MSMEs Need Broad Access to Capital? Take Care of the Key Credit Score!

Director of PT Pefindo Credit Bureau or Idscore Wahyu Trenggono revealed tips for small and medium micro businesses (MSMEs) in Indonesia who want to have broad access to business capital. One of the keys is to maintain a business credit score.

"MSMEs must take care credit scoring (credit score), so that it remains good in the eyes of financial service institutions (LJK), so that when funds are needed, they can get the funds needed, this must be maintained," Wahyu said in the Now Understanding Credit # 4 event by IdScore, on Tuesday ( 23/11) ago.

A high quality and well-maintained credit score will open access for MSMEs to have many alternatives modal or funding. MSMEs can access financing with cheaper or competitive interest rates from various LJKs, both banks and non-banks.

“MSMEs will have many choices, they can go to any bank and get the funds we need. Now more and more FSI are implementing it risk-based pricing or risk-based pricing. If the risk is high, then you will be given higher interest too," said Wahyu.

What is a Credit Score and How Important is it for MSMEs?

The credit score is a system implemented by FSI to assess the feasibility of a borrower applying for a loan. Wahyu considers that a good credit score is very important for MSMEs in applying for credit.

In this process, prospective borrowers will be analyzed, starting from their personal data, age, employment status, position, years of service, salary, marital status, family burden, spouse's work (husband/wife), to loan history.

This credit score is not only important for MSMEs as potential debtors in need loan, but also for creditors or fund owners as a basis for consideration in providing loans.

Even so, Wahyu also provides advice for MSMEs that already have bad credit scores. How to improve a credit score can be done by paying attention to the six credit score indicators.

Six Credit Score Indicators You Must Know

Wahyu conveyed six indicators which are important aspects of a credit score. Among them are demographics, payment behavior, the latest debt status, credit utility, financial capability and operational management of the company.

Here's the explanation:

1. Payment Behavior

Wahyu said that the most influential indicator in credit assessment is payment behavior. This indicator is said to be the biggest contributor, namely 57% of the score.

Self-payment behavior can be seen from the debtor's discipline in making payments of both principal and interest on loans he has received from financial companies. “If we are diligent in paying on time and pay off loans 100%, then the value will be good, "explained Wahyu.

2. Latest Debt Status

Recent debt status is the second most influential indicator of credit rating. Its contribution is 33% of the score. "We'll see, does he have a debt position? Anywhere? This will also have an effect,” said Wahyu.

3. Financial Capability

The third indicator that has no less influence is financial capability. This indicator contributes 17% of the score. This financial capability is related to the source of income of the prospective debtor, for example from salary or other income.

4. Company Operational Management

Next, namely the company's operational management with an influence contribution of 12% of the score. Operational management is related to the management of the company. For example, judging by cash flow or in terms of financial ratios.

5. Demographics

Demographic indicators contribute 6% to credit rating. This demographic aspect is related to gender and age. Wahyu said there were differences in behavior between men and women, as well as between the old and the young.

6. Credit Utility

Finally, the credit utility indicator contributes 4% to the credit score assessment. The utility here is related to the history of using the credit limit that has been given. Prospective debtors who use 100% credit limit, have score which is better than debtors who use less.

The Current Situation of MSME Credit Scores

Wahyu said that currently there are still many MSMEs in Indonesia that have red credit scores. The reason is due to bad credit or credit bills that have not been or have not been paid off.

He revealed, of the 65 million MSMEs in Indonesia, only 3,73 million MSMEs received funding from financial service institutions, including banking, fintech, multi-finance and so on.

Of this amount, only 43% were able to get unsecured loans. Even though the government is very supportive of financing or credit for MSMEs. Meanwhile, LJK provides conditions for MSMEs to have a green credit score in order to gain access to business financing.

According to Wahyu, MSMEs have not optimally utilized existing capital opportunities. That way, he said MSMEs need to pay attention to their credit scores, so they can maximize the number of available financing facilities.

The number of FSI in Indonesia alone consists of more than 100 commercial banks, 30 regional development banks (BPD), 1600 people's credit banks (BPR), 250 companies finance, and more than 100 financial technology(fintech).