The recent initiative taken by the government to develop an internal credit assessment system for the Micro, Small and Medium Sized Enterprises (MSME) sector is a progressive move compared to the traditional methods used so far. While this step is forward looking, it also requires careful scrutiny. For years, MSMEs have been evaluated for credit on the basis of turnover or asset ownership, often leaving a significant number of businesses that do not have any formal account records excluded from the financial system.

I think the first advantage that I see is the consideration of digital footprints in evaluating creditworthiness. For small businesses who hardly have or are without formal accounting systems, this approach could offer a more comprehensive view of the entity’s financial health.

However, it’s not without certain valid concerns. While the system aims to streamline credit access, there is uncertainty about how well this new model will function in practice. These are enterprises who have long complained of financial burdens and limitations of third-party assessments we are talking about as such it is to be seen whether this revamped system will genuinely reduce the costs or lead to new complexities.