1. © SME Business Outsourcing & Training Solutions LLP

2. Customer spectrum for Credit from Banks / FIs Small and Medium Enterprises Corporate Banking Retail Consumers 26 million MSMEs as per 2006-07 census (projected to have increased to 31 million in 2010-11) comprising of – micro (94.54%), small (4.89%) and medium (0.17%) enterprises 92.7% MSMEs do not have access to institutional finance IIP growth rate in MSMEs > organised sector growth rate Partnership & Family Owned Businesses (4%) Partnership & Family Owned Businesses (4%) Small & Medium Companies & others (1%) Top Tier Local and Global Corporates Top Tier Local and Global Corporates Large Local Corporates Individual Consumers © SME Business Outsourcing & Training Solutions LLP Individuals in Business (90%) Individuals in Business (90%)

3. Credit decision-making based on credit rating FROM…TO… Decision making based on past track record & security value Data analysis to understand what happened Decision that may be labeled as arbitrary Human judgment + understanding & measuring risk Analysis aimed to predict what happens next Decision making that is rational and consistent, incorporating analytical predictions © SME Business Outsourcing & Training Solutions LLP Credit Rating is a symbolic indicator of the current opinion on relative capability of timely servicing of debts & obligations as per terms of contract

4. Parameters – broad category © SME Business Outsourcing & Training Solutions LLP Rating methodology & approach adjusted towards assessment of risks and would vary dependent on the nature of credit or debt instrument – short / long term; vanilla product / structured credit; issue / issuer rating

5. Some Rating Parameters NON-FINANCIAL PARAMETERS FINANCIAL PARAMETERS Growth in top-line & bottom-line Operating Cash flows Accounting policies adopted & impact on financials if changed in the previous year Return on Capital Employed Asset turnover Liquidity ratios Operating Margin Financial Leverage Debt service coverage ratio Sensitivity analysis Time in business Succession Planning Management / Owners expertise Customer acquisition & retention Price volatility & who bears price risk? Material, Manpower, Power availability Concentration risks – customers / suppliers; dependencies & negotiating leverage Competitive advantage / weakness Other issues – compliances, legal disputes, strikes, past defaults, etc.

6. Challenges in engaging MSMEs by professionals © SME Business Outsourcing & Training Solutions LLP Fragmented geographically and characteristically; cost of client acquisition & servicing may be high in most cases Low paying capacity for services (or willingness?) Strong sense for value derived in return Decision making and operations highly concentrated; reluctance towards change Expectation of all financial services by single professional / firm Create value for money Bundling of services

7. Opportunities for Professionals © SME Business Outsourcing & Training Solutions LLP ImprovingGovernance BusinessObjectivesalignment Marketingethics ImprovingLegalstructure (LLP / OPC) ProtectingTechnology(Patents,Trademarks)FinancialGovernance Legal/Compliance Identify risks & mitigants Customer Service & Feedback Combination of all or even most of the above aids in improving overall performance & eventually the credit rating

8. Questions & Answers Thank you for your time rdubey@smebots.in 9820797397