SMEDA Grant Evaluation System

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SME Credit Scoring Methodology

Understanding how your evaluation score translates into recommendations

Purpose

The SME Credit Scoring System translates both quantitative and qualitative business indicators into a standardized 1,000-point model. It provides a transparent, evidence-based way to assess the creditworthiness of manufacturing, services, and trade SMEs — sectors that are critical to Pakistan's economic growth but often face difficulty accessing finance due to limited collateral or credit histories.

1. Structure of the Scoring Model

Each SME is evaluated across five major dimensions. The points allocated to each reflect the relative importance of that dimension in predicting SME financial stability and repayment capacity.

Dimension	Description	Max Points	Reason for Weighting
Financial Health	Measures profitability, leverage, liquidity, and cash flow management.	300	Financial stability is the most direct and proven predictor of repayment ability.
Credit Behavior	Assesses banking history, loan repayment trends, and transaction discipline.	200	Past payment behavior is the strongest behavioral predictor of future reliability.
Market & Business Stability	Evaluates market position, supplier diversity, and industry outlook.	150	Markets define sustainability. SMEs in stable markets are more resilient.
Qualitative & Governance	Examines ownership transparency, registration, compliance, and management experience.	200	Strong governance signals lower operational risk in developing economies.
Operational Efficiency	Looks at production reliability, logistics, and human capital stability.	150	Operational bottlenecks directly affect delivery capacity and cash flow continuity.

2. Rating Classification

The total score maps to a star-based rating system that determines eligibility for grants, financing, mentoring, and training:

Score Range	Star Rating	Interpretation
760–1000	★★★★★	Strong – Recommended for Grant or Financing
610–750	★★★★☆	Satisfactory – Recommended for Mentoring
460–600	★★★☆☆	Moderate – Eligible for Training & Mentoring
310–450	★★☆☆☆	Weak – Training Recommended
Below 300	★☆☆☆☆	Very Weak – Not Eligible for Incentive

3. Why the Model Differs by Sector

Different industries carry different types of risk. To make scoring fair and realistic, the model adjusts the weighting of these five components for each SME sector.

Manufacturing SMEs

Weighting: Financial (35%) • Operational (25%) • Qualitative (15%) • Credit Behavior (15%) • Market (10%)

Rationale: Manufacturing relies on machinery, inputs, and supply chains. Thus, operational strength and liquidity are weighted higher.

Services SMEs

Weighting: Qualitative (30%) • Financial (25%) • Credit Behavior (20%) • Market (15%) • Operational (10%)

Rationale: Service businesses depend on people, relationships, and client retention — governance and management quality are critical.

Trade & Retail SMEs

Weighting: Credit Behavior (30%) • Financial (25%) • Market (25%) • Qualitative (15%) • Operational (5%)

Rationale: Traders face high transaction volume but low fixed assets. Their reliability in payments and inventory turnover drive credit risk.