the business, one will face many
difficulties, obstacles which may difficult to overcome.
Further difficulties, discouragement and
disillusionment are common emotions.
Successful entrepreneurs escape through rough times
or difficult times through sheer hard work, self
confidence and full of optimisms.
Causes of Failure
Ten Deadly Mistakes of Entrepreneurship:
Management Mistakes
Lack of Experience
Poor financial control
Weak marketing efforts
Failure to develop a strategic and effective plan
Uncontrolled Growth
Poor location
Improper inventory control
Incorrect or unsuitable pricing
The inability of to move into entrepreneurial thinking
mindset from the previous secure permanent
managerial position held
Women Entrepreneurs
“An enterprise owned and controlled by a woman
having a minimum financial interest of 51 per cent
of the capital and giving at least 51 per cent of the
employment generated by the enterprise to
women.”
- Govt. Of india
Why they need to work
Push Factors
 Death of bread winner
 Sudden fall in family income
 Permanent inadequacy in income of the family

Pull Factors
 Women’s desire to evaluate their talent
 To utilize their free time or education
 Need and perception of Women’s Liberation, Equity etc.
 To gain recognition, importance and social status.
 To get economic independence
Factors influencing their decisions
Economic independence
Establishing their creativity
Own identity needs
Achievement
Building confidence
Develop risk taking
Motivation
Status
Freedom & mobility
Some examples
Mahila Gram Udyog
7 ladies started in 1959: Lijjat Pappad
Lakme
Simon Tata
Herbal Heritage
Ms. Shahnaz Hussain
Balaji films
Ekta Kapoor
Women Entrepreneurship in India
Earlier there were 3 Ks
 Kitchen
 Kids
 Knitting
Then came 3 Ps
 Powder
 Pappad
 Pickles
At present there are 4 Es
 Electricity
 Electronics
 Energy
 Engineering
Trends that supported women
Change in attitude
Break up of joint family
Higher education
Rising standard of living
Economic independence
Consciousness of their potential
Credit
Promotional activities of government
Micro, meso & macro environment
Challenges in the path of
Women Entrepreneurs
Socio Cultural Barriers
Lack of confidence – Dual Role to play
Non-awareness of facilities provided by government
Problems of finance & working capital
Production problems – lack of coordination
Competition with large scale units
Inefficient Marketing Arrangements – due to lack of
mobility
Work categories
Suggestions
Procedure of getting finance should be simple
Banks & FIs must maintain a minimum target of
loan to be disbursed to women entrepreneurs
Effective propagation of programmes and yojnas
Encouragement to technical and professional
education.
Effective use of IT
Home based business
Self Help Groups
“Small economically homogeneous and
significant group of urban/rural poor voluntarily
formed to save and mutually agreed to contribute
to a common fund to be lent to its members as
per group decisions.”
Enable the rural illiterate poor to earn their own
livelihood by making them self-dependent
2,60,000 SHGs in India with 20,000 in MP
Supportive Measures for Women’s
Economic Activities and
Entrepreneurship

Direct & indirect financial support

Yojnas and programmes
Differential rate schemes
E.g: Cent Kalyani
Technological training and awards
Federations and associations
CWEI, FIWE, FLO, WIT, SEWA, AWAKE
Direct & Indirect Financial
Support
Nationalized banks – NABARD
 ARWIND, MAHIMA
Small Industries Development Bank of India (SIDBI)
 Mahila Udyug Nidhi
 Mahila Udyam Nidhi
State Govt. Schemes for Dev of Women & Children in
Rural Areas (DWCRA)
State Small Industrial Development Corporations (SSIDCs)
State finance corporation
State industrial development corporation
District Rural Development Agencies (DRDA)
District industries centers
Forms of Ownership
Sole Proprietorship
Partnership
Limited Liability Partnership
Corporation
Hindu Undivided Family
Choosing a Form of Ownership

There is no one “best” form of ownership

The best form of ownership depends on an
entrepreneur’s particular situation
The key to choosing a form of ownership is
understanding how each form’s characteristics affect
an entrepreneur’s specific business and personal
circumstances
Factors to Consider
Tax considerations
Liability exposure
Start-up capital requirements
Control
Managerial ability
Business goals
Management succession plans
Cost of formation
Business owned and usually operated by
one person who is responsible for all of
its debts

56
Liability Features of the Basic Forms of Ownership

Sole Proprietorship
Claims
Claims of
of Sole
Sole Proprietor’s
Proprietor’s Creditors
Creditors

Sole
Sole Proprietor’s
Proprietor’s Personal
Personal Assets
Assets
Advantages and Disadvantages of Sole
Proprietorships
Advantages:
Simple to create
Disadvantages:
Low start-up costs Unlimited personal liability
Profit incentive Lack of continuity
Total decision- Limited access to capital
making authority Limited skills & abilities
No special legal
Feelings of isolation
restrictions
Easy to discontinue

58
Business with two or more owners who share
in both the operation of the firm and the
financial responsibility for its debt for the
purpose of making a profit

59
Advantages and Disadvantages of
Partnerships
Advantages: Disadvantages:
New talent & money Unlimited liability
stimulate growth Must file specific info
 Easier to borrow about business &
money partners
 Resources of more Internal conflict
than one individual Dissolves when
 Relatively easy to partner leaves or dies
form Difficult to transfer
Few legal requirements ownership
Tax benefits
 Partners are taxed as
individuals 60
 GENERAL PARTNERSHIP

Claims of Creditors

General Partner’s Partnership’s General Partner’s

Personal Assets Assets Personal Assets
 LIMITED PARTNERSHIP

Claims of Creditors

General Partner’s Partnership’s Limited Partner’s

Personal Assets Assets Personal Assets
2-62
1-62
2-62
 Business that is legally considered an entity
separate from its owners and is liable for its own
debts—owners’ liability extends to the limits of
their investments

63
Corporation
Corporations may:
Sue and be sued
Buy, hold and sell property
Make and sell products
Commit crimes and be tried and
punished for them

64
Advantages and Disadvantages of
Incorporation
Advantages: Disadvantages:
Take-over threat via
Limited liability
tender offer
Continuity High start-up costs
Easy to transfer Heavily regulated by the
ownership government
Ability to raise money Charter required
Double taxation

65
Comparative Summary: Three
Forms of Business

66
Arrangement in which a buyer (franchisee)
purchases the right to sell the product of
the seller (franchiser)

67
Advantages and Disadvantages of
Franchising
Advantages: Disadvantages:
 To Franchiser:  To Franchisee:
 Rapid growth by using  High start-up costs
investment money  Contribution of a
provided by franchisees percentage of sales to
 To Franchisee: parent corporations
 Business ownership
and access to big-
business management
skills
 Low failure rate

68
Joint Ventures and Strategic Alliances, ESOPs
and Institutional Ownership
Joint Ventures and Strategic Alliances
Strategic alliance occurs when two or more
organizations collaborate on a project for mutual
gain
Joint venture involves joint ownership of the new
venture
Employee stock ownership programs (ESOP)
allows employees to own a significant share of the
corporation through trusts established on their
behalf
Institutional Ownership
Institutional investor is a large investor that
purchases large blocks of corporate stock
69
Mergers, Acquisitions, Divestitures and
Spin-Offs
Mergers and Acquisitions (M&As)
Merger is the union of two corporations to
form a new corporation
Acquisition is the purchase of one company by
another
Divestitures and Spin-Offs
Divesture is a strategy whereby a firm sells one
or more of its business units
Spin-off is a strategy of setting up one or more
corporate units as new, independent
corporations
70
Micro, Small & Medium Enterprises
in India
PERFORMANCE AND CONTRIBUTION OF
MSMEs
13 Million MSMEs
> 8000 products

45% industrial
production
MSMEs 40% Exports

31 Million
Employment
 Micro, Small and Medium Enterprises
Development Act 2006 (MSMED)
MSMED Act 2006 was promulgated in order to :

1. remove impediments due to multiple laws

2. introduce statutory consultative and
recommendatory bodies on MSME policies
3. improve registration procedures of MSMEs
4. statutory basis for purchase preference and credit
policies
5. Improve realisation of payments of MSMEs
 Micro, Small and Medium Enterprises
Development Act, 2006

Salient Features
1. Industry replaced by enterprise which include service
enterprises also.
2. Ambit of sector enlarged to cover medium enterprises.
3. Constitution of MSME Board
4. Simplification of registration procedure
5. Policy of preferential procurement from MSMEs
6. Progressive credit support
7. Penalty for delayed payments
8. Provision for exit policy
MSME classification based on
investment limit in plant and
machinery:
Manufacturing Enterprises

Micro Rs. 2.5 million (US$ 56000)

Small Rs. 50 million (US$ 1.1 million)
Medium Rs. 100 million (US$ 2.2 million)

Services Enterprises

Micro Rs. 1 million (US$ 22000)

Small Rs. 20 million (US$ 0.4 million)

Medium Rs. 50 million (US$ 1.1 million)

 Institutional Support
Structure for MSMEs in India
At Federal Level At State Level
1. Ministry of MSMEs 1. Directorate of
Industries
2. Small Industries
Development 2. District Industries
Organisation Centres
(SIDO)
MSMEs 3. State Finance
3. National Small Corporation
Industries
4. State Industrial
Corporation(NSIC)
Development
4. Khadi & Village Others Corporation
Industries
1. Industry 5. Technical
Commission(KVIC)
Associations Consultancy
5. Coir Board Organisations
2. NGOs
6. Entrepreneurship 6. Entrepreneurship
Development 3. Banks/Financial Development
Institutions (EDIs) Institutions Institutions (EDIs)
MAJOR SCHEMES
FOR
MSME’s SUPPORT
 Credit Support

1. Public sector banks advised to double the flow of credit

to MSMEs within 5 years (20% annual growth)
2. A minimum of 40% of bank credit earmarked for
priority sector lending which includes loans to MSEs
3. Specialised SME Bank branches in industrial clusters
for smooth flow of credit to MSMEs
4. One Time Settlement (OTS) scheme for settling NPAs
of MSMEs
5. Interest band prescribed
 Performance and Credit Rating
Scheme
1. Helps MSMEs in accessing credits from banks &
financial institutions, orders from foreign buyers
2. Helps in assessing their strengths and
weaknesses.
3. Rating by one of the empanelled national or
international Rating agencies.
4. Government subsidises 75% of the cost of Rating
fee
5. Concessional credits from Banks/FIs to such rated
units
Credit Guarantee Fund for Small Enterprises

• Credit Guarantee Fund Trust for Micro & Small

Enterprises (CGFTSI) gives guarantee to its
Member Lending Institutions for their collatoral
free loans to MSEs upto INR 2.5 million (USD
64000).
• Initial guarantee fee at specified rate (1.5% ) of
the credit facility sanctioned shall be paid
upfront and thereafter annual fee.
• Provides comfort to the Banks and Financial
Institutions.
 Technological Support
1. Credit Linked Capital Subsidy Scheme for
Technology Upgradation
• Scheme meant to improve quality of products by technology
upgradation.
• Investment upto INR 10 million (US$ .250,000) eligible for
support with subsidy upto 15% on investment.

2. Technology Business Incubators for incubating

new enterprises
3. Testing Centres for Quality Certification
4. Tool Rooms and Training Centres for skill
upgradation
5. Incentive scheme for obtaining ISO Certification
by MSEs
 Marketing Assistance and Export
Promotion
1. Support for participation in trade fairs and
exhibitions – national as well as international
2. Training programmes on packaging for exports
3. Purchase preference in Government
procurement
4. Market Development Assistance Scheme for
publicity, market studies and adoption of
modern market practices
 Cluster Development Programme
• Grant upto 80% of Project cost with ceiling
of Rs.100 million to implementing agency
for:
 technology upgradation & productivity
improvement
 energy conservation & pollution
control
• Rs 1 million assistance for capacity
building activities without fixed assets
Entrepreneurship Development Programmes
Prime Minister’s Employment Generation
Programme – PMEGP

EDP Institutes

Incubators
International Cooperation Programme
Provides exposure to MSMEs to the latest
technologies, manufacturing practices prevalent
in their fields in different countries.

Encourages their participation in international

exhibitions for exports
Organizations for EDPs
National institute for entrepreneurship and small business development
(NIESBUD):-
It was established in 1983 by the ministry of industry. Its main
functions are
 Training strategies and methodology
 Formulating scientific selection prodecures
 Facilitating and supporting agencies engaged in Ed
 Developing training aids, manuals & other roots
Entrepreneurship development Institute of India(EDII)
 Promote micro enterprises at rural level
 Inculcate the spirit of “Entrepreneurship amongst youth”
 Participate in institution- building efforts
 Improve mangerial capabilities of small scale industries
Small industries development Organization (SIDO)

Recognizing the need for training in improving and

upgrading the skill of worker. SIDO has formulated many
training programs
 Appreciation course in industrial management
 Specialized course in the area of production, marketing, financial,
export and material management
 Adhoc incentive course on inspection and quality control, work study,
salesmanship

Indian Investment Center (IIC)

•It is responsible for promoting mutually rewarding joint
ventures and conducting EDP’s
•IIC setup an entrepreneurial guidance beurau to guide
entrepreneurs for establishment of new enterprise.
National Institute for Small Industry Extension and
Training (NISIET), Hyderabad

It was established in early 1950’s to provide training and

extension services.
Integrated training at Nilokheri provides technical
training to artisans, workers and entrepreneurs,
managers.
It organizes about 45 national and 15 international
programs every year.
 Small Industrial Bank of India (SIDBI)
It was established in April 1990 and earlier it was a wholly
owned subsidiary of IDBI.
The aim of SIDBI is too nurture entrepreneurs through
training, motivation and guidance. The EDP’s are normally of
six weeks duration
Agencies specialized in conducting EDP’s like entrepreneurs
development institute of India, Institute of entrepreneurship
development, center for entrepreneurship development,
technical consultancy organizations
A few specialized technical institutes liked central institute of
plastic engineering and technology, rural technology institute
have also been extended assistance of conduct of product
specific EDP’s.
Benefits of Rating to Banks
Target credit-worthy
SMEs for future Decrease bad debt
promotions Reduce exposure to
Increased approval High risk accounts
rates Increased
Credit Risk
Sanctions Management

Quickly handle
Ensure equal, objective
obvious approvals /
treatment of each Consistency Speed declines
applicant
Less data is required
Apply consistent,
to make accurate
objective decisions across
Efficiency decisions
the organization

Analysts only focus on

difficult accounts
Increase volume of
accounts
Benefits of Rating to SMEs
Credit rating assists in Greater willingness by
simplifying lending norms banks and financial
In some cases, collateral institutions to lend to better
requirements may also be credit profile SME
relaxed Simplified Fund borrowers
Norms Access

Information
Perception
asymmetry problems Speed Lower approval time
reduced Faster disbursement of
Credit funds based on 3rd part
terms independent ratings.

Interest rates linked to rating

of SME
Higher rated customers can
access funds at lower rates.
Lower transaction costs
NSIC Rating Scheme
Role of Ratings  National Small Industries Corporation
(NSIC) introduced the Performance and
Credit Rating Scheme in 2005.
 Under this scheme, the government,
through NSIC, subsidized rating fees to the
tune of 75%.
 D&B and other agencies were
empanelled under this scheme to rate SSIs.
 Under the scheme over 12,000 ratings
have been completed since inception of
which D&B India alone has carried out
about 50%.
 D&B India has consolidated its MSME
ratings with that of SMERA, a rating agency
jointly promoted by D&B India solely for
rating MSMEs.
 The new rating is called NSIC – D&B –
SMERA ratings
Rating Scale
RATING INDICATORS
Financial Strength

High Moderate Low

Highest SE 1A SE 1B SE 1C
High SE 2A SE 2B SE 2C
Performance
Capability Moderate SE 3A SE 3B SE 3C
Weak SE 4A SE 4B SE 4C
Poor SE 5A SE 5B SE 5C
 Rating Fees
Turnover Fees per Units Pay
Evaluation 25%
Upto Rs. 50 lacs Rs. 30,000/- Rs. 7,500/-
Rs 50 lacs – Rs Rs. 36,000/- Rs. 9,000/-
200 lacs
Above Rs 200 lacs Rs. 48,000/- Rs. 12,000/-
(Applicable service tax will be over and above the Rating fees and will be paid by the SSI unit only on the 25%
of the fees)
 

96
 Rating Process Flow
Request for
Interview and
site visit
Rating Request D&B Correspondents SSI

Conducts site
visit and
Questionnaire interviews
Management

Industry
Assessment and
Cluster data
Public Domain
Information
Rating D&B Documentation,
Site Visit
Model Database audited results
Assessment
and certified
Report
Third Party Data projections
– e.g. Litigation
Documents Obtained
Information
External Data Rating Analyst

Peer Review Final Rating

SSI Rating
 Factors Considered while Rating

Parameters of Rating

Financial Non-Financial
Management Quality
Solvency Liquidity Profitabilit Activity Location Advantage
Ratios Ratios y Ratios Ratio
Marketing Network
e.g. Debt-Equity Current Ratio RONW Asset- Legal Issues
turnove
r Industry and Macro-
Economic Assessment

Minimise lending risk thru ratings 98

Non-Financial Parameters

Minimise lending risk thru ratings 99

CRISIL : Credit Rating Information Services
of India Ltd.
Established in 1987, formed a strategic alliance with
Standard & Poor's Ratings Group, New York.
Operates on the basis of sectoral specialization
CRISIL Research is India's largest independent integrated
research house providing accurate and reliable research,
analysis and forecasts on the Indian economy, industries
and companies to over 500 Indian and international
clients across financial, corporate, consulting and public
sectors.
ONICRA : Onida Credit Rating Agency of
India Ltd.
Incorporated in 1993, an established player in the
individual credit assessment and scoring services space in
the Indian market.
Provides a Dynamic Customer-Focused solution that
bridges the gap between principals and their prospective /
existing customers
They provide a spectrum of services, which include the
services like Credit Rating, Associate Rating, Employee
Screening, SSI/MSME Rating, Customer Verification,
Lifestyle Analysis and Royalty Retention.
CARE: Credit Analysis and Research Ltd.

CARE Ratings has completed over 3850 rating assignments

having aggregate value of about Rs 8071 billion (as at December
2007), since its inception in April 1993. Securities and Exchange
Board of India (SEBI), Government of India (GOI) and Reserve
Bank of India (RBI) etc. recognize CARE.
CARE was promoted by major Banks/FIs (financial institutions)
in India. The three largest shareholders of CARE are IDBI Bank,
Canara Bank and State Bank of India. CARE, is set-up with two
divisions
The division has an established network of primary and
secondary sources, which enable the analyst to form unbiased
opinion on the industry segments. It has also developed
different methodologies for forecasting the future demand-
supply situation in a particular industry.
ICRA : Investment Information and Credit Rating
Agency of India Ltd.

ICRA Limited (An Associate of Moody's Investors Service)

was incorporated in 1991 as an independent and
professional company
ICRA is a leading provider of investment information and
credit rating services in India.
ICRA has been proactive in widening its service offerings,
executing assignments including credit ratings, equity
grading, specialized performance grading and mandated
studies spanning diverse industrial sectors.
SMERA
( Small & Medium Enterprise Rating
Agencies)
 Only rating agency dedicated to the SME segment
offering qualitative services at competitive prices.
Joint initiative of SIDBI, Dun & Bradstreet and 11 leading
banks operating in SME segment.
Launched on the 5th September 2005 by the Hon.
Finance Minister, Shri P Chidambaram.
Completed around 4800 ratings till date.

Greater acceptability in banks (MOU with 22 leading

banks). 14 Banks offer interest rate and security
concessions for well rated SMERA customers.
Highlights of SMERA Ratings
Provides ratings that are :
Neutral Risk Assessment
Independent
Conducts an exhaustive due diligence process
Comprehensive
Rating Rationale discussed with rated entities
Transparent

 Enables better understanding of SMEs by lenders while

taking credit decisions.
Benefits of SMERA Rating
 Third party credit rating helps in extending additional
comfort for internal decision making.
 Validation of the internal ratings.
 Intrinsic Strengths of SME units captured as model also
considers qualitative parameters in addition to financial
results.
 Strengthening of Credit Portfolio thru rating/review ratings –
early warning signals.
 Impact of industry related cyclical trend considered in rating.
 Cluster centric approach.

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